SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-K/A
          AMENDED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2003
                         Commission file number 0-23044

                               MOTIENT CORPORATION
             (Exact name of registrant as specified in its charter)

                  DELAWARE                              93-0976127
      (State or other jurisdiction of                (I.R.S. Employer
       incorporation or organization)              Identification No.)

                            300 Knightsbridge Parkway
                             Lincolnshire, IL 60069
                                  847-478-4200
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (847) 478-4200

        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:
                     Common stock, $0.01 par value per share

                                (Title of class)

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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [_] No [X]

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 amendments to
this Form 10-K. Yes [X] No [_]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [_] No [X]

The aggregate market value of shares of common stock held by non-affiliates at
June 30, 2004 was approximately $200,051,042.

Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes [X] No [_]

Number of shares of common stock outstanding at June 24, 2004: 29,773,994

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None



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                                EXPLANATORY NOTE
                                ----------------

This Amended Annual Report on Form 10-K/A (this "Amendment") has been filed to
amend certain disclosures in response to comments received on our Annual Report
on Form 10-K for the fiscal year ended December 31, 2003, that we originally
filed on July 2, 2004, (the "2003 10-K") from the Securities and Exchange
Commission. In order to preserve the nature and character of the disclosures set
forth in the 2003 10-K as originally filed, unless otherwise indicated, this
Amendment does not speak to, or reflect, events occurring after the original
filing of our 2003 10-K on July 2, 2004. For ease of review of the reader, we
have filed a restated 2003 10-K, as amended by this Amendment, in its entirety.

All information contained in this Amendment shall be deemed updated or
superseded, as applicable, by the reports (including any amendments to such
reports) we have filed and will file, with the SEC subsequent to the original
filing of our 2003 10-K. You should read this Amendment together with these
subsequent reports for updated disclosures on certain matters discussed in this
Amendment.

References in this report to "Motient" and "we" or similar or related terms
refer to Motient Corporation and its wholly-owned subsidiaries together, unless
the context of such references requires otherwise.





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<TABLE>
                                TABLE OF CONTENTS

                                                                                                               Page
                                                                                                               ----
                                     PART I

<S>                                                                                                            <C>
Explanatory Note                                                                                                 2
Cautionary Note Regarding Forward-Looking Statements                                                             4
Item 1.     Business                                                                                             5
Item 2.     Properties                                                                                          43
Item 3.     Legal Proceedings                                                                                   43
Item 4.     Submission of Matters to a Vote of Security Holders                                                 44

                                     PART II

Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters                               45
Item 6.     Selected Financial Data                                                                             47
Item 7.     Management's Discussion and Analysis of Financial Condition and                                     50
            Results of Operations
Item 7A.    Quantative and Qualitative Disclosures About Market Risk                                            87
Item 8.     Financial Statements and Supplementary Data                                                         87
Item 9.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure                                                                                87
Item 9A.    Controls and Procedures                                                                             88

                                    PART III

Item 10.    Directors and Executive Officers of Motient                                                         92
Item 11.    Executive Compensation                                                                              95
Item 12.    Security Ownership of Certain Beneficial Owners and Management and
            Related Stockholder Matters                                                                        102
Item 13.    Certain Relationships and Related Transactions                                                     105
Item 14.    Principal Accountant Fees and Services                                                             108

                                     PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K                                    109

Signatures                                                                                                     118
Financial Statements of Motient Corporation                                                                    F-1
Financial Statements of XM Radio                                                                               X-1
Financial Statements of MSV                                                                                    M-1
</TABLE>




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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Amendment contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements regarding our expected
financial position and operating results, our business strategy and our
financing plans are forward-looking statements. These statements can sometimes
be identified by our use of forward-looking words such as "may", "will",
"anticipate", "estimate", "expect", "project", or "intend". These
forward-looking statements reflect our plans, expectations and beliefs and,
accordingly, are subject to certain risks and uncertainties. We cannot guarantee
that any of such forward-looking statements will be realized.


Statements regarding factors that may cause actual results to differ materially
from those contemplated by such forward-looking statements, or cautionary
statements, include, among others, those under the captions "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview" and "Risk Factors," and elsewhere in this report, including in
conjunction with the forward-looking statements included in this report. All of
our subsequent written and oral forward-looking statements (or statements that
may be attributed to us) are expressly qualified in their entirety by the
cautionary statements referred to above and contained elsewhere in this report.
You should carefully review the risk factors described in our other filings with
the SEC from time to time, including our quarterly reports on Form 10-Q which
will be filed in the future, as well as our other reports and filings with the
SEC.


Our forward-looking statements are based on information available to us today,
and we do not undertake any obligation to update these statements. Our actual
results may differ significantly from the results discussed.





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                                     PART I

Item 1. Business
----------------

Overview


We are a nationwide provider of two-way, wireless mobile data services and
mobile Internet services. Owning and operating a wireless radio data network
that primarily provides wireless mobile data service to customers across the
United States, we generate revenue from the sale of airtime on our network and
from the sale of communications devices, which are manufactured by other
companies, to our customers. Our customers use our network and our wireless
applications for wireless email messaging and wireless data communications
services. This enables businesses, mobile workers and consumers to wirelessly
transfer electronic information and messages and to wirelessly access corporate
databases and the Internet. Our network is designed to offer a broad array of
wireless data services, such as:

     o    two-way mobile Internet services, including our own eLinkSM wireless
          email service and our BlackBerry(TM) by Motient wireless email
          service, each providing personal consumers and corporate customers
          with wireless access to a broad range of email and information
          services;

     o    wireless data systems used by companies involved in data transmission
          and processing, used to connect remote equipment, such as wireless
          point-of-sale terminals, with a central monitoring facility; and

     o    mobile data and mobile management systems used by transportation and
          other companies to wirelessly coordinate remote, mobile assets and
          personnel.

Our eLink service is a two-way wireless email device and electronic organizer
that uses our network. It allows users to remotely and wirelessly access their
email, and allows users to synchronize the calendar and organizer functions of
their desktop computer with a handheld device such as a RIM 850 or 857 Wireless
Handheld, a small, data-only wireless handheld device. Although Research In
Motion, Ltd., or RIM, has discontinued making these models, Motient continues to
purchase limited quantities of RIM 857 devices, and Motient has implemented an
"equivalent to new" program pursuant to which we purchase and refurbish used RIM
857 devices. We expect that there will be sufficient returned RIM 857 and 850s
to satisfy demand for the foreseeable future. Even if there is a sufficient
supply of these devices, however, our rights to use and sell the devices, as
well as the BlackBerryTM software, may be limited or made prohibitively
expensive as a result of a pending patent infringement lawsuit brought against
Research In Motion. Motient cannot use newer RIM devices on our network.

We also offer a BlackBerryTM by Motient solution specifically designed for large
corporate accounts operating in a Microsoft(R) Exchange and Lotus Notes(R)
environment. BlackBerryTM is a popular wireless email application developed by
RIM and is being provided on the Motient(R) Network under an agreement with RIM.

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As of June 15, 2004, Motient's terrestrial wireless two-way data network covers
a geographic area populated by more than 225 million people and is comprised of
over 1,200 base stations (radio transmitters/receivers that interconnect to our
network) that provide service to over 475 of the nation's largest cities and
towns, including virtually all metropolitan statistical areas. Subscriber units,
which may be mobile or stationary, receive and transmit wireless data messages
to and from these terrestrial base stations via radio frequencies. Terrestrial
messages are then routed to their destination via data switches that Motient
owns, which connect to the public data network. Motient's network is a wireless
packet-switched network based on technologies developed prior to newer networks
built around CDMA or GSM technologies, and, unlike those networks, cannot
accommodate wireless telephony as currently installed. Motient is in the process
of rationalizing its network to remove unprofitable base stations that may
impact this coverage. (See "Management's Discussion & Analysis of Financial
Condition and Results of Operation - Cost Reduction Actions").

As of December 31, 2003 and March 31, 2004, there were approximately 204,000
user devices and 194,000 user devices, respectively, registered and 115,000 user
devices and 108,000 user devices, respectively, with active usage on Motient's
network. As of December 31, 2002 and 2001, there were approximately 262,000 user
devices and 250,600 user devices, respectively, registered on Motient's network.
Registered devices represent devices that our customers and resellers have
registered for use on our network. These devices may be kept in inventory by our
customers for future use, in which case they are not generally revenue
producing. We count a device as active when it is removed from inventory by the
customer and transmits data traffic.

We are a Delaware corporation with our principal executive offices located at
300 Knightsbridge Parkway, Lincolnshire, Illinois 60069. Our principal executive
offices were formerly located in Reston, VA, but in July 2003, we substantially
completed the move of our corporate headquarters to our present facility. Our
telephone number is (847) 478-4200. You may find all of our public filings with
the Securities and Exchange Commission in the "Investor Relations" section of
our website, www.motient.com.

As of July 1, 2004, we have six wholly-owned subsidiaries and a 29.5% interest
(assuming conversion of all outstanding convertible notes) in Mobile Satellite
Ventures LP (MSV), a provider of wireless, satellite-based, communications
services. As Motient owns less than 50% of MSV, Motient has no operating control
of MSV. For further details regarding MSV, please see "Mobile Satellite
Ventures" below. Our subsidiary, Motient Communications Inc. owns the assets
comprising Motient's core wireless business, except for Motient's Federal
Communications Commission, or FCC, licenses, which we hold in a separate
subsidiary, Motient License Inc. Motient License was formed on March 16, 2004,
as part of our amendment of our credit facility, and is a special purpose
wholly-owned subsidiary of Motient Communications that holds all of the FCC
licenses formerly held by Motient Communications. A pledge of the stock of
Motient License, along with other assets of Motient Communications, secures
borrowings under the term credit facility. For further details regarding the
formation of Motient License, please see "Recent Developments - Credit

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Facility". Our other four subsidiaries hold no material operating assets other
than the stock of other subsidiaries and Motient's interests in MSV. On a
consolidated basis, we refer to Motient Corporation and its six wholly-owned
subsidiaries as "Motient," "we," or "us."


Recent Developments

Cost Reduction Initiatives

During the fourth quarter of 2002 and the first quarter of 2003, we renegotiated
several of our key vendor and customer arrangements in order to reduce recurring
expenses and improve our liquidity position. In some cases, we were able to
negotiate a flat rate reduction for continuing services provided to us by our
vendors or a deferral of payable amounts, and in other cases we renegotiated the
scope of services provided in exchange for reduced rates or received
pre-payments for future services. For more information on our negotiations with
certain vendors and customers, please see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview and Introduction --
Cost Reduction Actions."

Since December 31, 2003, we have taken a number of steps to continue to reduce
our operating and capital expenditures in order to lower our cash burn rate. For
example, in February 2004, we reduced our staffing levels from approximately 166
to 112, a reduction of approximately 32.5% of our then-remaining workforce. In
addition, we are currently in the process of assessing our wireless data network
in a coordinated effort to reduce network operating costs while also focusing on
minimizing the potential impact to our customers communications and coverage
requirements. This rationalization encompasses, among other things, the
reduction of unneeded capacity across the network by deconstructing
under-utilized and un-profitable base stations as well as deconstructing base
stations that pass an immaterial amount of customer data traffic. In some cases,
these base stations were originally constructed specifically to serve customers
with nationwide requirements that are no longer customers of Motient. In certain
instances, the geographic area that our network serves may be reduced by this
process and customer communications may be impacted. We have discussed these
changes to our network with many of our customers to assist them in evaluating
the potential impact, if any, to their respective communications requirements.
The full extent and effect of the changes to our network have yet to be
determined. For further information regarding cost reduction actions, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview and Introduction -- Cost Reduction Actions."

Effective January 30, 2004, we hired Communications Technology Advisors LLC, or
CTA, to serve as "Chief Restructuring Entity" and advise us on various ways to
reduce our cash operating requirements. CTA's engagement is for six months but
may be extended at the Company's discretion. For further details regarding CTA's
engagement, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview and Introduction - CTA
Arrangements."

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<PAGE>

Management and Board Changes

On June 15, 2004, the board of directors designated Raymond L. Steele and
Jonelle St. John as the board's financial experts.


On May 24, 2004, the board of directors designated Myrna J. Newman, the
Company's controller and chief accounting officer, as our principal financial
officer.

Also on May 24, 2004, the board of directors elected Christopher W. Downie to
the position of executive vice president, chief operating officer and treasurer.
Mr. Downie remains our principal executive officer.

On May 6, 2004, the board of directors elected Raymond L. Steele to serve as a
member of the board. They also elected him to our Audit Committee.

On May 6, 2004 the board of directors elected Robert L. Macklin to the position
of general counsel and secretary.


On March 18, 2004 the board of directors elected Christopher W. Downie to the
position of executive vice president, chief financial officer and treasurer, and
designated Mr. Downie as the Company's principal executive officer.

On February 18, 2004, Daniel Croft, senior vice president, marketing and
business development, and Michael Fabbri, senior vice president, sales, were
relieved of their duties as part of a reduction in force.


On February 10, 2004, our board of directors and Walter V. Purnell, Jr. mutually
agreed to end his employment as president and chief executive officer.
Concurrently, Mr. Purnell resigned as our director and of MSV and all of its
subsidiaries.


History


We were formed in 1988 under the name "American Mobile Satellite Corporation" to
construct, launch and operate a mobile satellite services system to provide a
full range of mobile voice and data services via satellite to land, air and
sea-based customers subject to local regulation. During 1995, we successfully
launched our first satellite and initiated commercial voice service. In late
1996, we expanded our mobile data business through the acquisition of Rockwell
International Corporation's dual mode mobile messaging and global positioning
and monitoring service for commercial trucking fleets.

In March 1998, we acquired Motient Communications, formerly ARDIS Company, from
Motorola and combined the ARDIS terrestrial-based business with our
satellite-based business to offer a broad range of integrated end-to-end
wireless solutions through two network configurations, either a "satellite-only"
service network or a "multi-mode" terrestrial and satellite service network.

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Following operation of a joint network for three years, we decided to base our
business primarily on the terrestrial network and make the satellite available
to a joint venture. Motient's satellite and related assets and business were
sold on November 26, 2001 to MSV. For more information regarding this sale,
please see the discussion under the caption "Mobile Satellite Ventures" below.

In connection with our acquisition of Motient Communications from Motorola in
March 1998, our subsidiary, Motient Holdings Inc., issued $335.0 million of
12.25% senior notes due in 2008.

Prior to 2002, our working capital and operational financing was derived
primarily from internally generated funds and from borrowings under two bank
loan facilities, a $100.0 million term loan facility and a $100.0 million
revolving credit facility. Borrowings under the bank facility were guaranteed by
Hughes Electronics Corporation, Singapore Telecommunications Ltd. and Baron
Capital Partners L.P. The indebtedness under the bank facility was also
guaranteed by us and certain of our subsidiaries and was secured by some of our
assets. We were also required to reimburse the bank guarantors for any payments
made by the bank guarantors pursuant to their guarantees.


XM Radio

As of December 31, 2000, we had an equity interest of approximately 33.1% (or
21.3% on a fully diluted basis) in XM Satellite Radio Holdings Inc., a public
company that launched its satellite radio service at the end of 2001, and we
controlled XM Radio through our board of director membership and common stock
voting rights. As a result, all of XM Radio's results for the period from July
7, 1999 (the date we acquired 100% voting interest of XM Radio) through December
31, 2000 have been included in our consolidated financial statements. Prior to
July 7, 1999, our investment in XM Radio was accounted for pursuant to the
equity method of accounting.

In January 2001, pursuant to FCC approval to cease control of XM Radio, the
number of directors that we appointed to XM Radio's board of directors was
reduced to less than 50% of XM Radio's directors, and we converted a portion of
our super-voting Class B common stock of XM Radio to Class A common stock. As a
result, we ceased to control XM Radio, and as of January 1, 2001, we accounted
for our investment in XM Radio pursuant to the equity method of accounting.
During 2001, we disposed of all of our remaining shares of XM Radio and ceased
to hold any interest in XM Radio as of November 19, 2001.

Sale of Transportation Business


In November 2000, Motient sold assets relating to its retail transportation
business to Aether Systems for approximately $45 million. This consisted of $30
million for the assets, of which $10 million was held in an escrow account which
was subsequently released in the fourth quarter of 2001 upon the satisfaction of
certain conditions, and $15 million for a perpetual license to use and modify
any intellectual property owned by or licensed by Motient in connection with the

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retail transportation business. Aether Systems acquired all of the assets used
or useful in the retail transportation business, and assumed the related
liabilities. Aether Systems also purchased the existing inventory in the
business. In the fourth quarter of 2000, Motient recognized a gain of $6.6
million, which represented the difference between the net book value of the
assets sold and the $20 million cash portion of the purchase price for the
assets received at closing. Motient recognized an additional $8.3 million gain
in the fourth quarter of 2001 when the additional $10 million of proceeds were
released from escrow. The $1.7 million difference between the proceeds received
and the gain recognized is a result of pricing modifications that were made at
the time of the release of the escrow related to network capacity agreements.
Motient deferred recognition of the $15 million perpetual license payment over a
four year period, which represents the life of the network airtime agreement
that Motient entered into with Aether Systems at the time of the closing of the
asset sale.


Concurrently with the closing of the asset sale, we and Aether Systems entered
into two long-term, prepaid network airtime agreements with a total value of $20
million, of which $5 million was paid at closing, pursuant to which Aether
Systems agreed to purchase airtime on our satellite and terrestrial networks.
Aether Systems also became an authorized reseller of our eLink and BlackBerry TM
by Motient wireless email service offerings.

Mobile Satellite Ventures


Business

Mobile Satellite Ventures LP is a provider of mobile satellite-based
communications services. MSV currently has two satellites, which allow customers
access to satellite-based wireless data, voice, fax and dispatch radio services
almost anywhere in North and Central America, northern South America, the
Caribbean, Hawaii and in various coastal waters.

MSV is also developing a next-generation system, a hybrid satellite/terrestrial
wireless network over North America that will utilize new satellites working
with MSV's patented "ancillary terrestrial component", or ATC, technology. MSV
will be able to deploy terrestrial two-way radio network technology in thousands
of locations across the United States, allowing subscribers to integrate
satellite-based communications services with more traditional land-based
wireless communications services. MSV is headquartered in Reston, VA., with an
office in Ottawa, ON, Canada.

MSV is structured as a limited partnership, of which Motient is one of the
limited partners, and holds a proportionate ownership interest in the corporate
general partner. Motient has certain rights to appoint directors to the sole
general partner of the limited partnership, but does not have any direct or
indirect operating control over MSV. As of July 1, 2004, we had a 29.5% interest
(assuming conversion of all outstanding convertible notes) in MSV.


History

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On June 29, 2000, we formed a joint venture subsidiary, MSV, with certain other
parties, in which we owned 80% of the membership interests. Through November
2001, MSV used our satellite network to conduct research and development
activities. The remaining 20% interests in MSV were owned by three investors
unrelated to Motient. However, the minority investors had the right to
participate in certain business decisions that were made in the normal course of
MSV's business. Therefore, in accordance with Emerging Issues Task Force Issue
No 96-16, "Investor's Accounting for an Investee When the Investor Has a
Majority of the Voting Interest but the Minority Shareholder or Shareholders
Have Certain Approval or Veto Rights", our investment in MSV has been recorded
for all periods presented in the consolidated financial statements included in
this annual report pursuant to the equity method of accounting.

On November 26, 2001, Motient sold the assets comprising its satellite
communications business to MSV. In consideration for its satellite business
assets, Motient received the following:

     o    a $24.0 million cash payment in June 2000;

     o    a $41.0 million cash payment paid at closing on November 26, 2001, net
          of $4.0 million retained by MSV related to our sublease of real estate
          from MSV; and

     o    a five-year, $15.0 million note.

In this transaction, TMI, a Canadian satellite services provider, also
contributed its satellite communications business assets to MSV. In addition,
Motient purchased a $2.5 million convertible note issued by MSV as part of this
transaction, and certain other investors, including a subsidiary of Rare Medium,
purchased a total of $52.5 million of MSV convertible notes. On August 12, 2002,
we purchased an additional $957,000 of MSV convertible notes. At December 31,
2002 and 2003, on a fully diluted basis, Motient owned approximately 25.5% and
29.5%, respectively, of the equity of MSV, assuming certain other investors
fully exercise their option to make additional investments in MSV as a result of
the FCC's ATC approval process described more fully below.

On August 21, 2003, two investors in MSV (excluding Motient) invested an
additional $3.7 million in MSV in exchange for Class A preferred units of
limited partnership interests in MSV. MSV used the proceeds from this investment
to repay other indebtedness that is senior in its right of repayment to
Motient's promissory note. Under the terms of the amended and restated
investment agreement, these investors also had the option of investing an
additional $17.6 million in MSV by December 31, 2003; however, if, prior to this
time, the FCC had not issued a decision addressing MSV's petition for
reconsideration with respect to the ATC Order, the option was automatically
extended to March 31, 2004.


On April 2, 2004, the above-mentioned additional $17.6 million investment was
consummated. In connection with this investment, MSV's amended and restated
investment agreement was amended to provide that of the total $17.6 million in
proceeds, $5.0 million was used to repay certain outstanding indebtedness of
MSV, including $2.0 million of accrued interest under the $15.0 million

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promissory note issued to Motient by MSV. The remainder of the proceeds from
this investment will be used for general corporate purposes by MSV. Motient was
required to use 25% of the $2 million it received in this transaction, or
$500,000, to make prepayments under its existing notes owed to Rare Medium
Group, Inc. and Credit Suisse First Boston. As of the closing of the initial
investment on April 2, 2004, Motient's percentage ownership of MSV was
approximately 29.5% (assuming conversion of all outstanding convertible notes).

MSV's Next-Generation Communications System: The ATC Approval Process

In February 2003, the FCC adopted an order governing ancillary terrestrial
component, or ATC, technology, giving mobile satellite operators broad authority
to use their assigned spectrum to operate an ATC. ATC technology allows a
wireless provider to use satellite communications technology in conjunction with
more traditional land-based wireless communications technologies, allowing a
user to utilize a signal from both satellite and terrestrial locations,
depending on a variety of technical and cost concerns. ATC can enhance satellite
availability, efficiency and economic viability by terrestrially reusing at
least some of the frequencies that are allocated to the satellite systems.

Without ATC, it may be challenging for mobile satellite systems to reliably
serve densely populated areas, because the satellite's signal may be blocked by
high rise structures and may not penetrate into buildings. As a result, the
satellite spectrum may be underutilized or unused in such areas. The use of ATC
retransmission can reduce or eliminate this problem.

The ATC Order established a set of preconditions and technical limits for ATC
operations, as well as an application process for ATC approval of the specific
system incorporating the ATCs that the licensee intends to use. On November 18,
2003, MSV filed an application with the FCC to expand the use of its L-band
spectrum and construct its next-generation hybrid network with ATC. As part of
its next-generation system, MSV intends to use its L-band spectrum, which the
FCC had previously limited to satellite-only services, for terrestrial wireless
services in conjunction with mobile satellite services.


In addition, both proponents and opponents of ATC (including MSV) have filed for
reconsideration of the ATC Order, and the opponents of ATC have filed an appeal
with the U.S. Court of Appeals for the District of Columbia Circuit. Oppositions
to the petitions for reconsideration were filed August 20, 2003; replies were
filed September 2, 2003. The Court of Appeals has held the appeal in abeyance
pending resolution of the reconsideration requests.

MSV's Spectrum Assets

MSV has more than 25 MHz of L-band spectrum that is authorized for use in every
market in North America. The L-band spectrum is positioned within the range of
frequencies used by terrestrial wireless providers in North America. If MSV's
ATC application is granted by the FCC, MSV believes its spectrum assets and
next-generation hybrid system using ATC will be attractive to U.S. wireless
providers to expand such providers' network capacity, provide universal

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coverage, and deploy new technology platforms and innovative and differentiated
service offerings.

MSV plans to pursue partnership opportunities with other wireless providers to
optimize its spectrum and next-generation network assets, including joint
partnership arrangements that may include a commitment by a terrestrial operator
to build out the terrestrial component of MSV's next-generation hybrid network.


In addition to its L-band spectrum, MSV has the right to receive nationwide
spectrum in the 2 GHz, or S-band, from TMI. In February 2003, following
petitions filed by several wireless carriers, the FCC cancelled TMI's
authorization in the S-band due to an alleged failure to enter into a
non-contingent satellite construction contract before the specified date. At
this time, the FCC also ceased processing a pending application to approve the
transfer of the authorization to TerreStar, a subsidiary of MSV. In March 2003,
TerreStar and TMI requested that the FCC reverse the cancellation order and
reinstate the license and the process to grant the assignment application. There
can be no assurance that the FCC will ultimately reinstate TMI's S-band license
and permit the transfer of such license to TerreStar or a TerreStar affiliate.

On May 17, 2004, MSV was awarded its first patent on a next generation satellite
system technology containing an ancillary terrestrial component (ATC)
innovation. MSV believes that this patent will support its ability to deploy ATC
in a way that minimizes interference to other satellite systems, and addresses
ways to mitigate residual interference levels using interference-cancellation
techniques.

Please see Note 2, "Significant Accounting Policies - Restatement of Financial
Statements," and Note 16, "Subsequent Events," of notes to the consolidated
financial statements, for further information concerning MSV.


Motient's Chapter 11 Filing

Events Leading to Chapter 11 Filing

During 2001, Motient undertook a variety of transactions to address its
liquidity needs.

In mid-2001, Motient borrowed an aggregate of $50.0 million from Rare Medium
Group, Inc., or Rare Medium. Motient's obligation to repay this loan was secured
by its aggregate pledge of five million shares of Class A common stock of XM
Radio then held by Motient.

In May 2001, Motient signed a definitive merger agreement with Rare Medium
through which Motient would have acquired 100% of the ownership of Rare Medium,
using a combination of convertible preferred stock of Motient and nine million
shares of Class A common stock of XM Radio then held by Motient.

                                       13
<PAGE>

In September 2001, Motient laid off approximately 25% of its workforce and
canceled certain of its product initiatives, in order to preserve cash.

In October 2001, Motient and Rare Medium terminated their merger agreement. One
of the principal reasons Motient pursued the Rare Medium merger was to gain
access to cash held by Rare Medium. As a result of the termination of the Rare
Medium merger, Motient did not receive the anticipated cash from that
transaction that would have allowed it to fund certain debt and interest payment
obligations. On October 12, 2001, Motient repaid approximately $26.1 million of
principal and accrued interest owed to Rare Medium by delivering to Rare Medium
five million shares of stock of XM Radio.

On October 1, 2001, Motient announced that it would not make the $20.5 million
semi-annual interest payment due on its 12.25% senior notes due 2008 issued by
Motient Holdings. On November 26, 2001, the trustee declared all amounts owed
under the senior notes immediately due and payable.

In November 2001, the agent for the bank lenders under Motient's bank financing
declared all loans immediately due and payable, due to the existence of several
events of default. The bank lenders sought payment in full from the guarantors
for the accelerated loan obligations, and the guarantors repaid all such loans
on November 14, 2001 in the amount of approximately $97.6 million. As a result,
Motient had a reimbursement obligation to the guarantors in the amount of $97.6
million, which included accrued interest and fees.

On November 19, 2001, Motient sold 500,000 shares of XM Radio common stock owned
by it for aggregate proceeds of $4.8 million. Motient used such proceeds to
reduce the amount of its reimbursement obligation to the guarantors of its bank
financing by this amount. Also on November 19, 2001, Motient delivered all of
the remaining 9,257,262 shares of XM Radio common stock owned by it to the
guarantors of its bank financing in full satisfaction of the entire remaining
amount of Motient's reimbursement obligations to the bank guarantors.


Pursuit of Restructuring Plan Under Protection of Bankruptcy Code -Conversion of
Outstanding Debt


In late 2001, Motient determined that the continued viability of its business
required restructuring its highly leveraged capital structure. In October 2001,
Motient retained Credit Suisse First Boston Corporation, or CSFB, as financial
advisors to assist it in restructuring its debt.

In January 2002, Motient and an informal committee of its senior noteholders
reached an agreement in principle with respect to the primary terms of a Plan of
Reorganization of Motient and its principal subsidiaries. Accordingly, on
January 10, 2002, Motient and certain of its subsidiaries filed for protection
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court
for the Eastern District of Virginia. The Bankruptcy Court confirmed the Plan of
Reorganization on April 26, 2002, and the Plan became effective on May 1, 2002.

                                       14
<PAGE>


Upon effectiveness of the Plan, the ownership of Motient changed significantly,
with creditors becoming the new owners of substantially all of the equity of
Motient. Under the Plan, holders of the senior notes exchanged the principal
amount of their notes and all accrued interest thereon for shares of our common
stock. In addition, certain of our trade creditors received shares of our common
stock in settlement of their claims. All then outstanding shares of our
pre-reorganization common stock and all unexercised options and warrants were
cancelled. Holders of our pre-reorganization common stock received warrants to
purchase an aggregate of approximately 1,496,512 shares of common stock. The
warrants were exerciseable to purchase shares of our common stock at a price of
$.01 per share, if and only at such time, the average closing price of our
common stock for ninety consecutive trading days was equal to or greater than
$15.44 per share during the two years following our reorganization. The terms of
these warrants were not met and therefore, they expired May 1, 2004. Also
pursuant to the Plan, we issued to Evercore Partners LP, financial advisor to
the creditors' committee in our reorganization, a warrant to purchase up to
343,450 shares of common stock, at an exercise price of $3.95 per share. The
warrant has a term of five years.


Upon effectiveness of the Plan, our certificate of incorporation and bylaws were
amended and restated. Our restated certificate of incorporation authorizes
Motient to issue up to 100 million shares of common stock and up to 5 million
shares of preferred stock.

On the effective date of our Plan of Reorganization, a new board of directors of
Motient consisting of seven members was established. Effective May 1, 2002, we
adopted "fresh-start" accounting in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code". We determined that the
selection of May 1, 2002 versus April 26, 2002 for the "fresh-start" date was
more convenient for financial statement reporting purposes and that the results
for the period from April 26, 2002 to May 1, 2002 were immaterial to our
consolidated financial statements. Under "fresh-start" accounting, a new entity
has been deemed created for financial reporting purposes.

Further details regarding the Plan of Reorganization are contained in our
disclosure statement with respect to the Plan of Reorganization, which was filed
as Exhibit 99.2 to our current report on Form 8-K dated March 4, 2002.

Effects of Chapter 11 Filing


As a result of our Chapter 11 bankruptcy filing, we saw a slower adoption rate
for our services during the first quarter of 2002. In a large customer
deployment, the upfront cost of the hardware can be significant. Because the
hardware generally is usable only on Motient's network, certain customers
delayed adoption while we were in Chapter 11.

For a more complete discussion of certain effects of the Chapter 11 filing on
our business and results of operations, please read "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below.


                                       15
<PAGE>

Motient's Business Strategy

Motient's objective is to increase revenues by using its enterprise data
experience to continue to penetrate the large markets for mobile data
communications services and solutions and wireless telemetry applications while
keeping costs under control. To meet these objectives, we intend to:


Leverage Distribution Resources of Strategic Resellers. To penetrate target
markets without significant direct sales and marketing expenses, Motient has
signed agreements creating a number of strategic alliances with industry
leaders, such as Verizon Wireless and T-Mobile. Motient intends to leverage
these relationships to address significantly more potential customers than
Motient would be able to address on its own. Motient also has signed contracts
and has long-established working relationships with a roster of resellers and
wholesale arrangements with third parties for its mobile data communications
service and solutions, including SkyTel Communications, Inc., Metrocall
Wireless, Inc., Aether Systems (which purchased our transportation assets in
November 2000), Research In Motion, Ltd. and Earthlink, Inc., among others. In
the market for small to medium-sized wireless email business users, Motient has
signed a sales agent agreement with CDW Computer Centers, Inc., allowing resale
of Motient services by CDW. Motient has also entered into agreements with a
number of device manufacturers, resellers and software vendors to develop and
offer a variety of specialized applications, including heating, ventilation and
air conditioning, commonly known as HVAC, system monitoring, energy meter
reading, office and vending machine automation and wireless point-of-sale
applications such as credit card processing. Motient plans to continue to seek
new strategic distribution channels that will enable it to more fully penetrate
its existing markets and access potential new markets. In addition, Motient
intends to exploit cross-selling opportunities using some of its existing large
corporate customers in the future.

Leverage Motient's Expertise in Selling and Provisioning Complete Data Solutions
for Business Customers. A key strategic asset of Motient is its experienced
sales, customer care and technical support team. This team is qualified to sell
complete data solutions, rather than simply devices and network airtime, that
may include network services that utilize more than Motient's core terrestrial
network, such as customer support and business services.

Effectively Manage the Anticipated Migration of our Mobile Internet Segment
Customers to Newer Technologies. Due to the emergence of newer, higher-capacity,
networks with telephone service capabilities, as well as limitations on the
number of available mobile internet user devices, primarily as a result of
Research In Motion's decision in 2003 to discontinue the RIM 857 product line,
we are implementing initiatives to manage the migration of these customers to
newer networks. These efforts include referring these customers to T-Mobile and
Verizon through our agent agreements with those companies. This migration is
underway, and it allows us to continue to support our customers, while also
generating revenue upon referral. This migration of customers will also allow
for some excess capacity to be removed from our network in the future, which
would reduce our operating costs.


                                       16
<PAGE>

Work With Vendors to Develop Less Expensive and More Functional User Devices to
Address Competition and Increase Demand for its Services. Motient plans to
continue to work with vendors to develop new generations of user devices and
applications that combine improved functionality and convenience at a lower
price. Motient plans to continue to incorporate inexpensive, off the shelf
software or free software in its services. Motient believes that lower price
points will help accelerate the acceptance and adoption of its services in its
traditional markets and will also enable Motient to better penetrate its
targeted new wireless markets. By working with suppliers and by making strategic
software and hardware investments, Motient has lowered the total cost of
ownership of its products. At the same time, Motient has improved the
functionality of its devices and made them smaller and more convenient.


Focus Growth Efforts on Network Efficient Applications. Certain applications
have key attributes that make them an efficient use of the Motient network.
Applications such as wireless point-of-sale and transportation and dispatching
applications (found in industries such as transportation, trucking and credit
card processing) typically have small bandwidth requirements and can be designed
to utilize the network on a 24 hours per day, 7 days per week basis, thus
smoothing loading requirements and optimally using our existing capacity. We
believe that these kinds of applications are poised for significant growth and
that this growth can be accommodated efficiently on the existing Motient
network, and we have signed agreements with several resellers that specialize in
these kinds of applications. This growth could also allow for some excess
capacity to be removed from our network in the future, which would reduce our
operating costs.

Develop New Wireless Applications to Increase Demand and Revenue Per Subscriber.
Motient intends to exploit the market potential of its wireless network by
working with resellers and major e-business solutions providers to develop
additional innovative wireless applications and content-based services. As
market acceptance and demand for wireless email grows, Motient believes users
will demand an increasing variety of Internet-based content and services.
Motient currently offers content-based services to its customers for use with
its eLink service provided through agreements in place with GoAmerica, Novarra,
Inc., Notify Inc. and Neomar, Inc.

Enhance the Technical Advantages of Motient's Network. Motient has been
providing terrestrial wireless airtime and services to customers for over a
decade, leveraging its nationwide terrestrial wireless two-way data network.
Motient believes that its network provides key competitive advantages,
including:


     o    nationwide geographic coverage;

     o    guaranteed two-way message delivery and "always on" real-time data
          communication; and


     o    deep in-building penetration with superior performance characteristics
          when compared with many other networks.

                                       17
<PAGE>

Take Advantage of Motient's Professional Service and Back-Office Capabilities to
Generate New Revenue Opportunities. Motient has deployed comprehensive and
customized data communications solutions for businesses for over a decade. These
data communications solutions have often required specialized billing, data
switching requirements and inventory and reporting requirements, among other
tailored back-office capabilities. With little development, these professional
services and back-office capabilities can be tailored to satisfy existing and
new customers on Motient's network or an alternative network. Motient believes
that these professional services and back-office capabilities can be positioned
as network or carrier agnostic and thus provide customers potentially expansive
network capabilities and service at the lowest cost.

Rationalize Cost Structure & Improve Network Utilization. Motient plans to
rationalize its network infrastructure by focusing on market segments that are
most appropriate for its technology. We intend to focus on the markets
identified above because we believe that this will enable us to grow our
revenues while also reducing the operating cost of our network, because these
markets are less demanding on our network.

Motient's Products and Services


General


Motient sells wireless devices, airtime and applications. Our wireless data
applications include wireless email, wireless Internet and Intranet access,
wireless faxing, paging and peer-to-peer communications, wireless asset tracking
and dispatching, and wireless point-of-sale and data monitoring applications.
Motient supports over 22 types of devices from more than 17 different
manufacturers for use on our network. These devices include Research In Motion
handheld devices, ruggedized laptops, handheld digital assistants and wireless
modems for personal computers, or PCs. Motient has also developed proprietary
software and has engaged a variety of other software firms to develop other
"middleware," to assist its customers' development efforts in connecting their
applications to our network. Also, a number of off-the-shelf software packages
enable popular email software applications on Motient's network.

Motient intends to broaden its product line through its agreements with wireless
carriers to resell airtime subscriptions and communications devices for use on
their next generation high-speed networks. In doing so, Motient believes it will
be able to enhance our sales performance by offering enterprise customers a full
array of technology solutions that meet their needs, independent of the network.


Mobile Internet
---------------

eLink Wireless Email


Motient's eLink wireless email service provides mobile users with integrated
wireless access to a broad range of corporate and Internet email and personal
information management applications. Motient's eLink service is generally used
on wireless handheld devices manufactured by Research In Motion, including the

                                       18
<PAGE>

RIM 850 and RIM 857 wireless handhelds. Although production of the RIM 850 and
RIM 857 wireless handhelds has been discontinued by Research in Motion, Motient
has implemented an "equivalent to new" program to obtain returned devices to
allow it to add new customers to its network. Motient believes that its current
stock of these devices, will, in conjunction with this program, be sufficient to
satisfy demand for these products in the foreseeable future. Even if there is a
sufficient supply of these devices, however, our rights to use and sell the
devices, as well as the BlackBerry(TM) software, may be limited or made
prohibitively expensive as a result of a pending patent infringement lawsuit
brought against Research In Motion. Motient's network does not support any newer
RIM handheld devices. Please see Item 3, "Legal Proceedings" for further
details.

Users of Motient's eLink Agent service can send and receive email messages using
their existing corporate or Internet email address, over Motient's terrestrial
wireless radio data network, as long as the user's email system is compliant
with the industry protocol known as post office protocol 3, or POP 3. Motient's
eLink service also features an Internet message access protocol 4, or IMAP 4,
solution, providing greater flexibility to customers by adding a more robust
Internet email application protocol. Outgoing mail sent from the device appears
to have come from the user's desktop PC. eLink synchronizes with a user's
desktop PC so that full calendar, task list and contact information can be
instantly swapped to and from the device. To address the security needs of
corporate customers, eLink Agent is also offered in a self-contained format so
that the corporate customer can install the network gateway software behind its
firewall on servers located on the customer's site.

Motient's eLink Messenger service (generally used in conjunction with eLink
Agent) assigns a unique email address (separate from the user's corporate or
Internet email address), allowing users to send and receive wireless email
messages independent of other email systems. In addition, the Messenger service
allows users to send faxes from their device, and the device also functions as a
pager. Messenger also enables users to synchronize their device with calendar,
task list and contact information from their desktop PC.


BlackBerry(TM) by Motient


BlackBerry(TM) by Motient is a wireless solution specifically designed for
corporate environments using Microsoft Exchange. BlackBerry(TM) by Motient
operates on the Motient(R) Network and has substantially the same functionality
as Motient's eLink service, including wireless email, as well as a variety of
similar personal information management functions and applications.
BlackBerry(TM) integrates with Microsoft Exchange email accounts. Motient also
offers a BlackBerry(TM) product that integrates with the Lotus Notes email
platform.


The BlackBerry(TM) desktop software installs and runs on the user's desktop PC.
It is an integrated suite of applications that provides organizer
synchronization, folder management tools, email filtering capabilities,
information backup utilities and an application loader.

                                       19
<PAGE>

BlackBerry(TM) is designed to provide a high level of security. Encryption
occurs between the handheld and corporate email system to ensure message
integrity. BlackBerry(TM) incorporates triple data encryption standard, or DES,
encryption technology to meet stringent corporate security guidelines for remote
email access.


Motient is authorized to resell BlackBerry(TM) by Motient pursuant to an
agreement with Research In Motion. RIM also resells BlackBerry(TM) by Motient on
Motient's network through a variety of resellers and value-added resellers.


T-Mobile/Verizon Wireless


In addition to selling messaging services that use our own network, we also sell
a variety of devices distributed by Verizon Wireless and T-Mobile USA for use on
their wireless networks. These contracts, which were signed in the first quarter
of 2003, allow us to sell and promote wireless email and wireless Internet
applications on networks with greater capacity and speed than our own, and that
are voice capable. We generate revenue in the form of one-time commissions from
the sale of subscriptions on their networks. This revenue represented less than
1% of our revenues at in the year ended December 31, 2003.

Field Service Applications
--------------------------

In the field service market, long-standing customers such as IBM use Motient's
wireless network, wireless applications and professional support services and
back-office capabilities to enable their mobile field service technicians to
stay connected. For these and other field service customers, Motient also
provides critical professional support service and back-office functionality
tailored to our customers' respective communications requirements, such as
specialized billing, data switching, inventory tracking, customer support and
reporting.

Transportation and Shipping
---------------------------

In the transportation and shipping market, customers take advantage of Motient's
nationwide network, data switching and routing capabilities and professional
support services and back-office capabilities to provide effective
communications solutions to transportation and shipping fleets and other similar
mobile customers. For these and other transportation and shipping customers,
Motient also provides critical professional support service and back-office
functions tailored to our customers' respective communications requirements,
such as specialized billing, data switching, inventory tracking, customer
support and reporting.


Telemetry
---------


Telemetry involves the transmission of generally small amounts of data from a
remote device to a master collection or monitoring point. The data may be stored
in a device and then transmitted when necessary or cost-effective. Motient has
signed agreements with a variety of resellers, device manufacturers and software
vendors in this market. We have also signed agreements with several application
service providers such as U.S. Wireless Data, Inc. and U.S. Technologies to


                                       20
<PAGE>


develop and offer a variety of customer-driven telemetry applications.
Applications include HVAC system monitoring, wireless point-of-sale systems,
energy monitoring, vending and office machine automation and security/alarm
monitoring. We believe that our expansive wireless network and telemetry
experience allow us to provide cost-effective and comprehensive solutions for
these communication requirements.


Pricing of Services


Motient's customers are generally charged a monthly access fee or minimum usage
fee. Unless on a flat rate plan, users also pay for usage depending on the
number of kilobytes of data transmitted. Motient's pricing plans offer a wide
variety of volume packaging and discounts, consistent with customer demand and
market conditions, from flat-rate plans to per message or per kilobyte plans.
Generally, Motient reflects the addition of a subscriber unit upon the
registration of a unit on its network. In certain cases, primarily as it relates
to strategic resellers, a percentage of these subscriber units do not become
revenue producing for up to several months from initial registration on the
network.


Motient's Customers


As of December 31, 2003, there were approximately 204,000 user devices
registered on Motient's network, and an established customer base in the
following market categories:


                                                           Percentage of
        Market Categories                                   Total Units
        -----------------                                   -----------
        Transportation and package delivery                       23%
        Field service                                              9
        Telemetry and point of sale                               16
        Wireless internet or email                                52
                                                             -----------
        Total                                                    100%
                                                                 ====

For the year ended December 31, 2003, five customers accounted for approximately
47% of Motient's service revenue, with two of those customers, UPS and SkyTel,
each accounting for more than 11%. The loss of one or more of these customers,
or any event, occurrence or development, which adversely affects Motient's
relationship with one or more of these customers, could harm Motient's business.
The contracts with these customers are generally multi-year contracts, and the
services provided pursuant to such contracts are generally customized
applications developed to work solely on Motient's network.


UPS, Motient's second largest customer for the year ended December 31, 2003 and
eighth largest customer for the three months ended December 31, 2003,
substantially completed its migration to next generation network technology in
the first six months of 2003, and its monthly airtime usage of the Motient's
network declined significantly. Consequently, the revenue and cash flows
generated by UPS declined significantly. While Motient expects that UPS will
remain a customer for the foreseeable future, there are no minimum purchase
requirements under Motient's contract with UPS and the contract may be
terminated by UPS on 30 days' notice. As of December 31, 2003, UPS had
approximately 7,120 active units on Motient's network.

                                       21
<PAGE>

In addition, due to a separate arrangement entered into in 2002 under which UPS
prepaid for network airtime to be used by it in 2004, we do not expect that UPS
will be required to make any cash payments to us in 2004 for service to be
provided in 2004. As of June 30, 2004, UPS has not been required to make any
cash payments to us in 2004 for service provided in 2004, and the value of our
remaining airtime service obligations to UPS in respect of the prepayment was
approximately $4.3 million as of May 31, 2004. If UPS terminates its contract
with Motient, any remaining prepayment would be required to be repaid. We have
implemented a number of initiatives to offset the loss of revenue and cash flow
from UPS. Please see "Motient's Business Strategy" for more information
regarding these initiatives, which may not be sufficient to offset the loss of
cash flow and revenue from UPS.


Marketing and Distribution

Motient markets its wireless services through strategic distribution resellers
and its direct sales force.

Strategic Alliances and Resellers


To penetrate new wireless data markets which Motient believes have significant
growth potential, Motient has signed contracts for a variety of strategic
alliances. Motient intends to leverage the marketing and distribution resources
and large existing customer bases of these resellers to address significantly
more potential customers than Motient would be able to address on its own.
Motient has agreements with industry-leading resellers for the sale of Motient's
wireless email services, including SkyTel, Metrocall, Aether Systems, Research
In Motion and Earthlink. Other alliances include:

     o    In the market for small to medium-sized business users, Motient has
          signed a reseller agreement with CDW Computer Centers;

     o    Motient has teamed with Wynd Communications, Inc. to provide wireless
          services for the hearing impaired; and

     o    Motient has relationships with a number of device manufacturers,
          resellers and software vendors to develop and offer a variety of
          customer-driven telemetry applications. US Wireless Corporation is a
          key partner in the wireless credit card processing and point-of-sale
          segment, and USA Technologies, Inc. is developing telemetry
          applications using Motient's network in the vending machine segment.


Motient is continuing to seek additional strategic distribution channels to help
Motient move forward with its plan to more fully penetrate its existing markets
and access potential new markets on an incremental basis.

                                       22
<PAGE>


Furthermore, Motient has broadened its product line by entering into agreements
with Verizon and T-Mobile to include their next generation high-speed data
services, as well as voice services, in Motient's product offerings. By doing
so, Motient believes that it would be able to market itself as a "one-stop shop"
for a full array of technology and product offerings, not just those products
operating on the Motient network.


Direct Sales Force


Motient has a direct sales force that is experienced in selling its various
wireless services. Motient's direct sales force is focused on the requirements
of business customers who need customized applications as well as promoting its
eLink and BlackBerry(TM) by Motient services to vertical markets. Motient's
corporate accounts group is focused on promoting wireless data solutions to
wirelessly enable company-wide email systems for Fortune 500 accounts. Sales to
corporate account targets generally require a sustained sales and marketing
effort lasting several months. Prior to making a buying decision, a majority of
the accounts exercise a due diligence process where competitive alternatives are
evaluated. Motient's employees often assist in developing justification studies,
application design support, hardware testing, planning and training. In the
wireless email area, Motient's internal sales force has been key to its ability
to convey customer feedback to its product management team, enabling Motient to
identify and develop new product and service features.


Motient's Network

Motient's wireless network is one of the largest two-way terrestrial data
networks in the United States, providing service to over 475 of the nation's
largest cities and towns, including virtually all metropolitan statistical
areas. The network provides a wide range of mobile data services. Users of
Motient's network access it through subscriber units that may be portable,
mobile or stationary devices.


Subscriber units receive and transmit wireless data messages to and from
terrestrial radio transmitters/receivers, known as base stations, which are
housed located on various leased antenna sites across the United States.
Terrestrial messages are then routed to their destination via leased
communications circuits and data switches that Motient owns, which connect to
the public data network.


Motient's terrestrial network delivers superior in-building penetration,
completion rates and response times compared to other wireless data networks
through the use of a patented single frequency reuse technology developed by
Motorola. Single frequency reuse technology enables multiple base stations in a
given area to use the same frequency. As a result, a message sent by a
subscriber can be received by a number of base stations. This technology
contrasts with more commonly used multiple frequency reuse systems, which
provide for only one transmission path for a given message at a particular
frequency. In comparison with multiple frequency reuse systems, Motient's
technology provides superior in-building penetration and response times and

                                       23
<PAGE>

enables it to incrementally deploy additional capacity as required, instead of
in larger increments as required by most wireless networks.

We are currently in the process of reducing the number of base stations
operating on our network to reduce network operating costs while also focusing
on minimizing the potential impact to our customers communications and coverage
requirements. This rationalization encompasses, among other things, the
reduction of unneeded capacity across the network by deconstructing
under-utilized and un-profitable base stations as well as deconstructing base
stations that pass an immaterial amount of customer data traffic. For further
information regarding cost reduction actions, please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview and Introduction -- Cost Reduction Actions."

Equipment and Supplier Relationships

Motient has contracts with a variety of vendors to supply devices designed to
meet the requirements of specific end-user applications. Motient continues to
pursue enhancements to these devices that will result in additional desirable
features and reduced cost of ownership. Although many of the components of its
products are available from a number of different suppliers, Motient relies on a
relatively small number of key suppliers. The devices used with Motient's
services generally are subject to various product certification requirements and
regulatory approvals before they are delivered for use by its customers.

Motient's eLink service can be used on wireless handheld devices manufactured by
Research In Motion, including the RIM 850 and RIM 857 wireless handhelds. No
newer Research in Motion devices can be used on our network. In addition, eLink
can be used with Palm(TM) V series and IBM WorkPad handhelds by using Motient's
MobileModem, a wireless modem that clips on to Palm(TM) V series and IBM WorkPad
PDAs to provide these devices with email and Internet access via the Motient
Network. Research In Motion also manufactures modems designed to be integrated
into handheld field service terminals, telemetry devices, utility monitoring and
security systems and certain other computing systems. Motient's supply
arrangements with Research In Motion are not exclusive, and Research In Motion
manufactures similar hardware products for other companies, including Cingular
Wireless LLC, a principal competitor in the two-way wireless email market
segment.

On June 26, 2003, Research In Motion, Limited, or RIM, provided us with a
written End of Life Notification for the RIM 857 wireless handheld device. This
means that Research in Motion will no longer produce this model of handheld
device. RIM no longer manufactures the RIM 850. The last date for accepting
orders for the RIM 857 was September 30, 2003, and the last date for shipment of
devices was January 2, 2004. Motient continues to purchase limited quantities of
RIM 857 devices from RIM, and has implemented a RIM 857 and RIM 850 "equivalent
to new" program and expects that there will be sufficient returned RIM 857 and
850s to satisfy demand for the foreseeable future. During the years ended
December 31, 2002 and 2003, a majority of Motient's equipment revenues were
attributable to sales of the RIM 857 device, and Motient estimates that
approximately 35% and 52%, respectively, of its monthly recurring service

                                       24
<PAGE>

revenues were derived from wireless messaging that use RIM 857 devices in
December 2002 and December 2003, respectively.


In addition to the messaging devices manufactured by Research In Motion, there
are currently over 21 other types of subscriber units available from
approximately 16 manufacturers that can operate on Motient's terrestrial
network. Examples of portable subscriber units include ruggedized laptop
computers, small external modems, handheld or palmtop "assistants" and pen based
"tablets."

Motient is also working with other device manufacturers and software developers
to bring its network services to other existing popular PDA and wireless email
platforms.


AT&T Corp. provides network telecommunications services, including a nationwide
wireline data network, and leased sites which house regional switching equipment
for Motient's terrestrial network. Motient also has a relationship with AT&T as
Motient's vendor for switched inbound and outbound public switched telephone
network services, which connect Motient's network to the public
telecommunications network.


The terrestrial network, and certain of its competitive strengths such as deep
in-building penetration, is based upon single frequency reuse technology.
Motorola holds the patent for the single frequency reuse technology. Motient has
entered into several agreements with Motorola historically under which Motorola
provided certain continued support for the terrestrial network infrastructure,
and ongoing maintenance and service of the terrestrial network base stations. We
currently have certain debt obligations outstanding to Motorola. We do not
currently have any service agreement with Motorola.

Competition

The wireless communications industry is highly competitive and is characterized
by constant technological innovation. Motient competes by providing broad
geographic coverage, deep in-building penetration and demonstrated reliability.
These features distinguish Motient from the competition. Motient's wireless
solutions are used by businesses that need critical customer and operational
information in a mobile environment.

Motient offers multiple business lines and competes with a variety of service
providers, from small startups to Fortune 500 companies. Motient's competitors
include service providers in several markets--dedicated mobile data, personal
communications service, or PCS, and cellular, narrowband PCS/enhanced paging and
emerging technology platforms.

Employees

In March 2003, we reduced our total staffing levels from approximately 197 to
166. In February 2004, we reduced our total staffing levels from 166 to 112
employees. On December 31, 2003 and May 31, 2004, Motient had 168 and 104
employees, respectively. None of Motient's employees is represented by a labor
union. Motient considers its relations with its employees to be good.

                                       25
<PAGE>

Regulation

The terrestrial two-way wireless data network used in Motient's wireless
business is regulated to varying degrees at the federal, state and local levels.
Various legislative and regulatory proposals under consideration from time to
time by Congress and the FCC have in the past materially affected and may in the
future materially affect the telecommunications industry in general, and
Motient's wireless business in particular. The following is a summary of
significant laws, regulations and policies affecting the operation of Motient's
wireless business. In addition, many aspects of regulation at the federal, state
and local level currently are subject to judicial review or are the subject of
administrative or legislative proposals to modify, repeal, or adopt new laws and
administrative regulations and policies. Neither the outcome of these
proceedings nor their impact on Motient's operations can be predicted at this
time.

The ownership and operation of Motient's terrestrial network is subject to the
rules and regulations of the FCC, which acts under authority established by the
Communications Act of 1934, as amended, and related federal laws. Among other
things, the FCC allocates portions of the radio frequency spectrum to certain
services and grants licenses to and regulates individual entities using that
spectrum. Motient operates pursuant to various licenses granted by the FCC.

Motient is a commercial mobile radio service provider and therefore is regulated
as a common carrier. Motient must offer service at just and reasonable rates on
a first-come, first-served basis, without any unjust or unreasonable
discrimination, and Motient is subject to the FCC's complaint processes. The FCC
has decided not to apply or to withhold its right, at this time, to apply
numerous common carrier provisions of the Communications Act to commercial
mobile radio service providers. In particular, Motient is not subject to
traditional public utility rate-of-return regulation, and is not required to
file tariffs with the FCC.

The FCC's universal service fund supports the provision of affordable
telecommunications to high-cost areas and the provision of advanced
telecommunications services to schools, libraries, and rural health care
providers. Under the FCC's current rules, end-user revenues derived from the
sale of information and other non-telecommunication services and certain
wholesale revenues derived from the sale of telecommunications services are not
subject to universal service fund obligations. Based on the nature of its
business, Motient is currently not required to contribute to the universal
service fund. Current rules also do not require that Motient impute to its
contribution base retail revenues derived when it uses its own transmission
facilities to provide a service that includes both information service and
telecommunications components. There can be no assurances that the FCC will
retain the exclusions described herein or its current policy regarding the scope
of a carrier's contribution base. Motient may also be required to contribute to
state universal service programs. The requirement to make these state universal
service payments, the amount of which in some cases may be subject to change and
is not yet determined, may have a material adverse impact on the conduct of
Motient's business.

                                       26
<PAGE>

Motient is subject to the Communications Assistance for Law Enforcement Act, or
CALEA. Under CALEA, Motient must ensure that law enforcement agencies can
intercept certain communications transmitted over its networks. Motient must
also ensure that law enforcement agencies are able to access certain
call-identifying information relating to communications over Motient's networks.
The deadline for complying with the CALEA requirements and any rules
subsequently promulgated was June 30, 2002. Based on discussions with Federal
law enforcement agencies regarding the applicability of CALEA's provisions to
Motient, we do not believe that our network, which uses packet data technology,
is subject to the requirements of CALEA. At the suggestion of Federal law
enforcement agencies, we have developed an alternative methodology for
intercepting certain communications over our network for the purposes of law
enforcement surveillance. We believe this alternative methodology has
substantially the same functionality as the standards provided in CALEA. It is
possible that our alternative methodology may ultimately be found not to comply
with CALEA's requirements, or that our interpretation that CALEA does not apply
to our network may ultimately be found to be incorrect.

In addition, CALEA establishes a federal fund to compensate telecommunications
carriers for all reasonable costs directly associated with modifications
performed by carriers in connection with equipment, facilities and services
installed or deployed on or before January 1, 1995. For equipment, facilities
and services deployed after January 1, 1995, the CALEA fund is intended to
compensate carriers for any reasonable costs associated with modifications
required to make compliance "reasonably achievable." It is possible that all
necessary modifications will not qualify for this compensation and that the
available funds will not be sufficient to reimburse Motient. Therefore, the
requirement to comply with CALEA could have a material adverse effect on the
conduct of Motient's business.


Motient's FCC licenses are granted for a term of 10 years, and are renewable.
For Motient's non-market-based licenses, or non-auction licenses, renewal is
granted in the ordinary course. Motient no longer holds any auction licenses.
All such licenses were sold in November 2003 to Nextel Communications and its
affiliates.


As a matter of general regulation by the FCC, Motient is subject to, among other
things, payment of regulatory fees and restrictions on the level of radio
frequency emissions of Motient's systems' mobile terminals and base stations.
Any of these regulations may have an adverse impact on the conduct of Motient's
business.

Motient's FCC licenses are subject to restrictions in the Communications Act
that (i) some FCC licenses may not be held by a corporation of which more than
20% of its capital stock is directly owned of record or voted by non-U.S.
citizens or entities or their representatives and (ii) no such FCC license may
be held by a corporation controlled by another corporation, referred to as
indirect ownership, if more than 25% of the controlling corporation's capital
stock is owned of record or voted by non-U.S. citizens or entities or their
representatives, if the FCC finds that the public interest is served by the
refusal or revocation of such license. However, with the implementation of the
Basic Telecommunications Agreement, negotiated under the auspices of the World

                                       27
<PAGE>

Trade Organization and to which the United States is a party, the FCC will
presume that indirect ownership interests in our FCC licenses in excess of 25%
by non-U.S. citizens or entities will be permissible to the extent that the
ownership interests are from World Trade Organization-member countries. If the
25% foreign ownership limit is exceeded, the FCC could take a range of potential
actions that could harm Motient's business.

Motient's terrestrial network consists of base stations licensed in the 800 MHz
business radio and specialized mobile radio services. The terrestrial network is
interconnected with the public switched telephone network.

The FCC's licensing regime in effect when the majority of authorizations used in
the terrestrial network were issued provided for individual, site-specific
licenses. The FCC has since modified the licensing process applicable to
specialized mobile radio licenses in the band. Specialized mobile radio licenses
are now issued by auction in wide-area, multi-channel blocks. The geographic
area and number of channels within a block vary depending on whether the
frequencies are in the so-called "upper 200" specialized mobile radio channels,
the "general category," or the "lower 80." In addition, wide-area auction
winners in the upper 200 have the right to relocate incumbent licensees to other
"comparable" spectrum. Auction winners in the general category and lower 80 do
not have these same relocation rights and must afford protection to incumbent
stations. Incumbent stations may not, however, expand their service areas.

Wide-area auction winners have substantial flexibility to install any number of
base stations including, in the case of the general category and lower 80
channels, base stations that operate on the same channels as incumbent
licensees. Motient was an incumbent in the upper 200 and remains an incumbent on
certain general category channels. Although the FCC requires general category
and lower 80 geographic licensees to protect incumbents from interference, there
is some concern that such interference may occur and that practical application
of the interference-protection rules may be uncertain.

Motient believes that it has licenses for a sufficient number of channels to
meet its current capacity needs on the terrestrial network. To the extent that
additional capacity is required, Motient may participate in other upcoming
auctions or acquire channels from other licensees.

Motient operates the terrestrial network under a number of waivers involving the
FCC's technical rules, including rules on station identification, for-profit use
of excess capacity, system loading and multiple station ownership. Several of
these waivers were first obtained individually by IBM and Motorola, which
operated separate wireless data systems until forming the ARDIS joint venture in
1990. The FCC incorporated a number of these waivers into its regulations when
it implemented Congress's statutory provision creating the commercial mobile
radio service classification. As of March 3, 1999, Motient completed its planned
construction of base stations for which extended implementation was granted by
the FCC in 1996.

                                       28
<PAGE>

On March 14, 2002, the FCC adopted a notice of proposed rulemaking exploring
options and alternatives for improving the spectrum environment for public
safety operations in the 800 MHz band. This notice of proposed rulemaking was
issued by the FCC after a "white paper" proposal was submitted to the FCC by
Nextel in November 2001 addressing largely the same issues. In its white paper,
Nextel proposed that some of its wireless spectrum in the 700 MHz band, lower
800 MHz band, and 900 MHz band be exchanged for spectrum in the upper 800 MHz
band and in the 2.1 GHz band. Nextel's proposal addressed the problem of
interference to public safety agencies by creating blocks of contiguous spectrum
to be shared by public safety agencies. Since the notice of proposed rulemaking
was issued, Motient has been actively participating with other affected
licensees, including Nextel, to reach agreement on a voluntary plan to
re-allocate spectrum to alleviate interference to public safety agencies. On
December 24, 2002, a group of affected licensees, including Motient, Nextel and
several other licensees, submitted a detailed proposal (commonly known as the
Consensus Plan) to the FCC for accomplishing the re-allocation of spectrum over
a period of several years. These parties have also been negotiating a mechanism
by which Nextel would agree to reimburse costs, up to $850.0 million, incurred
by affected licensees in relocating to different parts of the spectrum band
pursuant to the rebanding plan.

In mid-April 2003, the FCC's Office of Engineering and Technology, or OET, sent
a letter to several manufacturers requesting additional practical, technical and
procedural solutions or information that may have yet to be considered. Upon
reviewing the filed comments, OET has indicated that other technical solutions
were possible and were being reviewed by the FCC.

It was reported that in March of 2004, the staff of the FCC circulated a draft
order to the five FCC Commissioners recommending adoption of the "Consensus
Plan" for the reallocation of the 800 MHz spectrum. However, the staff
apparently also recommended the rejection of Nextel's offer to pay $850 million
to recover the costs of the re-allocation of the spectrum, as the staff
apparently felt this amount to be insufficient to cover the costs of such
re-allocation. On April 8, 2004, Motient filed a request with the FCC asking
that the FCC relocate Motient into the so called "upper-800 MHz band" as part of
the Consensus Plan. The FCC did not adopt the order in April, and one month
later, the Cellular Telecommunications & Internet Association, or CTIA, proposed
a plan that would grant Nextel alternative spectrum in the less valuable 2.1 GHz
band. Verizon Wireless has advanced CTIA's and a similar plan, and has pledged
to bid $5 billion for the 1.9 GHz spectrum if those airwaves are auctioned.
Nextel has vigorously opposed the CTIA and Verizon Wireless plans, insisting
that it be allowed to relocate to the 1.9 GHz spectrum. News accounts have
stated that some senior officials at the FCC would prefer to grant Nextel the
2.1 GHz spectrum because such a grant is less subject to a court challenge as an
impermissible sale of spectrum outside of an auction. Some members of Congress
have also expressed interest in the proceeding. Given the uncertain outcome of
this proceeding, we cannot assure you that our operations will not be affected
by it.


Sale of SMR Licenses to Nextel Communications, Inc.

                                       29
<PAGE>

On July 29, 2003, our wholly-owned subsidiary, Motient Communications, entered
into an asset purchase agreement with Nextel, under which Motient Communications
sold to Nextel certain of its SMR licenses issued by the FCC for $3.4 million.
The closing of this transaction occurred on November 7, 2003. On December 9,
2003, Motient Communications entered into a second asset purchase agreement,
under which Motient Communications will sell additional licenses to Nextel for
$2.75 million resulting in a $1.5 million loss which was recorded in December,
2003. In February, 2004, we closed the sale of licenses covering approximately
$2.2 million of the purchase price, and we closed the sale of approximately
one-half of the remaining licenses in April 2004. The transfer of the other half
of the remaining licenses has been challenged at the FCC by a third-party. While
we believe, based on the advice of counsel, that the FCC will ultimately rule in
our favor, we cannot assure you that we will prevail, and, in any event, the
timing of any final resolution is uncertain. None of these licenses are
necessary for our future network requirements. We have and expect to continue to
use the proceeds of the sales to fund its working capital requirements and for
general corporate purposes. The lenders under our term credit agreement have
consented to the sale of these licenses.


Risk Factors


Investors should consider the following risk factors, in addition to the other
information presented in this Annual Report and the other Reports and
registration statements we file from time to time with the Securities and
Exchange Commission, in evaluating us, our business and an investment in our
securities. Any of the following risks, as well as other risks and
uncertainties, could harm our business and financial results and cause the value
of our securities to decline, which in turn could cause investors to lose all or
part of their investment in us. The risks below are not the only ones we face.
Additional risks not currently known to us or that we currently deem immaterial
also may impair our business.


We have undergone significant organizational restructuring and we face
substantial operational challenges.

We are in the process of evaluating our future strategic direction. We have been
forced to take material actions to reduce operating costs and preserve our
remaining cash. For example, in February 2004 we effected a reduction in force
that reduced our workforce from approximately 166 to 112 employees. The
elimination of certain sales and other personnel may have a negative effect on
our future revenues and growth prospects and our ability to support new product
initiatives and generate customer demand. In addition, we are currently removing
unneeded capacity across the network by deconstructing under-utilized and
un-profitable base stations. The full extent and effect of the changes to our
network have yet to be determined, and these reductions in network capacity may
also have a negative effect on our future revenues and growth prospects.


We are not and may never be cash flow positive, and our prospects will depend on
our ability to control our costs while maintaining and improving our service
levels.


                                       30
<PAGE>

We do not generate sufficient cash from operations to cover our operating
expenses, and it is unclear when, or if, we will be able to do so. As a result,
we have been involved in the process of reducing our expenditures in a variety
of areas, including a reduction in the number of our employees, the closure of
our Reston facility and the restructuring of our network. We also have
renegotiated several of our key vendor and customer arrangements and continue to
aggressively pursue further vendor cost reductions when opportunities arise. We
continue to use more cash than we generate from operations. Our prospects will
depend in part on our ability to reduce operating costs further and operate more
efficiently, while maintaining and improving our service levels.

We will need additional liquidity to fund our operations.

We do not generate sufficient cash from operations to cover our operating
expenses, and it is unclear when, or if, we will be able to do so. Even after we
begin to generate cash in excess of our operating expenses, we expect to require
additional funds to meet remaining interest obligations, capital expenditures
and other non-operating cash expenses. We currently anticipate that our funding
requirements through 2004 should be met through a combination of various
sources, including:

     o    cash on hand, including cash generated by our April 7, 2004 and July
          1, 2004 private placements of common stock,

     o    net cash flow from operations,

     o    our term credit facility, of which $5.7 million remains available for
          borrowing through December 31, 2004, and

     o    proceeds from the sale of certain frequency assets that are not
          necessary for our future network requirements (See
          "Business--Regulation --Sale of SMR Licenses to Nextel Communications,
          Inc.").


An additional potential funding source is the repayment of a $15.0 million note
from MSV. In April 2004, MSV repaid $2.0 million on this note. We also own an
aggregate of approximately $3.5 million of convertible notes from MSV, which are
mandatorily convertible into equity of MSV in certain circumstances. For
information about these notes and our transactions with MSV, please see
"Management's Discussion and Analysis of Results of Operations -- Mobile
Satellite Ventures LP." There can be no assurance that the foregoing sources of
liquidity will provide sufficient funds in the amounts or at the time that
funding is required. In addition, if our ability to realize such liquidity from
any such source is delayed or the proceeds from any such source are insufficient
to meet our expenditure requirements as they arise, we will seek additional
equity or debt financing, although it is unlikely under current conditions that
such additional financing will be available on reasonable terms, if at all.

                                       31
<PAGE>

We may not be able to meet our debt obligations, operating expenses, working
capital and other capital expenditures.


As of December 31, 2003, we had approximately $36.1 million of debt outstanding
(including our term credit facility, capital leases, notes with Rare Medium and
CSFB and obligations owed to Motorola and accrued interest thereon). See Note 16
"Subsequent Events" of our consolidated financial statements for further
information on the negotiation of settlements and the termination of certain of
these obligations. In January 2003, we secured a $12.5 million credit facility
of which we had drawn $4.5 million as of December 31, 2003. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Debt
and Capital Lease Obligations-- Term Credit Facility" for more information on
repayment of outstanding amounts under this facility. Some of these debt
obligations have current interest and principal requirements. As of December 31,
2003, $3.9 million of our debt obligations were recorded as current liabilities.
We cannot assure you that our operating cash flow will be adequate to pay the
principal and interest payments on this indebtedness when due, as well as to
fund all of our contemplated capital expenditures. Some of these debt
obligations also have certain minimum covenant requirements.

Our term credit facility imposes certain conditions on our ability to make
draws, including compliance with certain financial and operating covenants. We
provided notices of default and received respective waivers for our covenant
requirements in the monthly periods ended April 2003 through December 2003 under
our term credit facility. We cannot assure you that our operating results will
be adequate to meet future minimum covenant requirements, which could lead to
events of default and acceleration of these debt obligations. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Debt and Capital Lease Obligations--Term Credit Facility" for more
information on our debt covenant compliance, defaults, waivers and repayment of
the outstanding amounts under this facility.


If we are not able to make required payments under our credit facility or other
debt obligations, the lenders thereunder could seek to accelerate such
obligations and take actions to seize collateral, any of which could render us
insolvent.

We believe that the implementation of our business strategy is crucial to our
future financial viability and the ability to generate the cash flow necessary
to pay principal and interest, and our working capital and capital expenditure
needs. Although we believe our business strategy will help improve our financial
viability and our cash flow, we cannot assure you that the financial resources
available to us will be sufficient for us to achieve profitability.

We will continue to incur significant losses.

If we do not become profitable, we could have difficulty obtaining funds to
continue our operations. We have incurred net losses every year since we began
operations. These losses are due to the costs of developing and building our
network and the costs of developing, selling and providing products and

                                       32
<PAGE>

services. Although we have significantly reduced our losses, we will continue to
have losses in the future.

We generate a large part of our revenues and cash flows from a small number of
customers, and the loss of one or more key customers could result in a
significant reduction in revenues and cash flows; UPS has recently deregistered
a majority of its units on our network.

For the year ended December 31, 2003, five customers accounted for approximately
47% of our service revenue, with two of those customers each accounting for more
than 11%. None of these significant customers are obligated to purchase any
minimum quantity of airtime, service or hardware from us. There can be no
assurance that the revenue generated from our largest customers will continue in
future periods. We may lose certain revenues from major customers due to churn
and migration to alternative technologies. The loss of one or more of our key
customers, a material reduction in such customers' use of our network, or any
other event, occurrence or development which adversely affects our relationship
with one or more of these customers, could harm our business by reducing revenue
and reducing net cash flow from operations.

In addition, UPS, our second largest customer for the year ended December 31,
2003 and our eighth largest customer for the three months ended December 31,
2003, substantially completed its migration to next generation network
technology by the end of the second quarter of 2003, and its monthly airtime
usage of our network declined significantly. While we expect that UPS will
remain a customer for the foreseeable future, our service contract with UPS may
be terminated by UPS on 30 days' notice. Until June 30, 2003, UPS had
voluntarily maintained its historical level of revenue to mitigate the near-term
revenue and cash flow impact of its reduced network usage. However, beginning in
July 2003, the revenues and cash flow from UPS declined significantly. In
addition, in December 2002 we entered into a separate agreement with UPS under
which UPS made a significant prepayment for network airtime service to be
provided beginning January 1, 2004. The prepayment will be credited against
airtime services provided to UPS beginning January 1, 2004, until the prepayment
is fully credited. If UPS terminates our contract, any remaining prepayment
would be required to be repaid. Based on the current level of network airtime
usage by UPS, we do not expect that UPS will be required to make any cash
payments to us in 2004 for service provided during 2004. For a further
discussion of developments regarding UPS and our plans to offset the loss of
revenue and cash flows from this customer, please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Our growth has been curtailed by funding constraints.

We have significantly decreased the amount that we are spending on the
maintenance and growth of our operations, network and subscriber base due to our
liquidity constraints. We have taken a number of steps to continue to reduce our
operating and capital expenditures in order to lower our cash burn rate;
however, our capital resources currently are not sufficient to permit us to fund
the launch of new products and services. Failure to generate or raise sufficient

                                       33
<PAGE>

funds may require us to delay or abandon some of our expenditures, which could
harm our business and competitive position.

Our internal controls may not be sufficient to ensure timely and reliable
financial information.


During the course of the fiscal 2002 year-end closing process and subsequent
audit of our financial statements for the eight month period ended December 31,
2002, our management and our then-current independent auditors,
PricewaterhouseCoopers, identified several significant deficiencies in our
internal controls. In response to these concerns, we have implemented enhanced
measures and have dedicated more resources to improve our account reconciliation
process and to further strengthen our internal controls. For a description of
these measures, see "Item 9A. Controls and Procedures."

Management believes that it has addressed these internal control deficiencies
and currently has effective disclosure controls and procedures. However,
significant resources will continue to be required to maintain appropriate
controls and procedures and to prepare our financial statements and other
disclosures in light of increasing controls and procedures requirements imposed
by Sarbanes-Oxley. Failure to maintain such controls and procedures may increase
the risk of future errors or omissions in our financial statements or public
reports or filings and may prevent us from meeting our filing deadlines.

There can be no assurance that these actions and any other actions that we have
taken to maintain and improve our internal controls and procedures will be
effective over time. Our inability to implement these actions could adversely
affect our ability to record, process, summarize and report financial data in
compliance with our reporting obligations.


We may not be able to realize value from our investment in MSV due to risks
associated with MSV's next-generation business plan.


MSV's next-generation business plan involving ancillary terrestrial component,
or ATC, is novel and without established precedent. Neither MSV nor any other
company has developed an integrated hybrid network, and MSV's success will
depend on several factors, including


     o    the ultimate resolution of pending FCC and court proceedings with
          respect to MSV's L-band license and S-band rights;

     o    MSV's ability to make use of spectrum in the S-band, which is
          dependent on the FCC's reinstatement of the S-band authorization
          granted to TMI , FCC approval of its transfer to MSV's subsidiary,
          TerreStar Networks Inc., and MSV's ability to meet FCC milestones;

     o    MSV's ability to enter into contractual relationships with its
          partners that comply with FCC rules concerning ATC;

                                       34
<PAGE>

     o    MSV's ability to coordinate with other satellite system operators to
          optimize both its overall spectrum access and the utility of the
          L-band for certain wireless protocols;

     o    whether the price paid for spectrum in prior transactions is
          indicative of the future value of MSV's spectrum assets and MSV's
          ability to effect transactions that realize the value of such spectrum
          assets;

     o    the supply of available wireless spectrum in the marketplace;

     o    MSV's ability to develop and integrate the complex technologies
          associated with its next-generation system;

     o    MSV's ability to develop and deploy innovative network management
          techniques to permit mobile phones to seamlessly transition between
          satellite and terrestrial mode;

     o    the construction, delivery and launch of MSV's next-generation
          satellites and the maintenance of MSV's existing geostationary
          satellites;

     o    MSV's ability to obtain funding for the construction of the satellite
          component of its next-generation service on favorable terms;

     o    MSV's dependence on one or more third party partners to construct the
          terrestrial base station component of its next-generation network;

     o    market acceptance and level of demand for MSV's next-generation
          network; and

     o    protection of MSV's proprietary information and intellectual property
          rights.


If MSV is unable to implement its next-generation business strategy, our
investment in MSV could be materially and adversely affected.

Motient may have to take actions which are disruptive to its business to avoid
registration under the Investment Company Act of 1940.

Motient may have to take actions which are disruptive to its business if it is
deemed to be an investment company under the Investment Company Act of 1940.
Motient's equity investments, in particular its ownership interests in MSV, may
constitute investment securities under the Investment Company Act. A company may
be deemed to be an investment company if it owns investment securities with a
value exceeding 40% of its total assets excluding cash items and government
securities, subject to certain exclusions. Investment companies are required to
register under and comply with the Investment Company Act unless an exclusion or
SEC safe harbor applies. If Motient were to be deemed an investment company, it
would become subject to the requirements of the Investment Company Act. As a
consequence, Motient would be prohibited from engaging in business as it has in
the past and might be subject to civil and criminal penalties for noncompliance.
In addition, certain of its contracts might be voidable, and a court-appointed
receiver could take control of Motient and liquidate its business.

                                       35
<PAGE>

We could lose market share and revenues as a result of increasing competition
from companies in the wireless communications industry that have greater
resources and name recognition.

We expect to face intense competition in all of our markets, which could result
in a loss of customers and lower revenues and could make it more difficult for
us to enter new markets. Our competitors include service providers in several
markets -- dedicated mobile data, PCS/cellular, narrowband PCS/enhanced paging
and emerging technology platforms. The growth in wireless data opportunities has
led traditional hardware manufacturers and software developers to invest in
technologies that will allow the migration of core products and services to a
mobile environment. Companies like IBM, Oracle Corporation, Siebel Systems,
Inc., Sun Microsystems, Inc. and Lucent Technologies, Inc. have made significant
investments in the area of mobility to guarantee their place in both the desktop
and mobile/handheld computing environments.

Our eLink service competes with a variety of services that offer two-way
messaging and PDA functionality on small, portable devices. Most of these
competing services are better established in the marketplace, and many
competitors have substantially greater financial, technical, marketing, sales,
distribution and other resources than we have. We expect that we will continue
to compete primarily with Cingular Wireless, which offers wireless data services
over its network, including Research In Motion's BlackBerry(TM) email service.
Our agreement with Research In Motion permits us to market the BlackBerry(TM)
service in the United States on the Motient network. These and other firms may
enter the markets where we focus our sales efforts, which may create downward
pressure on the prices for our services and negatively impact our returns. Many
of the existing and potential competitors have financial and other resources far
greater than those of Motient. In addition, continuing consolidation in the
communications industry, including Cingular Wireless' proposed acquisition of
AT&T Wireless, may strengthen existing competitors or give rise to significant
new competitors which would threaten our business.

In addition, a variety of new technologies, devices and services will result in
new types of competition for us in the near future. The emergence of new
protocols such as the wireless access protocol, or WAP, and the Bluetooth
protocol enable the use of the Internet as a platform to exchange information
among people with different devices running on different networks. Also, several
large wireless providers are deploying new, so-called "2.5G" and "3G"
technologies, including new forms of CDMA, time division multiple access, or
TDMA, and GSM technologies, which will increase the data capabilities of
wireless voice and data services and will have a competitive impact on our
business.

Failure to keep pace with rapidly changing markets for wireless communications
would significantly harm our business.

The technology and markets for wireless communications services change rapidly.
Our success depends, in part, on our ability to respond and adapt to change. For

                                       36
<PAGE>

example, large wireless voice carriers are in the process of expanding their
ability to offer wireless data services that may compete with our services, by
deploying "2.5G" and "3G" technologies. These technologies, which include GPRS
and 1XRTT, support both wireless voice and packet data services. While we will
endeavor to enhance the efficiency and performance of our existing data-only
network through a variety of measures, we also expect to consider, as
appropriate, alliances or other contractual arrangements with larger wireless
communications providers, so that we can continue to offer as complete an array
of data services as possible. We cannot guarantee that we will be able to
compete effectively under, or adjust our contemplated plan of development to
meet, changing market conditions. We cannot guarantee that we will be able to
implement our strategy or that our strategy will be successful in these rapidly
evolving markets. The markets for wireless communications services are also
marked by the continuous introduction of new products and services and increased
capacity for services similar to those provided by Motient. Technological
advances may also increase the efficiency of existing products or services. If a
technology becomes available that is more cost-effective or creates a superior
product, we may be unable to access this technology or finance the necessary
substantial capital expenditures that may be required. Our technology may be
rendered less profitable or less viable by existing, proposed or as yet
undeveloped technologies. We cannot guarantee that we will have the financial
and other resources available to compete effectively against companies
possessing such technologies. We are unable to predict which of the many
possible future products and services will meet evolving industry standards and
consumer demands. We cannot guarantee that we can adapt to technological changes
or offer products or services on a timely basis to establish or maintain a
competitive position.

The success of our wireless communications business depends on our ability to
enter into and maintain third party distribution relationships.

A key element of our strategy is to develop and capitalize on distribution
relationships with leading companies who can provide access to significant
numbers of potential customers in our target markets. For example, Motient has
reseller agreements with SkyTel, Metrocall, Aether Systems and Earthlink, as
well as Research In Motion. Because we are relying on these distribution
companies to enable us to acquire subscribers, our success in penetrating our
targeted markets will depend, to a large extent, on the efforts of these
distribution companies, as well as future distribution companies. The rollout of
sales efforts by these distribution companies may be subject to delays, some of
which may be outside of our control. Some of our resellers have experienced
significant financial difficulties in recent periods. Our inability to fully
capitalize on our third party distribution agreements, the termination of or
failure to renew any of these agreements, or our inability to enter into similar
distribution relationships with other leading companies could reduce our access
and exposure to potential customers.

We expect to maintain a limited inventory of devices to be used in connection
with our eLink service, and any interruption in the supply of such devices could
significantly harm our business.

                                       37
<PAGE>

We depend on independent vendors to develop and manufacture wireless
communications devices for our networks, which are significant elements of our
business plan because most of our services require these devices. Some of our
important service offering initiatives are dependent on the timely delivery of a
sufficient quantity of user devices, including the palm-sized devices used with
Motient's eLink wireless email service which are manufactured by Research In
Motion. These suppliers do not sell these devices to us on an exclusive basis.

We carry a limited inventory of these devices and generally have no guaranteed
supply arrangements. Some of these suppliers and vendors are relatively small
companies and have limited resources and production capacities. In addition,
some of our sole-source suppliers themselves rely on sole- or limited-sources of
supply for components included in their devices.

We cannot guarantee that our suppliers will be able to supply us with components
and devices in the quantities and at the times we require, or at all.

We have short-term contracts with the majority of our suppliers. We cannot
guarantee that our suppliers will continue to provide products at attractive
prices, or at all, or that we will be able to obtain products in the future from
these or other providers on the scale and within the time frames we require. On
June 26, 2003, Research In Motion provided us with a written End of Life
Notification for the RIM 857 wireless handheld device. This means that Research
In Motion will no longer be producing this model of handheld device. The last
date for accepting orders was September 30, 2003, and the last date for shipment
of devices was January 2, 2004. Motient continues to source limited quantities
of RIM 857 devices from RIM and Motient has implemented a RIM 857 and RIM 850
"equivalent to new" program and expects that there will be sufficient returned
RIM 857 and 850s to satisfy demand for the foreseeable future. If we cannot
obtain a sufficient supply of RIM 857s, it may harm our business.

Additionally, some or all of our suppliers could enter into exclusive
arrangements with our competitors, or cease selling these components at
commercially reasonable prices, or at all. Research In Motion, which is our
primary supplier of devices for our eLink wireless email service, also markets
and sells BlackBerry(TM), which is an alternative wireless email service offered
on the Cingular Interactive network. We also have an agreement with Research In
Motion permitting us to market the BlackBerryTM service in the United States on
our network. If we fail to obtain products on a timely basis at an affordable
cost, or experience any significant delays or interruptions of supply, our
business will be harmed.

If prices charged by suppliers for wireless devices do not decline as we
anticipate, our business may not experience the growth we expect.

Part of our growth is predicated on our suppliers reducing the cost of wireless
communications devices approved and available for use on our network. We believe
that reductions in the cost of wireless communications devices will result in
increased sales of devices, additional subscribers for our services and a
corresponding increase in our service revenues. If we fail to obtain cost

                                       38
<PAGE>

reductions on a timely basis, or experience any significant delays of these
reductions, our revenues could be diminished or fail to increase.

We may not be able to develop, acquire and maintain proprietary information and
intellectual property rights, which could limit the growth of our business and
reduce our market share.

Our wireless communications business depends on technical knowledge, and we
believe that our future success is based, in part, on our ability to keep up
with new technological developments and incorporate them in our products and
services. We own or have the right to use certain of our work products,
inventions, designs, software, systems and similar know-how. While we have taken
steps to diligently protect that information, there is no assurance that the
information will not be disclosed to others or that others will not
independently develop similar information, systems and know-how. Protection of
our information, systems and know-how may result in litigation, the cost of
which could be substantial. There is also no assurance that third parties will
not assert claims that our products or services, including our eLink and
BlackBerryTM by Motient service offerings, infringe on their proprietary rights.

If we are found to infringe or misappropriate a third party's proprietary
rights, we could be required to pay damages to the third party, alter our
products or services, obtain a license from the third party or cease activities
utilizing these proprietary rights, including making or selling products or
services utilizing the proprietary rights. Our inability to do any of the
foregoing on commercially favorable terms could have a material adverse impact
on our business, financial condition or results of operations.

We also rely on some technologies licensed from third parties. We cannot be sure
that these licenses will remain available on commercially reasonable terms or at
all. The loss of these technologies could require us to obtain substitute
technology of lower quality or performance standards or at a greater cost, which
could harm our business.

Patent infringement litigation against Research In Motion may impede our ability
to use and sell certain software and handheld devices.

Our rights to use and sell the BlackBerry(TM) software and Research In Motion's
handheld devices may be limited or made prohibitively expensive as a result of a
patent infringement lawsuit brought against Research In Motion by NTP Inc. (NTP
v. Research In Motion, Civ. Action No. 3:01CV767 (E.D. Va.)). In that action, a
jury concluded that certain of Research In Motion's BlackBerry(TM) products
infringed patents held by NTP covering the use of wireless radio frequency
information in email communications. On August 5, 2003, the judge in the case
ruled against Research In Motion, awarding NTP $53.7 million in damages and
enjoining Research In Motion from making, using, or selling the products, but
stayed the injunction pending appeal by Research In Motion. The appeal has not
yet been resolved. As a purchaser of those products, we could be adversely
affected by the outcome of that litigation.

                                       39
<PAGE>

Government regulation may increase our cost of providing services, slow our
expansion into new markets, subject our services to additional competitive
pressures and affect the value of our common stock.

Motient's ownership and operation of wireless communication systems are subject
to significant regulation by the FCC under authority granted by the
Communications Act of 1934 and related federal laws. There is no assurance that
the rules and regulations of the FCC will continue to support our operations as
presently conducted. A number of Motient's licenses are subject to renewal by
the FCC. We cannot guarantee that all existing licenses will be renewed and that
the requisite frequencies will be coordinated. Current federal law requires
prior FCC approval of greater than 25% ownership of Motient by citizens or
entities of foreign countries, which could limit the value of our common stock.

We face burdens relating to the recent trend toward stricter corporate
governance and financial reporting standards.

New legislation or regulations that follow the trend of imposing stricter
corporate governance and financial reporting standards, including compliance
with Section 404 of the Sarbanes-Oxley Act of 2002, may lead to an increase in
our costs of compliance. A failure to comply with these new laws and regulations
may impact market perception of our financial condition and could materially
harm our business. Additionally, it is unclear what additional laws or
regulations may develop, and we cannot predict the ultimate impact of any future
changes.

Motient's competitive position may be harmed if the wireless terrestrial network
technology it licenses from Motorola is made available to competitors.

Motient holds a non-exclusive license to use a single frequency reuse
technology. The terrestrial network, and some of its competitive strengths, such
as in-building penetration, is based upon this technology. Under the terms of
the non-exclusive license, Motorola could enter into arrangements to license
this technology to any of our competitors, and those agreements could harm our
ability to compete.

Motient could incur substantial costs if it is required to relocate its spectrum
licenses under a pending proposal being considered by the FCC.

On March 14, 2002, the FCC adopted a notice of proposed rulemaking exploring
options and alternatives for improving the spectrum environment for public
safety operations in the 800 MHz band. In connection with this proceeding,
Nextel has proposed, in a "white paper" to the FCC, that some of its wireless
spectrum in the 700 MHz band, lower 800 MHz band, and 900 MHz band be exchanged
for spectrum in the upper 800 MHz band and in the 2.1 GHz band. Nextel's
proposal creates blocks of contiguous spectrum to be shared by public safety
agencies. The Nextel proposal, as submitted to the FCC, would require that
Motient either (i) continue to operate using its existing lower 800 MHz band
spectrum on a secondary, non-interfering basis with the public safety agencies
who would be relocated in the same spectrum, or (ii) relocate, at its own
expense, to other spectrum in the 700 MHz or 900 MHz bands. Motient believes it

                                       40
<PAGE>

is highly unlikely that it could continue to operate in the lower 800 MHz bands
on a secondary, non-interfering basis. If Motient is required to relocate to
spectrum in the 700 MHz or 900 MHz bands, it would incur substantial operational
and financial costs, including costs relating to:

     o    manufacturing replacement infrastructure and user hardware to operate
          on Motient's network in the 700 MHz or 900 MHz bands;

     o    disruptions to existing customers as a result of the relocation to
          other spectrum bands;

     o    possible diminished data speed; and

     o    coverage gaps.

There are also potential problems with the 700 MHz and 900 MHz bands that might
make it difficult, if not impossible, for Motient to duplicate its existing
operations in the 800 MHz band.

On December 24, 2002, a group of affected licensees, including Motient, Nextel,
and several other licensees, submitted a detailed proposal to the FCC for
accomplishing the re-allocation of spectrum over a period of several years.
These parties have also been negotiating a mechanism by which Nextel would agree
to reimburse costs, up to $850 million, incurred by affected licensees in
relocating to different parts of the spectrum band pursuant to the rebanding
plan.

In mid-April 2003, the FCC's Office of Engineering and Technology, or OET, sent
a letter to several manufacturers requesting additional practical, technical and
procedural solutions or information that may have yet to be considered.
Responses were due May 8, 2003. Upon reviewing the filed comments, the OET has
indicated that other technical solutions were possible and were being reviewed
by the FCC.


It was reported that in March of 2004, the staff of the FCC circulated a draft
order to the five FCC Commissioners recommending adoption of the plan for the
re-allocation of the 800 MHz spectrum commonly known as the "Consensus Plan".
However, the staff apparently also recommended the rejection of Nextel's offer
to pay $850 million to recover the costs of the re-allocation of the spectrum,
as the staff apparently felt this amount to be insufficient to cover the costs
of such re-allocation. On April 8, 2004, Motient filed a request with the FCC
asking that the FCC relocate Motient into the so called "upper-800 MHz band" as
part of the Consensus Plan. The FCC did not adopt the order in April, and one
month later, the Cellular Telecommunications & Internet Association, or CTIA,
proposed a plan that would grant Nextel alternative spectrum in the less
valuable 2.1 GHz band. Verizon Wireless has advanced CTIA's and a similar plan,
and has pledged to bid $5 billion for the 1.9 GHz spectrum if those airwaves are
auctioned. Nextel has vigorously opposed the CTIA and Verizon Wireless plans,
insisting that it be allowed to relocate to the 1.9 GHz spectrum. News accounts
have stated that some senior officials at the FCC would prefer to grant Nextel
the 2.1 GHz spectrum because such a grant is less subject to a court challenge
as an impermissible sale of spectrum outside of an auction. Some members of
Congress have also expressed interest in the proceeding. Given the uncertain


                                       41
<PAGE>

outcome of this proceeding, we cannot assure you that our operations will not be
affected by it.

Our adoption of "fresh-start" accounting may make evaluating our financial
position and results of operations for 2002 and 2003, as compared to prior
periods, more difficult.

Due to our emergence from bankruptcy pursuant to the Plan of Reorganization,
effective May 1, 2002, we implemented "fresh-start" accounting. In accordance
with "fresh-start" accounting, all assets and liabilities were restated to
reflect their respective estimated fair values. As a result, the consolidated
financial statements for our reorganized company starting on and going forward
from May 1, 2002 will not be comparable to our consolidated financial statements
for the periods prior to May 1, 2002. The change in our accounting principles
may make it more difficult to compare our operations to prior periods.

Certain tax implications of our bankruptcy and reorganization may increase our
tax liability.

Certain U.S. tax attributes of Motient, including net operating loss carryovers,
or NOLs, have been reduced or eliminated as a consequence of our bankruptcy and
reorganization. The elimination or reduction of NOLs and such other tax
attributes may increase the amount of tax payable by Motient following its
reorganization as compared with the amount of tax payable had no such reduction
been required.

There is a very limited public trading market for our common stock, and our
equity securities may continue to be illiquid or experience significant price
volatility.

Our common stock is not listed on any national securities exchange or on the
Nasdaq National Market. Our common stock is quoted on the Pink Sheets under the
symbol "MNCP." On June 24, 2004, the last reported bid price for our common
stock was $10.09. We cannot assure you that a more active trading market will
develop for our common stock, or as to the degree of price volatility in any
such market.

We do not expect to pay any dividends on our common stock for the foreseeable
future.

We have never paid cash dividends on our common stock and do not anticipate
that any cash dividends will be paid on the common stock for the foreseeable
future. The payment of any dividend by us will be at the discretion of our board
of directors and will depend on, among other things, our earnings, capital
requirements and financial condition. In addition, under Delaware law, a
corporation cannot declare or pay dividends on its capital stock unless it has
an available surplus. Furthermore, the terms of some of our financing
arrangements directly limit our ability to pay cash dividends on our common
stock. The terms of any future indebtedness of our subsidiaries also may
generally restrict the ability of some of our subsidiaries to distribute
earnings or make other payments to us.

Future sales of our common stock could adversely affect its price and/or our
ability to raise capital.

                                       42
<PAGE>

Sales of substantial amounts of common stock, or the perception that such sales
could occur, could adversely affect the prevailing market price of the common
stock and our ability to raise capital. We may issue additional common stock in
future financing transactions or as incentive compensation for our executives
and other personnel, consultants and advisors. Issuing any equity securities
would be dilutive to the equity interests represented by our then-outstanding
shares of common stock. The market price for our common stock could decrease as
the market takes into account the dilutive effect of any of these issuances.

Finally, if Motient decides to file a registration statement to raise additional
capital, some of Motient's existing stockholders hold piggyback registration
rights that, if exercised, will require Motient to include their shares in the
registration statement, which could adversely affect Motient's ability to raise
needed capital.

Item 2. Properties
------------------

Motient leases approximately 86,000 square feet for headquarters office space
and an operations center in Lincolnshire, IL, the lease for which expires
December 31, 2010. On April 1, 2003, Motient subleased approximately 8,500
square feet to a third party under a sublease agreement that expires on December
31, 2005.

Motient formerly sub-leased from MSV approximately 47,000 square feet at its
headquarters in Reston, VA for office space. This sub-lease expired in August
2003. On July 15, 2003, we substantially completed the transfer of our
headquarters to Lincolnshire, IL.

Motient also leases site space for over 1,000 base stations and antennae across
the country for the terrestrial network under one-to five-year lease contracts
with varied renewal provisions.

Motient believes that its existing facilities are adequate to meet its needs for
the foreseeable future.

Item 3. Legal Proceedings
-------------------------

Motient filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code on January 10, 2002. For further details regarding this
proceeding, please see "Item 1 -- Business -- Motient's Chapter 11 Filing,"
which is incorporated herein by reference.

A former employee who was discharged as part of a reduction in force in July
2002 asserted a claim for a year's pay and attorney's fees under a change of
control agreement this employee had with Motient. The claim was subject to
binding arbitration. Although Motient believes that it had substantial defenses
on the merits, on July 11, 2003, Motient was informed that the arbitrator ruled
in the employee's favor. In August 2003, Motient made a $200,000 payment to this
employee for the disputed pay and related benefits costs and legal fee
reimbursement.

Our rights to use and sell the BlackBerry(TM) software and Research In Motion's
handheld devices may be limited or made prohibitively expensive as a result of a
patent infringement lawsuit brought against Research In Motion, or RIM, by NTP

                                       43
<PAGE>

Inc. (NTP v. Research In Motion, Civ. Action No. 3:01CV767 (E.D. Va.)). In that
action, a jury concluded that certain of RIM's BlackBerry(TM) products infringe
patents held by NTP covering the use of wireless radio frequency information in
email communications. On August 5, 2003, the judge in the case ruled against
RIM, awarding NTP $53.7 million in damages and enjoining RIM from making, using,
or selling the products, but stayed the injunction pending appeal by RIM. This
appeal has not yet been resolved. As a purchaser of those products, we could be
adversely affected by the outcome of that litigation.


On April 15, 2004, Motient filed a claim under the rules of the American
Arbitration Association in Fairfax County, VA, against Wireless Matrix
Corporation, a reseller of Motient's services, for the non-payment of certain
amounts due and owing under the "take-or-pay" agreement between Motient and
Wireless Matrix. Under this agreement, Wireless Matrix agreed to purchase
certain minimum amounts of airtime on the Motient network. In February 2004
Wireless Matrix informed Motient that it was terminating its agreement with
Motient. Motient does not believe that Wireless Matrix has any valid basis to do
so, and consequently filed the above-mentioned claim seeking over $2.6 million
in damages, which amount represents Wireless Matrix's total prospective
commitment under the agreement. In June 2004, Motient reached a favorable out of
court settlement with Wireless Matrix in which Wireless Matrix will pay Motient
$1.1 million.


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

No matters were submitted to a vote of our stockholders during the fourth
quarter of fiscal 2003.



                                       44
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
-----------------------------------------------------------------------------

Market Price of Common Stock

Our common stock is not listed on any national securities exchange or on the
Nasdaq Stock Market. Our common stock has been quoted under the symbol "MNCP" on
the Pink Sheets since May 2, 2002. Also, until May 1, 2004, the warrants to
purchase our common stock that we issued to holders of our pre-reorganization
common stock in our reorganization had been quoted under the symbol "MNCPW" on
the Pink Sheets since May 2, 2002. Our common stock and warrants to purchase
common stock were traded on the OTC Bulletin Board, but due to our failure to
timely file our Exchange Act reports, our common stock and warrants to purchase
common stock are no longer traded on the OTC Bulletin Board. The warrants to
purchase common stock that resulted from our reorganization were only
exerciseable for a two-year period following our emergence from bankruptcy on
May 1, 2002, if certain terms were met. The terms were not met and these
warrants expired, unvested, on May 1, 2004.

The following tables set forth the high and low bid prices for our Predecessor
Company's and Successor Company's common stock and warrants to purchase common
stock issued in our reorganization for the periods indicated for 2002 and 2003.
You should consider the changes in our circumstances and capitalization as a
result of our reorganization, including the fact that our common stock is a
different security from our pre-reorganization common stock, before drawing any
conclusions about the trading price of our common stock or warrants from the
information below about our pre-reorganization common stock.

Common Stock
<TABLE>
<CAPTION>

                                  2004 (Successor Company)                       High             Low
                   --------------------------------------------------------------------------------------
<S>                                                                             <C>              <C>
                   First Quarter                                                $7.45            $4.05
                   Second Quarter (through June 24, 2004)                      $10.89            $6.15
                   --------------------------------------------------------------------------------------
                                  2003 (Successor Company)                       High             Low
                   --------------------------------------------------------------------------------------
                   First Quarter                                                $4.00            $2.75
                   Second Quarter                                               $5.75            $2.00
                   Third Quarter                                                $6.35            $4.35
                   Fourth Quarter                                               $5.55            $3.50
                   --------------------------------------------------------------------------------------
                                  2002 (Successor Company)                       High             Low
                   --------------------------------------------------------------------------------------
                   Second Quarter (beginning May 1, 2002)                       $5.90            $3.60
                   Third Quarter                                                $4.45            $0.75
                   Fourth Quarter                                               $3.40            $0.65
                   --------------------------------------------------------------------------------------
                                 2002 (Predecessor Company)                      High             Low
                   --------------------------------------------------------------------------------------
                   First Quarter                                                $0.45            $0.40
                   Second Quarter (through April 30, 2002)                      $0.085           $0.036

</TABLE>

                                       45
<PAGE>

Warrants to Purchase Common Stock
<TABLE>
<CAPTION>

                        2004 (Successor Company)                                High         Low
                   --------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>
                   First Quarter                                                $0.25        $0.02
                   Second Quarter (through May 1, 2004)                         $0.11        $0.001
                   --------------------------------------------------------------------------------------
                        2003 (Successor Company)                                High         Low
                   --------------------------------------------------------------------------------------
                   First Quarter                                                $0.25        $0.05
                   Second Quarter                                               $0.35        $0.07
                   Third Quarter                                                $0.40        $0.12
                   Fourth Quarter                                               $0.20        $0.02
                   --------------------------------------------------------------------------------------
                        2002 (Successor Company)                                High         Low
                   --------------------------------------------------------------------------------------
                   Second Quarter (beginning May 1, 2002)                       $3.00        $0.25
                   Third Quarter                                                $0.50        $0.15
                   Fourth Quarter                                               $0.38        $0.01
</TABLE>


The high and low sales prices represent the intra-day prices on the OTC Bulletin
Board during the periods in which we were quoted on the OTC Bulletin Board, and
on the Pink Sheets thereafter. The warrants to purchase common stock were issued
as part of Motient's reorganization. In prior periods, no warrants were quoted
on any exchange or similar service. The quotations represent inter-dealer
quotations, without retail markups, markdowns or commissions, and may not
necessarily represent actual transactions.


On June 24, 2004, the last reported bid price of our common stock was $10.09 per
share on the Pink Sheets. As of June 24, 2004, there were approximately 25
record holders of our common stock. The warrants to purchase our common stock
were issued in conjunction with our reorganization and expired on May 1, 2004.
They were never exercisable.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock and do
not plan to pay dividends on our capital stock for the foreseeable future. Our
current credit facility and other financing documents prohibit us from paying
cash dividends.

We anticipate that all of our earnings in the foreseeable future will be
retained to finance the continued growth and development of our business, and we
have no current intention to pay dividends. Our future dividend and distribution
policy will depend on our earnings, capital requirements and financial
condition, requirements of the financing arrangements to which we are a party
and other factors considered relevant by our board of directors. There can be no
assurance that we will pay dividends on our capital stock at any time in the
future.

Recent Sales of Unregistered Securities

On January 27, 2003, in connection with the execution of our term credit
agreement, we issued warrants at closing to the lenders to purchase, in the
aggregate, 3,125,000 shares of our common stock. The exercise price for these

                                       46
<PAGE>

warrants is $1.06 per share. The warrants were immediately exercisable upon
issuance and have a term of five years. The warrants were issued in reliance
upon the exemption afforded by Section 4(2) of the Securities Act.


On July 29, 2003, in connection with the execution of the letter agreement with
Further Lane, under which Further Lane is providing investment advisory services
to us, we issued Further Lane a warrant to purchase 200,000 shares of our common
stock. The exercise price of the warrant is $5.10 per share. The warrant was
immediately exercisable upon issuance and has a term of five years. The warrant
was issued in reliance upon the exemption afforded by Section 4(2) of the
Securities Act.


No underwriters were involved in any of the foregoing distributions of
securities.

Item 6. Selected Financial Data
-------------------------------


The following table summarizes our financial results as of and for the fiscal
years ended December 31, 1999 through December 31, 2001, the four months ended
April 30, 2002, the eight months ended December 31, 2002, and the year ended
December 31, 2003. The consolidated balance sheet data and the consolidated
statement of operations data as of and for the year ended December 31, 1999 are
derived from the consolidated financial statements of Motient, which were
audited by Arthur Andersen LLP, independent accountants who have ceased
operations. The other consolidated balance sheet data and the other consolidated
statement of operations data are derived from the consolidated financial
statements of Motient, which were audited by Ehrenkrantz Sterling & Co. LLC,
independent public accounting firm, except for the December 31, 2003 balance
sheet, which were audited by Friedman LLP, successors-in-interest to Ehrenkrantz
Sterling & Co. LLC. The financial statements for certain historical periods have
been restated to give effect to the accounting treatment with respect to the MSV
transactions, Aether Systems transactions and certain additional financial
statement adjustments discussed in the Introductory Note and in greater detail
in Note 2, "Significant Accounting Policies - Restatement of Financial
Statements," of notes to the consolidated financial statements. All of the
financial information for Motient up to and including April 30, 2002 is referred
to as "Predecessor Company" results. The financial information for Motient for
the periods subsequent to April 30, 2002 are referred to as "Successor Company"
results.


You should read our selected financial data in conjunction with the information
contained in "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes thereto included elsewhere in this report. In reading the
following selected financial data, please note the following:

     o    Effective May 1, 2002, as a result of our emergence from bankruptcy,
          we adopted "fresh-start" accounting in accordance with American
          Institute of Certified Public Accountants Statement of Position 90-7,
          "Financial Reporting by Entities in Reorganization under the
          Bankruptcy Code". "Fresh-start" accounting has resulted in material

                                       47
<PAGE>
          changes to financial statements for periods beginning after May 1,
          2002, to reflect adjustments required pursuant to SOP 90-7 to record
          assets and liabilities at fair values in accordance with procedures
          specified by Statement of Financial Accounting Standards No. 141,
          "Business Combinations".

     o    Because the summary financial data below relates to periods prior to
          May 1, 2002, the effective date we emerged from bankruptcy, we refer
          to the summary financial data as that of the Predecessor Company. Due
          to the reorganization and implementation of SOP 90-7, financial
          statements issued for periods beginning after May 1, 2002 will not be
          comparable to that of the Predecessor Company.

     o    In November 2002, we initiated a process to seek the concurrence of
          the staff of the SEC with respect to our conclusions of the
          appropriate accounting for the formation of and certain transactions
          with MSV in 2000 and 2001 and the sale of certain of our
          transportation assets to Aether Systems in 2000. This process was
          completed in March 2003. The staff of the SEC did not object to
          certain aspects of our prior accounting with respect to the MSV and
          Aether Systems transactions, but did object to other aspects of our
          prior accounting for these transactions. For a description of the
          material differences between our original accounting treatment with
          respect to the MSV and Aether Systems transactions and the revised
          accounting treatment that we concluded is appropriate as a result of
          this process, please see Note 2, "Significant Accounting Policies -
          Restatement of Financial Statements," of notes to the consolidated
          financial statements and our current report on Form 8-K dated March
          14, 2003.

     o    As a result of our re-audit of the years ended December 31, 2000 and
          2001 performed by, Ehrenkrantz Sterling & Co. LLC, certain additional
          financial statement adjustments were proposed and accepted by us for
          the periods noted above. See Note 2, "Significant Accounting Policies"
          of notes to the consolidated financial statements.

                      Selected Consolidated Financial Data
                  (Amounts in thousands except per share data)
<TABLE>
<CAPTION>

                                               Successor Company                         Predecessor Company(1)(2)(3)(4)
                                           -----------------------------------------------------------------------------------

                                                          Eight Months    Four Months   (Restated)      (Restated)
                                             Year Ended       Ended          Ended       Year Ended     Year Ended    Year Ended
                                            December 31,   December 31,    April 30,    December 31,   December 31,   December 31,
                                                2003          2002           2002          2001            2000           1999
                                                ----          ----           ----          ----            ----           ----
<S>                                      <C>            <C>            <C>            <C>            <C>            <C>
Revenues                                 $    54,485    $    36,617    $    22,373    $    90,265    $    95,756    $    91,071
Operating Loss                               (45,702)       (33,800)       (21,430)       (97,223)      (182,914)      (224,392)
Income (loss) before
reorganization items                         (62,122)       (58,786)       (24,138)      (267,000)      (134,851)      (330,931)

Reorganization items                              --           (772)       256,116         (2,497)        (3,035)            --

Income tax provision                              --             --             --             --             --             --

Net (loss) income                            (62,122)       (59,558)       231,978       (269,497)      (137,886)      (330,931)

XM radio preferred stock
dividend requirement                              --             --             --             --         (5,081)            --

XM beneficial conversion                          --             --             --             --        (44,438)            --
                                           ---------      ---------       --------     ----------     ----------     ----------
Net (loss) income before
cumulative effect of accounting
change                                   $   (62,122)   $   (59,558)   $   231,978    $  (269,497)   $  (187,405)   $  (330,931)
                                           ---------      ---------       --------     ----------     ----------     ----------
Cumulative effect of change in
accounting principle                              --             --             --             --         (4,677)            --
Net (loss) income attributable
to common shareholders                   $   (62,122)   $   (59,558)   $   231,978    $  (269,497)   $  (192,082)   $  (330,931)
                                           ---------      ---------       --------     ----------     ----------     ----------
Basic and diluted net income
(loss) per common share                  $     (2.47)   $     (2.37)   $      3.98    $     (5.27)   $     (3.89)   $     (8.33)
Weighted-average common shares
outstanding during the period -
basic and diluted                             25,145         25,097         58,251         51,136         49,425         39,704
Total assets                                 157,028        202,221        257,401        240,465      1,572,036        809,948
Long term liabilities                    $    33,189    $    33,913    $    29,785    $    30,652    $   753,376    $   470,784

</TABLE>

                                       48
<PAGE>

     (1) Motient restated certain of its financial data reflected above to
     reflect certain transactions with MSV in 2000 and 2001, the sale of assets
     to Aether Systems in 2000 and certain additional adjustments. For further
     information, please see Note 2, "Significant Accounting Policies -
     Restatement of Financial Statements," of notes to the consolidated
     financial statements herein.

     (2) As of December 31, 2000, we had an equity interest of approximately
     33.1% (or 21.3% on a fully diluted basis) in XM Radio, a public company
     that launched its satellite radio service at the end of 2001, and we
     controlled XM Radio through our board of director membership and common
     stock voting rights. As a result, all of XM Radio's results for the period
     from July 7, 1999 (the date we acquired 100% voting interest of XM Radio)
     through December 31, 2000 have been included in our consolidated financial
     statements. Prior to July 7, 1999, our investment in XM Radio was accounted
     for pursuant to the equity method of accounting. In January 2001, pursuant
     to FCC approval to cease to control XM Radio, the number of directors that
     we appointed to XM Radio's board of directors was reduced to less than 50%
     of XM Radio's directors, and we converted a portion of our super-voting
     Class B common stock of XM Radio to Class A common stock. As a result, we
     ceased to control XM Radio, and as of January 1, 2001, we accounted for our
     investment in XM Radio pursuant to the equity method of accounting. During
     2001, we disposed of all of our remaining shares of XM Radio and ceased to
     hold any interest in XM Radio as of November 19, 2001. For further
     information, please Note 13, "Business Acquisitions and Dispositions--XM
     Radio," of notes to the consolidated financial statements herein.

     (3) In June 2000, we formed a joint venture subsidiary, MSV, in which we
     owned 80% of the membership interests. The remaining 20% interests in MSV
     were owned by three investors unrelated to Motient; however, the minority
     investors had the right to participate in certain MSV business decisions
     that were made in the normal course of business; therefore, in accordance
     with EITF Issue No 96-16, "Investor's Accounting for an Investee When the
     Investor Has a Majority of the Voting Interest but the Minority Shareholder
     or Shareholders Have Certain Approval or Veto Rights", our investment in
     MSV has been recorded for all periods presented in the consolidated
     financial statements included in this annual report pursuant to the equity
     method of accounting. On November 26, 2001, Motient sold the assets
     comprising its satellite communications business to MSV. For further
     information, please see Note 1, "Organization and Going Concern," and Note
     13, "Business Acquisitions and Dispositions," of notes to the consolidated
     financial statements herein.

     (4) In November 2000, Motient sold assets related to its retail
     transportation business to Aether Systems. Concurrently with the closing of
     the asset sale, we and Aether Systems entered into two long-term, prepaid
     network airtime agreements with a total value of $20 million, of which $5
     million was paid at closing, pursuant to which Aether Systems agreed to
     purchase airtime on Motient's satellite and terrestrial networks. Aether
     Systems also became an authorized reseller of Motient's eLink and
     BlackBerry(TM) by Motient wireless email service offerings. Aether Systems
     acquired all of the assets used or useful in the retail transportation
     business, and assumed the related liabilities. Aether Systems also
     purchased the existing inventory in the business. For further information,
     please see Note 1 "Organization and Going Concern," and Note 13, "Business
     Acquisitions and Dispositions," of notes to the consolidated financial
     statements herein.



                                      49
<PAGE>


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

Overview and Introduction


The following Management's Discussion and Analysis is intended to help the
reader understand Motient Corporation. It is provided as a supplement to, and
should be read in conjunction with, our financial statements and the
accompanying notes.

It should also be read and understood in the context of several material
accounting issues, namely (1) the effect of fresh-start accounting following our
emergence from bankruptcy on May 1, 2002, and (2) the resolution of the
appropriate accounting treatment with respect to transactions involving Aether
Systems Inc. and Mobile Satellite Ventures, and the resultant delay in the
filing of our 2002 and 2003 quarterly and annual reports on Forms 10-Q and 10-K,
respectively, which have only been recently filed.

As a result of the re-audit of the years ended December 31, 2000 and 2001
performed by Ehrenkrantz Sterling & Co. LLC, certain additional financial
statement adjustments were proposed and accepted by us for the periods noted
above (See Note 2, "Significant Accounting Policies" of notes to the
consolidated financial statements). Our financial statements for the years ended
December 31, 2000 (restated) and December 31, 2001 (restated) and the period
from January 1, 2002 to April 30, 2002 (restated) and May 1, 2002 to December
31, 2002 have been audited by Ehrenkrantz Sterling & Co. LLC. Friedman LLP
(successor-in-interest to Ehrenkrantz Sterling & Co. LLC) has audited our
financial statements for the year ended December 31, 2003 (see Item 9. "Changes
in and Disagreements with Accountants on Accounting an Financial Disclosure").
For a description of the material differences between our original accounting
treatment with respect to the MSV and Aether Systems transactions and the
revised accounting treatment that we concluded is appropriate as a result of
this process, please see Note 2, "Significant Accounting Policies - Restatement
of Financial Statements," of notes to the consolidated financial statements and
our current report on Form 8-K dated March 14, 2003.

Core Wireless Business

We are a nationwide provider of two-way, wireless mobile data services and
wireless Internet services. We own and operate a wireless radio data network
that provides wireless mobile data service to customers across the United
States, and we generate revenue primarily from the sale of airtime on this
network and from the sale of communications devices to our customers. Our
customers use our network and our wireless applications for wireless email
messaging and wireless data transmission, enabling businesses, mobile workers
and consumers to wirelessly transfer electronic information and messages and to
access corporate databases and the Internet. Our network is designed to offer a
broad array of wireless data services, such as:

     o    two-way mobile Internet services, including our own eLink(SM) wireless
          email service and our BlackBerry(TM) by Motient wireless email
          service, each providing their users with wireless access to a broad
          range of email and information services to personal consumers and
          corporate customers;

                                       50
<PAGE>

     o    wireless data systems used by companies involved in data transmission
          and processing, used to connect remote equipment, such as wireless
          point-of-sale terminals, with a central monitoring facility; and

     o    mobile data and mobile management systems used by transportation and
          other companies to wirelessly coordinate remote, mobile assets and
          personnel.

Of our revenues for the year ended December 31, 2003, just over 50% were
generated in connection with our own eLinkSM wireless email service and our
BlackBerry(TM) by Motient wireless email service, our "wireless Internet" market
segment. These wireless email services are utilized by our customers primarily
in conjunction with Research In Motion's RIM 850 and 857 wireless handheld
devices. On June 26, 2003 Research In Motion provided us with a written End of
Life Notification for the RIM 857 wireless handheld device. This means that
Research In Motion will no longer produce this model of handheld device. The
last date for shipment of devices was January 2, 2004. Motient continues to
purchase limited quantities of RIM 857 devices from RIM and Motient has
implemented a RIM 857 "equivalent to new" program and expects that there will be
sufficient returned RIM 857s to satisfy demand for the foreseeable future. We
anticipate reduced demand for these devices in the future due to the
availability of newer, voice-capable devices, which will not work on our
network. Even if there is a sufficient supply of these devices, however, our
rights to use and sell the devices, as well as the BlackBerry(TM) software, may
be limited or made prohibitively expensive as a result of a patent infringement
lawsuit brought against Research In Motion by NTP Inc. (NTP v. Research In
Motion, Civ. Action No. 3:01CV767 (E.D. Va.)). Although the judge in the case
initially ruled against Research in Motient, his ruling has been stayed pending
the resolution of Research in Motient's appeal, which has not yet been resolved.

However, aside from our ability to obtain this hardware, the End of Life
Notification by Research In Motion may be considered indicative of the desire of
Research In Motion in particular and consumers in general to move to new
technologies that cannot be supported on Motient's network, such as wireless
handheld devices that are data and voice capable.

We intend to offset this potential loss of customers in this market segment in a
variety of ways. Through agreements with Verizon Wireless and T-Mobile USA
established in March and May 2003, we are able to sell devices and airtime to
our current wireless Internet customers for use on the Verizon or T-Mobile
networks. This will allow us to generate some revenues from customers that we
would otherwise lose to newer technologies. In addition, we plan to focus our
growth efforts on applications that make efficient use of our network. Certain
applications have certain key attributes that make efficient use of the Motient
network. For example, applications to conduct wireless point-of-sale
transactions, and transportation and dispatching applications, typically have
small bandwidth requirements and can be designed to utilize the network on a 24
hours per day, 7 days per week basis, thus smoothing loading requirements and

                                       51
<PAGE>

optimally using our existing network capacity. We believe that these kinds of
applications are poised for significant growth and that this growth can be
accommodated efficiently on our existing network, and we have signed agreements
with several resellers that specialize in these kinds of applications.

We also intend to take advantage of this potential loss of wireless Internet
customers by undertaking to reduce our overall fixed network cost structure.
Additionally, this reduction in overall cost structure may be considered
necessary given a variety of factors that have hindered our growth since our
emergence from bankruptcy in May 2002, including the weak economy generally and
the weak telecommunications and wireless sector specifically, the financial
difficulty of several of our key resellers, on whom we rely for a majority of
our new revenue growth, and our continued limited liquidity. We believe that
these cost reduction efforts will assist in lowering our cash burn rate. They
may be summarized as follows:

     o    Reductions in Workforce. We undertook reductions in March 2003 and
          February 2004. These actions eliminated approximately 10% (19
          employees) and 32.5% (54 employees), respectively, of our
          then-remaining workforce. In the aggregate, we have reduced our work
          force by approximately 39% since December 31, 2002 and reduced
          employee and related expenditures by approximately $500,000 per month.

     o    Network Rationalization. We are in the process of reducing the number
          of base stations in our network in a coordinated effort to reduce
          network operating costs. Our objective is to reduce unneeded capacity
          across the network by deconstructing under-utilized and un-profitable
          base stations. In certain instances, the geographic area that the
          network serves may be reduced by this process. The full extent of the
          changes to network coverage have yet to be determined.

     o    Closure of Reston, VA Facility. On July 15, 2003, we substantially
          completed the transfer of our headquarters to Lincolnshire, IL, where
          we already had a facility. This action reduced our monthly operating
          expenses by an amount of approximately $65,000 per month or $780,000
          per year.

     o    Refinancing of Vendor Obligations and Certain Customer Arrangements.
          During the fourth quarter of 2002 through the second quarter of 2004,
          we renegotiated several of our key vendor and customer arrangements in
          order to reduce recurring expenses and improve our liquidity position.
          In some cases, we were able to negotiate a flat rate reduction for
          continuing services provided to us by our vendors or a deferral of
          payable amounts, and in other cases we renegotiated the scope of
          services provided in exchange for reduced rates or received
          pre-payments for future services. We continue to aggressively pursue
          further vendor cost reductions where opportunities arise.

On December 1, 2002, we entered into a letter agreement with UPS, under which
UPS agreed to make a series of eight prepayments to us totaling $5 million for
future services we are obligated to provide to it after January 1, 2004. In
addition to any other rights it has under its network services agreement with

                                       52
<PAGE>

us, the letter agreement provides that UPS may terminate the network services
agreement, in whole or in part, by providing 30 days' notice to us, at which
point the remaining prepayment would be required to be repaid. As of July 31,
2003, all eight prepayments had been made. The $5 million prepayment is credited
against airtime services provided to UPS beginning January 1, 2004, until the
prepayment is fully credited. Based on UPS' current level of network airtime
usage, we do not expect that UPS will be required to make any cash payments to
us in 2004 for service provided during 2004. Additionally, given the generally
declining usage of our network by UPS resulting from their migration to newer
technologies, we do not anticipate that UPS will be required to make any cash
payments to us for service provided for several years, unless their usage on our
network begins to increase.

Despite these initiatives, we continue to be cash flow negative, and there can
be no assurances that we will ever be cash flow positive.



Mobile Satellite Ventures LP

As of July 2004, we also own a 29.5% interest (assuming conversion of all
outstanding convertible notes) in Mobile Satellite Ventures LP (commonly known
as MSV), a provider of mobile satellite-based communications services. Although
Motient has certain rights to appoint directors to the sole general partner of
MSV, as a limited partner, it does not have any direct or indirect operating
control over MSV. MSV currently has two satellites, which allow customers access
to satellite-based wireless data, voice, fax and dispatch radio services almost
anywhere in North and Central America, northern South America, the Caribbean,
Hawaii and in various coastal waters. MSV is also developing a next-generation
system, a hybrid satellite/terrestrial wireless network over North America that
will utilize new satellites working with MSV's patented "ancillary terrestrial
component" technology. MSV will be able to deploy terrestrial two-way radio
network technology in thousands of locations across the United States, allowing
subscribers to integrate satellite-based communications services with more
traditional land-based wireless communications services.

MSV was formed on June 29, 2000, when we formed a joint venture subsidiary, in
which we owned 80% of the membership interests. The remaining 20% interest in
MSV was owned by three investors unrelated to Motient; however, the minority
investors had certain participating rights which provided for their
participation in certain business decisions that were made in the normal course
of business; therefore, in accordance with Emerging Issues Task Force Issue No
96-16, "Investor's Accounting for an Investee When the Investor Has a Majority
of the Voting Interest but the Minority Shareholder or Shareholders Have Certain
Approval or Veto Rights", our investment in MSV has been recorded for all
periods presented in the consolidated financial statements included in this
annual report pursuant to the equity method of accounting.

Through November 26, 2001, MSV used our satellite network to conduct research
and development activities. On November 26, 2001, we sold the assets comprising
our satellite communications business to MSV, as part of a transaction in which
certain other parties joined MSV, including TMI, a Canadian satellite services

                                       53
<PAGE>

provider. In consideration for our satellite business assets, we received the
following: (i) a $24.0 million cash payment in June 2000, (ii) a $45.0 million
cash payment paid at closing, of which $4.0 million was held by MSV related to
our sublease of real estate from MSV, and (iii) a five-year $15.0 million note.
Motient has recorded the $15.0 million note receivable from MSV, plus accrued
interest thereon at its fair value, estimated to be approximately $13.0 million
at the May 1, 2002 fresh-start accounting date, after giving effect to
discounted future cash flows at market interest rates. In this transaction, TMI
also contributed its satellite communications business assets to MSV. In
addition, we purchased a $2.5 million convertible note issued by MSV, and
certain other investors, including a subsidiary of Rare Medium, purchased a
total of $52.5 million of MSV convertible notes. On August 12, 2002, we funded
an additional $957,000 to MSV pursuant to a rights offering, and received a new
convertible note in such amount.

On August 21, 2003, two investors in MSV (excluding Motient) invested an
additional $3.7 million in MSV in exchange for Class A preferred units of
limited partnership interests in MSV.

On April 2, 2004, certain MSV equityholders, but not Motient, consummated an
additional investment into MSV, and of the $17.6 million in proceeds, $5.0
million was used to repay outstanding indebtedness of MSV, including $2.0
million of accrued interest under the $15.0 million promissory note issued to
Motient by MSV.

In November 2003, we engaged Communications Technology Advisors, or CTA, to
perform a valuation of our equity interests in MSV as of December 31, 2002.
Concurrent with CTA's valuation, Motient reduced the book value of its equity
interest in MSV from $54 million (inclusive of our $2.5 million convertible note
from MSV) to $41 million as of May 1, 2002 to reflect certain preference rights
on liquidation of certain classes of equity holders in MSV. Including its notes
receivable from MSV ($13 million at May 1, 2002), the book value of Motient's
aggregate interest in MSV as of May 1, 2002 was reduced from $67 million to
$53.9 million. Also, as a result of CTA's valuation of MSV, we determined that
the value of our equity interest in MSV was impaired as of December 31, 2002.
This impairment was deemed to have occurred in the fourth quarter of 2002.
Motient reduced the value of its equity interest in MSV by $15.4 million as of
December 31, 2002. Including its notes receivable from MSV ($19 million at
December 31, 2002), the book value of Motient's aggregate interest in MSV was
$32 million as of December 31, 2002. It was determined that there was no further
impairment of this interest in MSV as of December 31, 2003. For additional
information concerning this valuation process, please see Note 2, "Significant
Accounting Policies," of notes to the consolidated financial statements.



Results of Operations

                                       54
<PAGE>

Due to the consummation of our bankruptcy and the application of our
"fresh-start" accounting, results of operations for the periods after April 30,
2002 are not comparable to the results for previous periods. However, for the
discussion of results of operations, the four months ended April 30, 2002
(Predecessor Company) has been combined with the eight months ended December 31,
2002 (Successor Company) and then compared to the year ended December 31, 2003.
Differences between periods due to "fresh-start" accounting adjustments are
explained when necessary.

Years Ended December 31, 2003 and 2002


In the year ended December 31, 2003 as compared to the same period of 2002, we
experienced the loss of certain large customers, primarily as a result of those
customers' concern with regard to our financial constraints and the continued
viability of our business in the second half of 2002 and 2003. After our
reorganization, we were required to take numerous actions to reduce our cost
structure and change our operating strategy, which included reductions in the
number of employees and changes in senior management, among other things. These
actions were viewed negatively by certain of our customers and we were unable to
convince them otherwise despite expending considerable effort. During 2003, our
mobile wireless Internet revenue base continued to grow as compared to 2002 as
result of expanding our base of units in our existing corporate accounts in this
segment. Our existing reseller channel partners represented a significant
portion of the revenue growth during this period. The termination of the
manufacture of RIM 850 and 857 devices by Research in Motion, as well as the
increased competition from other wireless carriers offering converged voice and
data devices that utilize newer networks such as 1XRT and GPRS, will hamper our
ability to continue to grow wireless internet revenues in 2004. We are exploring
ways to protect against this anticipated revenue loss, such as our introduction
of the sale of products under our agreements with T-Mobile and Verizon Wireless.

We are also working proactively to lower our cost structure in anticipation of
this revenue loss. We believe that several components of our cost structure are
much larger than required for our relative business size. We have been
successful in dramatically reducing our cost structure in our continued efforts
to improve our profitability.



Subscriber Statistics


Our customer base can be generally divided into five broad categories, Wireless
Internet, Field Services, Transportation, Telemetry and Other. Wireless Internet
primarily consists of customers using our network and applications to access
certain Internet functions, like email. Devices and airtime used by
transportation and shipping companies, or by personnel in the field service
industries (such as repair personnel), for dispatching, routing and other vital
communications functions are known as Transportation and Field Service,
respectively. Telemetry typically covers devices and airtime used to connect
remote equipment, such as wireless point-of-sale terminals, with a central
monitoring facility. Other revenues may consist of sales commissions, consulting
fees or development fees.


                                       55
<PAGE>

The table below summarizes as of December 31, 2003 and 2002 the make up of our
subscriber base. Wireless devices may be divided into three categories:
registered, active and billable. Registered devices represent devices that our
customers have registered for use on our network. Certain numbers of these
devices may be kept in inventory by our customers for future use and generally
are not revenue producing. Customers can move such inventory into a production
status upon which it typically becomes billable and generates revenue. However,
billable units may not pass traffic and thus will not be counted as active. We
count a device as active when it is removed from inventory by the customer and
transmits greater than zero kilobytes of data traffic.

<TABLE>
<CAPTION>
                                                         As of December 31,
                                                2003                            2002
                                                                                                        % Change
                                                                                                        --------
                                  Registered   Billable   Active  Registered   Billable  Active  Registered   Billable     Active
                                  ----------   --------   ------  ----------   --------  ------  ----------   --------     ------
<S>                                  <C>        <C>       <C>      <C>        <C>       <C>            <C>      <C>           <C>
Wireless Internet                    106,600    69,673    51,179   106,082    71,620    56,070         0%       (3)           (9)%
Field Services                        17,468    16,415     9,851    30,263    28,955    20,462       (42)      (43)          (52)
Transportation (1)                    45,902    39,344    39,513    94,825    83,431    83,815       (52)      (53)          (53)
Telemetry                             32,420    23,947    13,444    30,171    23,733    13,315         7         0             0
All Other                              1,305     1,043       584       653       887       572       100        17             2
                                    --------   -------   -------   -------   -------   -------      -----      ----          -----
  Total                              203,695   150,422   114,571   261,994   208,626   174,234       (22)%     (28)          (34)%
                                    ========   =======   =======   =======   =======   =======      =====      ====          =====
</TABLE>

     (1)  UPS migrated their units to another network over the course of the
          second half of 2003. At December 31, 2002, UPS had 70,955 units
          registered on Motient's network. At December 31, 2003, UPS had 11,829
          units registered on Motient's network.
Revenue

The table below sets forth, for the periods indicated, a year-over-year
comparison of the key components of our revenue:


<TABLE>
<CAPTION>
                                                                   Predecessor
                                     Successor Company               Company
                                     -----------------               -------

                                                Eight Months                         Combined Year
                                Year Ended          Ended       Four Months Ended        Ended
                               December 31,     December 31,        April 30,        December 31,
Summary of Revenue                 2003             2002               2002              2002         Change     % Change
------------------                 ----             ----               ----              ----         ------      -------
(in millions)
<S>                                <C>              <C>              <C>                 <C>             <C>        <C>
Wireless Internet                  $27.8            $15.5            $ 5.6               $21.1           $6.7       32%
Field Services                       9.9             10.5              5.6                16.1           (6.2)     (39)
Transportation                       7.9              7.4              4.1                11.5           (3.6)     (31)
Telemetry                            2.3              1.8              0.8                 2.6           (0.3)     (12)
All Other                            1.4              0.3              0.7                 1.0            0.4       40
                                     ---              ---              ---                 ---            ---       --
     Service Revenue               $49.3            $35.5            $16.8               $52.3          $(3.0)      (6)
     Equipment Revenue               5.2              1.1              5.6                 6.7           (1.5)     (22)
                                     ---              ---              ---                 ---           -----     ----
         Total                     $54.5            $36.6            $22.4               $59.0          $(4.5)      (8)%
                                   =====            =====            =====               =====          ======      ====
</TABLE>


The decrease in service revenue in 2003 revenue year-over-year was primarily the
result of decreases in field services and transportation revenues, partially
offset by an increase in revenue in the wireless internet segment.

                                       56
<PAGE>


UPS deactivated a significant number of units on our network during the third
and fourth quarters of 2003 and our revenue from UPS declined significantly
during this period. If we cannot generate additional revenue from other sources
to offset this lost revenue, our overall revenues will decline in the future.
Total revenues declined for the reasons given above, and also as a result of a
22% decrease in equipment revenue. By market segment, we note:

     o    Wireless Internet: The revenue growth in the Wireless Internet sector
          during this period represented our focus on expanding the adoption of
          eLink and BlackBerry(TM) wireless email offerings to corporate
          customers with both direct sales people and reseller channel partners.
          Our existing reseller channel partners represented a significant
          portion of the revenue growth during this period. The number of
          wireless internet units registered on our network did not change
          materially from 2002 to 2003. The increase in revenues was a result of
          the activation of existing registered units into service. The
          termination of the manufacture of 850 and 857 devices by Research in
          Motion, as well as the increased competition from other wireless
          carriers offering converged voice and data devices that utilize newer
          networks, will hamper our ability to continue to grow wireless
          internet revenues in 2004.

     o    Field Service: The decrease in field service revenue is primarily the
          result of the termination of several customer contracts, including NCR
          Corporation, Sears, Lanier, and Bank of America, as well as the
          general reduction of units and rates across the remainder of our field
          service customer base, primarily IBM, and certain consulting revenues
          included in 2002 that were not included in 2003. We believe that the
          technology requirements of this market segment are more compatible
          with our network than the wireless Internet market segment, and we are
          making efforts to grow this segment.

     o    Transportation: The decrease in revenue from our transportation
          segment was primarily the result of UPS migrating a majority of its
          units to another network provider over the course of the second half
          of 2003. UPS represented $0.3 million of revenue for the three months
          ended December 31, 2003, as compared to $2.5 million for the three
          months ended December 31, 2002. Another reason for the decrease was
          the elimination, as part of fresh-start accounting, of the recognition
          of deferred revenue that resulted from the sale of intellectual
          property license sold to Aether Systems Inc. in 2000. These decreases
          were partially offset by an increase in units and usage for AMSC and
          Metra. We believe that the technology requirements of this market
          segment are more compatible with our network than the wireless
          Internet market segment, and we are making efforts to grow this
          segment.

     o    Telemetry: Although subscriber units grew by 2,249 or 7%
          year-over-year, this growth was offset by other churn and negative
          rate changes in other telemetry accounts. We believe that the
          technology requirements of this market segment are more compatible
          with our network than the wireless Internet market segment, and we are
          making efforts to grow this segment.


                                       57
<PAGE>

     o    Other Revenue: The increase in other revenue was primarily
          attributable to commissions earned pursuant to the agency and dealer
          agreements with Verizon Wireless and T-Mobile USA. Revenue growth in
          this market segment will depend on our ability to generate new
          customers for these products as well as migrating customers from our
          own network to these newer technologies.

     o    Equipment Revenue: The decrease in equipment revenue was primarily a
          result of our decision to decrease the prices for our equipment to
          customers over the course of the second quarter of 2002 due to lower
          sales of certain of our customer devices and our assessment of market
          conditions, demand and competitive pricing dynamics. These reductions
          in equipment revenue were partially offset by the sales of devices
          attributable to the agency and dealer agreements with Verizon Wireless
          and T-Mobile USA.

For the year ended December 31, 2003, five customers accounted for approximately
47% of our service revenue, with two customers, UPS and SkyTel, each accounting
for more than 11%. As of December 31, 2003, no single customer accounted for
more than 6% of our net accounts receivable. The revenue attributable to such
customers varies with the level of network airtime usage consumed by such
customers, and none of the service contracts with such customers requires that
the customers use any specified quantity of network airtime, nor do such
contracts specify any minimum level of revenue. There can be no assurance that
the revenue generated from these customers will continue in future periods.


Due to the bankruptcy of WorldCom, beginning in the quarter ended June 30, 2002,
we reserved 100% of all amounts then due from Skytel, a wholly-owned subsidiary
of WorldCom. In October 2002, we received payment from SkyTel of a significant
portion of the amount of our pre-petition claim amount. We have received full,
timely payments thereafter and believe that amounts from SkyTel are currently
fully collectible.

Expenses


The table below summarizes, for the periods indicated, a year-over-year
comparison of the key components of our operating expenses.


<TABLE>
<CAPTION>
                                                                            Predecessor
                                                Successor Company             Company
                                                -----------------             -------

                                                            Eight Months      Four Months Combined Year
                                            Year Ended         Ended             Ended       Ended
                                           December 31,      December 31,       April 30,  December 31,
Summary of Expense                           2003(1)           2002              2002         2002         Change    % Change
------------------                           -------           ----              ----         ----         ------     -------
(in millions)
<S>                                          <C>              <C>               <C>           <C>            <C>        <C>
Cost of Service and Operations               $51.4            $38.1             $21.9       $ 60.0        $ (8.6)     (14)%
Cost of Equipment Sales                        5.9              2.2               6.0          8.2          (2.3)     (28)
Sales and Advertising                          4.6              4.8               4.3          9.1          (4.5)     (49)
General and Administration                    11.3              9.7               4.1         13.8          (2.5)     (18)
Restructuring Charges                           --               --               0.6          0.6          (0.6)    (100)
Depreciation and Amortization                 21.5             15.5               6.9         22.4          (0.9)      (4)
Loss on Impairment of Asset                    5.5               --                --           --           5.5       --
(Gain) loss on disposal of assets              3.0              2.1               0.6          2.7           0.3      0.1
(Gain) on sale of transportation
      and satellite assets                      --             (0.3)             (0.4)        (0.7)          0.7      100
                                            ------            -----             -----       ------        ------     ----
         Total Operating                    $103.2            $72.1             $44.0       $116.1         $12.9     (11)%
                                            ======            =====             =====       ======        ======     ====
</TABLE>

(1)  Includes compensation expense of $603 thousand related to the market value
     of employee stock options.


                                       58
<PAGE>


     o    Cost of Service and Operations: Our largest single cost center is the
          cost of service and operations, which includes costs to support
          subscribers, such as network telecommunications charges and site rent
          for network facilities, network operations employee salary and related
          costs, network and hardware and software maintenance charges, among
          other things. As a percentage of total revenues, these costs declined
          to approximately 94% for 2003, as compared to 102% in 2002. Given our
          ongoing cost-reduction efforts described above, we expect these costs
          to continue to decrease. The extent of the decrease will depend both
          upon our ability to successfully manage our cost-reduction efforts as
          well as the necessity for these expenditures in the future if our
          customer base declines. The decrease is primarily due to:
     o    decreases in telecommunication charges associated with rate reductions
          in certain telecommunication contracts of an estimated $907,000,
     o    decreases in site lease costs due to the removal of older-generation
          base stations from our network of approximately $469,000,
     o    reductions in hardware and software maintenance costs as a result of
          the reduction of personnel and the negotiation of lower rates on
          maintenance service contracts of approximately $336,000,
     o    decreases in network maintenance costs as a result of the removal of
          older-generation base stations from our network as well as the
          reduction of rates under our national contract for these services of
          approximately $2,112,000 and
     o    lower employee and related costs due to the workforce reductions
          implemented in July and September 2002 and March 2003 of approximately
          $4.2 million as well as the reversal of certain employee bonus
          accruals from current and prior periods related to these workforce
          reductions of approximately $1.5 million.


These decreases were partially offset by:


     o    an increase in the average lease rate for our site leases of
          approximately $130,000,
     o    increases in licensing and commission payments to third parties with
          whom we have partnered to provide certain eLink and BlackBerry(TM) by
          Motient services, as a result of the revenue increase over the year in
          our mobile internet segment of approximately $130,000,
     o    compensation expenses associated with stock options issued to
          employees of $211 thousand for the 12 months ended December 31, 2003,
          and
     o    certain expenditures for the removal of older-generation base stations
          from our network of approximately $316,000.

                                       59
<PAGE>

     o    Cost of Equipment and Sales: Cost of equipment sales expenses as a
          percentage of total revenue were approximately 11% for 2003 as
          compared to 14% for 2002. The decrease in the cost of equipment sold
          expenses was primarily the result of reduced terrestrial hardware
          sales prices during 2002, resulting from a variety of factors,
          including certain price reductions on Research in Motion devices,
          partially offset by the increased cost of sales of devices
          attributable to our agreements with Verizon Wireless and T-Mobile USA.
          These newer devices used on the Verizon and T-Mobile networks have
          increased functionality and, correspondingly, increased cost, over
          previous generation devices. The Company also wrote down the value of
          its inventory in the second quarter of 2002 by $4.5 million. To the
          extent we are unable to add new customers at previous rates, these
          costs will likely decline in the future.

     o    Sales and Advertising: Sales and advertising expenses as a percentage
          of total revenue were approximately 8% for 2003, compared to 15% for
          2002. The decrease in sales and advertising expenses from 2002 was
          primarily attributable to lower employee salary and related costs due
          to the workforce reductions implemented in July and September 2002 and
          March 2003 as well as significant reductions in or elimination of
          public relations costs ($324,000, or 96%, year-to-year) and sales and
          marketing programs ($265,000, or 65%, year-to year) as a result of our
          reorganization in May 2002 and the reversal of certain employee bonus
          accruals from current and prior periods related to these workforce
          reductions. These decreases were partially offset by compensation
          expenses associated with stock options issued to employees of $151
          thousand for the 12 months ended December 31, 2003. There was no
          compensation expense associated with employee stock options for the 12
          months ended December 31, 2002. We anticipate that these costs will
          continue to decline in the future in conjunction with our overall
          cost-cutting efforts.

     o    General and Administrative: General and administrative expenses for
          the core wireless business as a percentage of total revenue were
          approximately 21% for 2003 as compared to 23% for 2002. The decrease
          in 2003 costs over 2002 costs in the general and administrative
          expenses was primarily attributable to lower employee salary and
          related costs due to the workforce reductions implemented in July and
          September 2002 and March of 2003 as well as the reversal of certain
          employee bonus accruals from current and prior periods related to
          these workforce reductions. In addition, this decrease was
          attributable to lower rent expense from the closure of our Reston
          facility in July 2003 of approximately $588,000, lower directors and
          officers liability insurance costs subsequent to our reorganization,
          of approximately $564,000, and a reduction in bad debt charges
          primarily due to the lowering of our reserves after our reorganization
          of approximately $584,000. These decreases were partially offset by
          compensation expenses associated with stock options issued to
          employees of $241 thousand for the 12 months ended December 31, 2003.
          There was no compensation expense associated with employee stock
          options for the 12 months ended December 31, 2002. Increases in the
          consulting costs related to the engagement and the related
          compensation costs of CTA and Further Lane in May 2002 and July 2003,
          respectively, and increases in audit, tax and legal fees related to
          our fiscal year 2002 audit and re-audits of fiscal year 2001 and 2000,
          occurring principally during the last nine months of 2003. Certain
          events in 2002

                                       60
<PAGE>

          also contributed to this decrease in general and administrative
          expenses from 2002 to 2003, including the compensation expense
          associated with the issuance of warrants to CTA in December 2002 and
          fees incurred as a result of Motient's withdrawal from certain FCC
          frequency auctions in the second quarter of 2002. We anticipate that
          these costs will continue to decline in the future in conjunction with
          our overall cost-cutting efforts.

     o    Restructuring Costs: There were no restructuring costs in 2003.
          Operational restructuring costs in 2002 due to certain employee
          reduction initiatives and reorganization expenses.

     o    Depreciation and Amortization: Depreciation and amortization for the
          core wireless business was approximately 40% of total revenue for
          2003, as compared to 38% for 2002. The decrease in depreciation and
          amortization expense in 2003 was partially attributable to the
          impairment of the value of our customer contract intangibles as of
          September 2003.

     o    Loss on Impairment of Asset: In May 2004, we engaged a financial
          advisory firm to prepare a valuation of customer intangibles as of
          September 2003. Due to the loss of UPS as a core customer in 2003 as
          well as the migration and customer churn occurring in our mobile
          internet base that is impacting the average life of a customer in this
          base, among other things, we determined an impairment of the value of
          these customer contracts was probable. As a result of this valuation,
          the value of customer intangibles was determined to be impaired as of
          September 2003 and was reduced by $5.5 million

     o    Interest Expense: Interest expense from May 1, 2002, is associated
          with our various debt obligations, including the $19.75 million notes
          payable to Rare Medium and CSFB, our capital lease obligations, our
          vendor financing commitment and our term credit facility put in place
          in January of 2003. We incurred $6.4 million of interest expense in
          2003, compared to $3.8 million during 2002. The $2.6 million increase
          was due primarily to the amortization of fees and the value ascribed
          to warrants provided to the term credit facility lenders on our
          closing of our term credit facility in January of 2003. We issued
          warrants at closing to the lenders to purchase, in the aggregate,
          3,125,000 shares of our common stock. The exercise price for these
          warrants is $1.06 per share. The warrants were valued at $10 million
          using a Black-Scholes pricing model and have been recorded as a debt
          discount and are being amortized as additional interest expense over
          three years, the term of the related debt. Upon the closing of the
          credit agreement, we paid closing and commitment fees to the lenders
          of $500,000, which are also being amortized over three years. Given
          our recent private placements of common stock and our repayment of the
          term credit facility, we expect interest expense to decline in the
          future as we will have less debt financing in place.

     o    Other Expenses and Income: On July 29, 2003, our wholly-owned
          subsidiary, Motient Communications, entered into an asset purchase
          agreement with Nextel, under which Motient Communications sold to

                                       61
<PAGE>

          Nextel certain of its SMR licenses issued by the FCC for $3.4 million.
          The closing of this transaction occurred on November 7, 2003. On
          December 9, 2003, Motient Communications entered into a second asset
          purchase agreement, under which Motient Communications will sell
          additional licenses to Nextel for $2.75 million resulting in a $1.5
          million loss which was recorded in December, 2003. In February, 2004,
          we closed the sale of licenses covering approximately $2.2 million of
          the purchase price, and we closed the sale of approximately one-half
          of the remaining licenses in April 2004. The transfer of the other
          half of the remaining licenses has been challenged at the FCC by a
          third-party. While we believe, based on the advice of counsel, that
          the FCC will ultimately rule in our favor, we cannot assure you that
          we will prevail, and, in any event, the timing of any final resolution
          is uncertain. None of these licenses are necessary for our future
          network requirements. We have and expect to continue to use the
          proceeds of the sales to fund its working capital requirements and for
          general corporate purposes. The lenders under our term credit
          agreement have consented to the sale of these licenses.

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 $9.9 million and $8.8
million for the years ended December 31, 2003 and 2002. The MSV losses for the
years ended December 31, 2003 and 2002 are Motient's 46.5% and 48% share of
MSV's losses for the same period reduced by the loans in priority. For the years
ended December 31, 2003 and 2002, MSV had revenues of $27.1 million and $28.2
million, operating expenses of $46.5 million and $26.8 million and a net loss of
$28.0 million and $24.9 million, respectively. Our calculations give effect to
the impairment of our investment in MSV in the fourth quarter of 2002 in the
amount of $15.4 million. We are unable to predict our equity share of MSV's gain
or losses in future periods, but we do not anticipate that MSV will be
profitable in the near future.


We recorded other income from Aether in 2003 of $2.2 million, as compared to
$2.1 million in 2002.


Additionally, we recorded a number of other charges in 2003 and 2002 as a result
of various transactions. For additional information concerning these charges,
please see "-- Liquidity and Capital Resources."


In 2003:

     o    Loss on impairment of asset of $5.5 million, discussed above

     o    We recorded a loss on the sale of certain assets of $3.0 million,
          consisting of $1.5 million on the sale of frequencies to Nextel
          (discussed above) and approximately $1.5 million relating to the
          write-off of consulting costs and equipment purchased for our project
          to convert our telecommunications circuits from an analog to a digital
          base. This project was discontinued in favor of our TCPIP/Frame Relay
          conversion project.

In 2002:

     o    As a result of our debt restructuring efforts, we recorded costs of
          $23.1 million.

     o    We recorded a gain on the sale of our transportation and satellite
          assets of $0.8 million.

                                       62
<PAGE>

     o    We recorded a loss on the sale of certain assets of $1.2 million.

     o    Related to our reorganization in May of 2002, we recorded a gain on
          fair market adjustment of $94.7 million and a gain on the
          restructuring of debt of $183.7 million.

     o    Net capital expenditures for the year ended December 31, 2003 for
          property and equipment were $0.2 million, as compared to $1.1 million
          for 2002. Expenditures consisted primarily of assets related to our
          terrestrial network.

Years Ended December 31, 2002 and 2001

Revenue and Subscriber Statistics


The tables below summarize our revenue and subscriber base for the periods
indicated.


<TABLE>
<CAPTION>

                                 Successor        Predecessor                        Predecessor
                                  Company           Company                            Company
                                  -------           -------                            -------

                               Eight Months       Four Months      Combined Year
                                   Ended             Ended             Ended         Year Ended
                               December 31,        April 30,        December 31,     December 31,
Summary of Revenue                 2002               2002              2002             2001         Change     % Change
------------------                 ----               ----              ----             ----         ------      -------
(in millions)
<S>                                <C>              <C>                 <C>              <C>          <C>          <C>
Wireless Internet               $  15.5            $   5.6            $  21.1        $  11.4       $   9.7         85%
Field Services                     10.5                5.6               16.1           19.4          (3.3)       (17)
Transportation                      7.4                4.1               11.5           15.9          (4.4)       (28)
Telemetry                           1.8                0.8                2.6            2.6          (0.0)        (0)
All Other                           0.3                0.7                1.0           18.8         (17.8)       (95)
                                    ---                ---                ---           ----         -----        ----
    Service Revenue                35.5               16.8               52.3           68.1         (15.8)       (23)
    Equipment Revenue               1.1                5.6                6.7           22.2         (15.5)       (70)
                                   ----                ---                ---           ----         -----        ----
         Total                  $  36.6            $  22.4            $  59.0       $  90.3        $ (31.3)       (35)%
                                   ===-              =====              =====         =====          =====        ====

</TABLE>

The make up of our registered subscriber base was as follows:
<TABLE>
<CAPTION>
                                                               As of December 31,
                                                      -------------------------------------
                                                             2002                 2001                Change              % Change
                                                           -------              -------              -------               -------
<S>                                                        <C>                  <C>                    <C>                       <C>
Wireless Internet                                          106,082              102,258                3,824                     4%
Field Services                                              30,263               36,752               (6,489)                  (18)
Transportation                                              94,825               88,128                6,697                     8
Telemetry                                                   30,171               22,616                7,555                    33
All Other                                                      653                  890                 (237)                  (27)
                                                           -------              -------              -------               -------
  Total                                                    261,994              250,644               11,350                     5%
                                                           =======              =======              =======               =======
</TABLE>

Summary of Revenue


The majority of the decrease service revenue year-over-year was primarily the
result of the sale of satellite assets to MSV in November 2001, offset by an
increase in revenue in the wireless internet segment. The decrease in total

                                       63
<PAGE>

revenue resulted from the service revenue decline discussed above, as well as
the decline in equipment revenue as a result of the reduction in device pricing
in 2002.

     o    Wireless Internet: While our registered wireless subscribers only grew
          4% from 102,258 to 106,082, the active, revenue-producing units grew
          from approximately 31,500 units to 56,400 units, or a 79%
          year-over-year increase. Resellers of our eLink and BlackBerry(TM)
          products purchased units to stock their inventory in 2000 and 2001;
          these units became revenue-producing as resellers moved from initial
          end-user pilots trials to full deployments.

     o    Field Service: The decrease in revenue from field services primarily
          reflects the loss of units as a result of contract terminations and
          corporate downsizings. Additionally, certain contract renewals
          resulted in rate reductions.

     o    Transportation: The decrease in revenue from our transportation
          product was primarily the result of the sale of our satellite assets
          to MSV in November 2001. The remaining reduction was due to the change
          in accounting treatment for the amortization of certain software
          licensing revenue related to the sales of our transportation business
          to Aether Systems in November 2000. These decreases were partially
          off-set by an increase in units and usage for our largest customer.

     o    Telemetry: Although registered subscriber units grew by 7,555 or 33%
          year-over-year, this growth was offset by contractual pricing
          reductions for one of our largest telemetry customers.

     o    Other Revenue: The decrease in other revenue was due entirely to the
          sale of the satellite assets to MSV in November 2001, partially offset
          by satellite capacity revenues paid by MSV as it pursued its research
          and development program.

     o    Equipment Revenue: The decrease in equipment revenue is primarily a
          result of the sale of our satellite business in November 2001 and the
          loss of equipment sales from that business. These reductions in
          equipment revenue were offset by an increase in equipment sales for
          our eLink product lines. This reduction was also a result of
          write-downs of deferred equipment revenue.


For the year ended December 31, 2002, five customers accounted for approximately
47% of Motient's service revenue, with two customers, UPS and SkyTel, each
accounting for more than 10%. As of December 31, 2002, SkyTel represented
approximately 14% of our net accounts receivable, all of which was current. The
revenue attributable to such customers varies with the level of network airtime
usage consumed by such customers, and none of the service contracts with such
customers requires that the customers use any specified quantity of network
airtime, nor do such contracts specify any minimum level of revenue. There can
be no assurance that the revenue generated from these customers will continue in

                                       64
<PAGE>

future periods. As discussed in "Business -- Recent Developments," UPS has
deregistered most of its units as it migrates to another network provider for
its next generation solution.

Due to the bankruptcy of WorldCom, beginning in the quarter ended June 30, 2002,
we reserved 100% of all amounts then due from Skytel, a wholly-owned subsidiary
of WorldCom. In October 2002, we received payment from SkyTel of a significant
portion of the amount of our pre-petition claim amount. We have received full,
timely payments thereafter and believe that amounts from SkyTel are currently
fully collectible.

Expenses

The table below summarizes our operating expenses for the periods indicated.

<TABLE>
<CAPTION>
                                           Successor       Predecessor                       Predecessor
                                            Company          Company                           Company
                                            -------          -------                           -------

                                         Eight Months       Four Months    Combined Year
                                             Ended            Ended            Ended          Year Ended
                                         December 31,       April 30,       December 31,     December 31,
Summary of Expense                           2002              2002             2002              2001         Change    % Change
------------------                           ----              ----             ----              ----         ------     -------
(in millions)
<S>                                          <C>              <C>              <C>             <C>            <C>         <C>
Cost of Service and Operations               $38.1            $21.9            $ 60.0          $ 73.1         $(13.1)     (18)%
Cost of Equipment Sales                        2.2              6.0               8.2            34.1          (25.9)     (76)
Sales and Advertising                          4.8              4.3               9.1            22.6          (13.5)     (60)
General and Administration                     9.7              4.1              13.8            20.5           (6.7)     (33)
Restructuring Charges                          0.0              0.6               0.6             4.7           (4.1)     (87)
Depreciation and Amortization                 15.5              6.9              22.4            32.4          (10.0)     (31)
(Gain) loss on disposal of assets              2.1              0.6               2.7             0.0            2.7       --
(Gain) on sale of transportation
      and satellite assets                    (0.3)            (0.4)             (0.7)          (23.2)          22.5      (97)
                                             -----            -----            ------          ------         ------      ----
   Total Operating                           $72.1            $44.0            $116.1          $164.2         $(48.1)     (29)%
                                             =====            =====            ======          ======         ======      ====
</TABLE>


     o    Cost of Service and Operations: The decrease in our cost of service
          and operations is made up of:


     o    decreases in communication charges associated with reductions in the
          cost of usage as a result of the sale of the satellite and
          transportation assets and rate reductions in certain telecommunication
          contracts,
     o    cost reductions associated with reduced headcount levels, primarily as
          a result of the sale of our satellite assets and cost control efforts
          undertaken in the second half 2001, and
     o    the operational restructurings in July and September 2002,
     o    reductions in research and development spending. and
     o    decreases in costs associated with the sale of the satellite business
          to MSV, including a reduction in in-orbit insurance costs for the
          year.

These decreases were offset by:

     o    increases in base station maintenance costs associated with an
          increase in the number of base stations,

                                       65
<PAGE>

     o    increases in site rental costs associated with the increase in base
          stations year-over-year, and
     o    an increase in the average lease rate, increases in licensing and
          commission payments to third parties with whom we have partnered to
          provide certain eLink and BlackBerry(TM) by Motient services, and fees
          incurred as a result of Motient's withdrawal from certain frequency
          auctions.


     o    Cost of Equipment: The decrease in cost of equipment sold was a result
          of reduced terrestrial hardware sales prices during 2002, and no
          hardware sales in 2002 were associated with the satellite voice
          business that was sold to MSV in November 2001. These decreases were
          offset by $4.5 million of writedowns in second quarter of 2002. These
          write-downs compared to $7.5 million inventory valuation charges in
          2001 associated with our early-generation eLink inventory. This
          reduction was also a result of write-downs of deferred equipment
          costs.

     o    Sales and Advertising: Sales and advertising expenses as a percentage
          of total revenue were approximately 15% for 2002, compared to 25% for
          2001. The 60% decrease in sales and advertising expenses year over
          year was primarily attributable to reductions in spending on
          advertising and trade shows, and decreases in headcount costs,
          primarily as a result of the sale of our satellite assets, cost
          control efforts undertaken in the second half 2001, and the
          operational restructurings in July and September 2002.

     o    General and Administrative: The 33% decrease in 2002 costs over 2001
          costs in the general and administrative expenses of our core wireless
          business was primarily attributable to savings associated with having
          fewer employees throughout 2002, primarily as a result of the sale of
          our satellite assets and cost control efforts undertaken in the second
          half of 2001, and the operational restructurings in July and September
          2002, reductions associated with various savings from the sales of our
          satellite business, and reductions in regulatory expenditures in 2002
          as compared to 2001.

          Restructuring Costs
          -------------------

          Operational restructuring costs in 2002 of $0.6 million are associated
          with our staff reductions. Operational restructuring costs in 2001 of
          $4.7 million represent those costs associated with the restructuring
          program that we announced and implemented on September 26, 2001. Of
          these costs, approximately $1.6 million are cash charges that are
          associated with severance packages for approximately 16% of our direct
          work force that was laid off. These cash expenditures did, in some
          cases, carry into the first quarter of 2002. Additional charges were
          associated with the termination of a product initiative, and represent
          primarily non-cash charges associated with the write off of prepaid
          advertising costs.


          Depreciation and Amortization
          -----------------------------


                                       66
<PAGE>

          Depreciation and amortization for the core wireless business was
          approximately 38% of total revenue for 2002, as compared to 36% for
          2001. The $10.0 million decrease in depreciation and amortization
          expense in 2002 was primarily attributable to the sale of our
          satellite assets to MSV in late November 2001, and the associated
          depreciation on those assets.


Interest Expense


Interest income was $0.1 million for the year ended December 31, 2002, as
compared to $1.1 million for the year ended December 31, 2001. Due to our
reorganization efforts, we were limited in our ability to invest excess
available cash.

We incurred $3.8 million of interest expense in 2002, compared to $61.7 million
during 2001. The $57.9 million decrease was primarily a result of the
elimination of the majority of our debt as a result of the bankruptcy
reorganization in 2002 and the retirement of a term loan. Interest expenses in
2002 are primarily associated with our Rare Medium and CSFB notes, capital
leases and vendor financing.


Other Expenses

We recorded equity in losses for our investment in MSV in 2002 of $24.2 million
(after giving effect to the impairment of our investment in MSV in the fourth
quarter of 2002 in the amount of $15 million). In 2001, we recorded equity
losses for our investment in XM Radio of $48.5 million. In 2001, we also
recorded our XM Radio equity investment impairment charge of $81.5 million as a
result of the sale or exchange of all of our shares of XM Radio stock for cash
or debt extinguishment, which resulted in mark-to-market losses of $81.5 million
on the shares disposed of, and a gain of $10.1 million on the extinguishment of
debt exchanged for these shares.

Additionally, we recorded a number of other charges in 2002 and 2001 as a result
of various financing transactions. For additional information concerning these
charges, please see "-- Liquidity and Capital Resources."

In 2002:

     o    As a result of our debt restructuring efforts, we recorded costs of
          $23.1 million.

     o    We recorded a gain on the sale of our transportation and satellite
          assets of $0.8 million.

     o    We recorded a loss on the sale of certain assets of $1.2 million.

     o    Related to our reorganization in May of 2002, we recorded a gain on
          fair market adjustment of $94.7 million and a gain on the
          restructuring of debt of $183.7 million.

                                       67
<PAGE>

In 2001:

     o    As noted below in "-- Derivatives," we purchased $50.0 million of
          notes from Rare Medium that were secured and exchangeable into up to
          five million of our shares of XM Radio stock. The embedded call
          options included in these notes were deemed to be a derivative, and we
          recorded a net gain of $1.5 million on the mark-to-market adjustment
          of these securities.

     o    We sold or exchanged all of our shares of XM Radio stock for cash or
          debt extinguishment. As a result of these various transactions, we
          recorded a mark-to-market loss of $81.5 million on the shares disposed
          of, and a gain of $10.1 million on the extinguishment of debt
          exchanged for these shares.

     o    As a result of the permanent reductions in our bank facility, we also
          recorded a loss on the extinguishment of debt in the amount of $11.3
          million, representing the write off of fees and unamortized warrants
          associated with the original placement of this debt.

     o    We recorded a gain of approximately $23.2 million on the sale of our
          satellite assets to MSV.

     o    We incurred approximately $4.1 million of costs associated with the
          Rare Medium merger, which was terminated in October 2001.


Net capital expenditures for the year ended December 31, 2002 for property and
equipment were $1.1 million compared to $13.8 million for 2001. Expenditures
consisted primarily of assets necessary to continue the build out of our
terrestrial network.


Stock Option Plan

Options to purchase 1,757,513 shares of our common stock were outstanding as of
December 31, 2003 under our 2002 stock option plan. A portion of the options
granted under the plan will either vest or be rescinded based on Motient's
performance. These options are accounted for in accordance with variable plan
accounting, which requires that the value of these options be measured at their
intrinsic value and any change in that value be charged to the income statement
upon the determination that the fulfillment of the performance criteria is
probable. The other options are accounted for as a fixed plan and in accordance
with intrinsic value accounting, which requires that the excess of the market
price of stock over the exercise price of the options, if any, at the time that
both the exercise price and the number of options are known be recorded as
deferred compensation and amortized over the option vesting period. As of the
date of grant, the option price per share was in excess of the market price;
therefore, these options are not deemed to have any value and no expense has
been recorded to date.

                                       68
<PAGE>

In March 2003, our board of directors approved the reduction in the exercise
price of all of the then outstanding stock options from $5.00 per share to $3.00
per share. The repricing will require that all options be accounted for in
accordance with variable plan accounting, which requires that the value of these
options are measured at their intrinsic value and any change in that value be
charged to the income statement each quarter based on the difference (if any)
between the intrinsic value and the then-current market value of the common
stock.

In July and September 2003, the compensation and stock option committee of our
board, acting pursuant to our 2002 stock option plan, granted 26 employees and
officers options to purchase an aggregate of 470,000 shares of our common stock
at a price of $5.15 per share and 25,000 shares of our common stock at a price
of $5.65 per share. One-half of each option grant vests with the passage of time
and the continued employment of the recipient, in three equal increments, on the
first, second and third anniversary of the date of grant. The other half of each
grant is to either vest or be rescinded based on Motient's performance in 2004.
In May 2004, the compensation and stock option committee of our board approved
the vesting of a certain portion of the stock options related to 2003
performance criteria and cancelled the remainder related to 2003 performance
criteria.


Material Off-Balance Sheet Transactions

As of December 31, 2003, 2002 and 2001, we did not have any material off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) under Regulation S-K.

Liquidity and Capital Resources

As of December 31, 2003, we had approximately $4.1 million of cash on hand and
short-term investments. As of May 31, 2004, we had approximately $15 million of
cash on hand and short-term investments.

Since emerging from bankruptcy protection in May 2002, we have undertaken a
number of actions to reduce our operating expenses and cash burn rate. Our
liquidity constraints have been exacerbated by weak revenue growth since
emerging from bankruptcy protection, due to a number of factors including the
weak economy generally and the weak telecommunications and wireless sector
specifically, the financial difficulty of several of our key resellers, on whom
we rely for a majority of our new revenue growth, the loss of UPS as a material
customer and our continued limited liquidity which has hindered efforts at
demand generation.


We are also in the process of evaluating our future strategic direction, and
have been forced to take material actions to reduce operating costs and preserve
our remaining cash, detailed above, such as significant cuts in sales and other
personnel, which may have a negative effect on our future revenues and growth
prospects and our ability to support new product initiatives and generate
customer demand. We anticipate that these initiatives will include the
following:

                                       69
<PAGE>

     o    further reductions in employee and our network infrastructure costs;

     o    actions to grow revenue from our recently-announced carrier
          relationships with Verizon Wireless and T-Mobile, under which we will
          be selling voice and data services on each carrier's next generation
          wireless networks as a master agent;

     o    actions designed to grow revenue from our various telemetry
          applications and initiatives; and

     o    enhancements to our liquidity which are expected to involve the sale
          of certain frequency assets, such as the sales of certain SMR licenses
          to Nextel.

We anticipate that our primary sources of liquidity in 2004 will be cash
generated from operations, cash on hand generated from our April and July 2004
private placements of securities, and cash available to us under our term credit
facility, described more fully below. We have also generated cash in the past
through sales of unneeded FCC licenses, but we can make no assurances that this
source of cash will be available to us in the future. To the extent that MSV
will need future cash to support its operations, we are under no contractual
obligation to provide it, and the value of our investment in MSV could be
negatively impacted if MSV cannot meet any such funding requirements.

Although we have no definite plans to undertake any future debt or equity
financing, we will continue to pursue all potential funding alternatives. Among
the possibilities for raising additional funds are issuances of debt or equity
securities, other borrowings under secured or unsecured loan arrangements, and
sales of assets. There can be no assurance that additional funds will be
available to us on acceptable terms or in a timely manner.

Another potential source of liquidity is the $15.0 million promissory note
issued by MSV in November 2001. This note matures in November 2006, but may be
fully or partially repaid prior to maturity in certain circumstances, subject to
certain conditions. Under the terms of our $19.8 million of notes issued to Rare
Medium and CSFB, we may be required to use 25% of any proceeds from the
repayment of the MSV note to repay the Rare Medium and CSFB notes. In April
2004, MSV repaid $2 million of accrued interest on this note, of which Motient
used $500,000 to partially repay certain obligations outstanding to Rare Medium
and CSFB. We believe that further repayment of this note prior to its maturity
date, if at all, may be unlikely, given the operating losses generated by MSV.

Our future financial performance will depend on our ability to continue to
reduce and manage operating expenses, as well as our ability to grow revenue. We
may lose revenues from major customers due to migration to alternative
technologies and other churn. Our future financial performance also could be
negatively affected by unforeseen factors and unplanned expenses. One such
possible expense may be that required repayment of an unused portion of a
prepayment made to us by UPS. In December 2002 we entered into an agreement with
UPS pursuant to which UPS prepaid an aggregate of $5 million in respect of

                                       70
<PAGE>

network airtime service to be provided beginning January 1, 2004. The $5 million
prepayment will be credited against airtime services provided to UPS beginning
January 1, 2004, until the prepayment is fully credited. Based on UPS' current
level of network airtime usage, we do not expect that UPS will be required to
make any cash payments to us in 2004 for service provided during 2004. If UPS
does not make any cash payments to us in 2004, our cash flows from operations in
2004 will decline, and our liquidity and capital resources could be materially
and negatively affected. As of May 31, 2004, the remaining balance under this
prepayment was $4.3 million. There are no minimum purchase requirements under
our contract with UPS, and UPS may terminate the contract on 30 days' notice. If
UPS terminates the contract, we will be required to refund any remaining portion
of the prepayment to UPS.

We expect to continue to require significant additional funds before we begin to
generate cash in excess of our operating expenses. It is not clear when, or if,
we will begin to generate cash from operations in excess of our cash operating
expenses. Also, even if we begin to generate cash in excess of our operating
expenses, we expect to continue to require significant additional funds to meet
remaining interest obligations, capital expenditures and other non-operating
cash expenses. Our projected cash requirements are based on certain assumptions
about our business model, including, specifically, assumed rates of growth in
subscriber activations and assumed rates of growth of service revenue. While we
believe these assumptions are reasonable, these growth rates are difficult to
predict, and there is no assurance that the actual results that are experienced
will meet the assumptions included in our business model and projections. If the
future results of operations are significantly less favorable than anticipated,
our cash requirements will be more than projected, and we may require material
additional financing. The type, timing and terms of financing that we select
will be dependent upon our cash needs, the availability of financing sources and
the prevailing conditions in the financial markets. We cannot guarantee that
additional financing sources will be available at any given time or available on
favorable terms.

We believe that our available funds, together with our existing credit facility,
will be adequate to satisfy our current and planned operations for at least the
next 12 months.


Motient's Chapter 11 Filing and Plan of Reorganization

Under our Plan of Reorganization, all then-outstanding shares of our
pre-reorganization common stock and all unexercised options and warrants to
purchase our pre-reorganization common stock were cancelled. The holders of
$335.0 million in senior notes exchanged their notes plus accrued interest for
25,000,000 shares of our new common stock. Some of our other creditors received
an aggregate of 97,256 shares of our new common stock in settlement for amounts
owed to them. These shares were issued upon completion of the bankruptcy claims
process; however, the value of these shares has been recorded in the financial
statements as if they had been issued on the effective date of the
reorganization. Holders of our pre-reorganization common stock received warrants
to purchase an aggregate of approximately 1,496,512 shares of new common stock.
The warrants never became exercisable by their terms, and were cancelled on May
1, 2004. All warrants issued to the holders of our pre-reorganization common
stock, including those shares held by our 401(k) savings plan, have been

                                       71
<PAGE>

recorded in the financial statements as if they had been issued on the effective
date of the reorganization. Also, in July 2002, we issued to Evercore Partners
LP, financial advisor to the creditors' committee in our reorganization, a
warrant to purchase up to 343,450 shares of common stock, at an exercise price
of $3.95 per share. The warrant was dated May 1, 2002, and has a term of five
years. If the average closing price of our common stock for thirty consecutive
trading days is equal to or greater than $20.00, we may require Evercore to
exercise the warrant, provided that our common stock is then trading in an
established public market. The value of this warrant has been recorded in the
financial statements as if it had been issued on May 1, 2002.


As a result of our Chapter 11 bankruptcy filing, we saw a slower adoption rate
for our services in the periods following emergence from bankruptcy. In a large
customer deployment, the upfront cost of the hardware can be significant.
Because the hardware generally is usable only on Motient's network, some of our
customers delayed adoption while we were in Chapter 11 proceedings.


Further details regarding the plan are contained in our disclosure statement
with respect to the plan, which was filed as Exhibit 99.2 to our current report
on Form 8-K dated March 4, 2002.

Summary of Liquidity and Financing

We have the following sources of financing in place:

     o    MSV issued a $15.0 million note to Motient as part of the November
          26, 2001 asset sale. The note matures in November 2006, but is payable
          sooner in certain circumstances, subject to certain conditions and
          priorities with respect to payment of other indebtedness, involving
          the consummation of additional investments in MSV. There can be no
          assurances that this note will be repaid prior to its stated maturity
          date, or that MSV will have the resources to repay such note when due.
          Of the $15.0 million of proceeds from this note, $3.75 million would
          be required to be used to prepay a pro-rata portion of the $19.0
          million note payable to Rare Medium and a $750,000 note payable to
          CSFB. In April 2004, MSV repaid $2 million of accrued interest on this
          note, of which Motient used $500,000 to partially repay certain
          obligations outstanding to Rare Medium and CSFB. Motient also owns an
          aggregate of approximately $3.5 million of convertible notes issued by
          MSV. The convertible notes mature on November 26, 2006, bear interest
          at 10% per annum, compounded semiannually, and are payable at
          maturity. The convertible notes are convertible at any time at
          Motient's discretion, and automatically in certain circumstances, into
          class A preferred units of limited partnership interests of MSV.


     o    Motient entered into a term credit facility in January 2003. The
          borrowing availability period under this facility ended on December
          31, 2003. In March 2004, the borrowing availability period was
          extended to December 31, 2004. In April 2004, we paid all outstanding
          principal and accrued interest, totaling $6.8 million, under this term
          credit facility and this amount may not be reborrowed. Approximately
          $5.7 million remains available for borrowing under this term credit

                                       72
<PAGE>

          facility. Please see "--Term Credit Facility" below for a discussion
          of this facility and certain defaults and waivers.


     o    Motient sold 7,715,910 shares of its common stock in two separate
          private placements for aggregate consideration of $53.2 million in
          private placements on April 7, 2004 and July 1, 2004. In connection
          with these private placement, we issued warrants to purchase a further
          3,428,978 shares of common stock, of which 1,618,978 may never vest,
          if we meet certain deadlines with respect to the registration of the
          shares. All of the warrants issued have cashless exercise provisions,
          so their exercise would not generate any additional liquidity.


We currently anticipate that our funding requirements through 2004 should be met
through a combination of cash on hand, including cash raised in the private
placements described above, net cash flow from operations, borrowings under our
term credit facility described above, proceeds from the sale of certain
frequency assets, and the proceeds from the sale of certain inventory will be
adequate to satisfy our current and planned operations for at least the next 12
months.

Debt and Capital Lease Obligations

Motient has the following financing obligations outstanding:


     o    Note payable to Rare Medium in the amount of $22.5 million. The note
          was issued by a subsidiary of Motient Corporation, MVH Holdings Inc.,
          that owns 100% of Motient Ventures Holdings, Inc., which owns all of
          our interests in MSV. The note matures on May 1, 2005 and carries
          annual interest at 9%. The note allows us to elect to add interest to
          the principal or pay interest in cash. The note requires that it be
          prepaid using 25% of the proceeds of any repayment of the $15.0
          million note from MSV. Certain outstanding principal and interest on
          this note was repaid in April 2004.

     o    Note payable to CSFB in the amount of $0.9 million. The note was also
          issued by MVH Holdings Inc. The note matures on May 1, 2005 and
          carries annual interest at 9%. The note allows us to elect to add
          interest to the principal or pay interest in cash. The note requires
          that it be prepaid using 25% of the proceeds of any repayment of the
          $15.0 million note from MSV. Certain outstanding principal and
          interest on this note was repaid in April 2004.

     o    A capital lease for network equipment. The lease had an effective
          interest rate of 12.2%. In January 2003, this agreement was
          restructured to provide for a modified payment schedule. We also
          negotiated a further extension of the repayment schedule that became
          effective upon the satisfaction of certain conditions, including our
          funding of a letter of credit in twelve monthly installments beginning
          in 2003, in the aggregate amount of $1.125 million, to secure our
          payment obligations. The letter of credit was to have been released in
          fifteen equal installments beginning in July 2004, assuming no
          defaults have occurred or are occurring. As of December 30, 2003 and
          May 31, 2004, approximately $3.3 million and $2.7 million was

                                       73
<PAGE>

          outstanding under this capital lease. In June 2004, we negotiated a
          settlement of the entire outstanding amounts and terminated this
          lease. We also cancelled the letter of credit.

     o    Obligations under a vendor financing facility and promissory note.
          Loans under our vendor financing facility with Motorola, which were
          held by Motient Communications, were guaranteed by Motient Corporation
          and Motient Holdings. No additional amounts may be drawn under this
          facility. In January 2003, we restructured the then-outstanding
          principal under this facility of $3.5 million, with such amount to be
          paid off in equal monthly installments over a three-year period from
          January 2003 to December 2005. In January 2003, we negotiated a
          deferral of approximately $2.6 million that was owed for maintenance
          services provided pursuant to a separate service agreement with
          Motorola, and we issued a promissory note for such amount, with the
          note to be paid off over a two-year period beginning in January 2004.
          The interest rate on this promissory note is LIBOR plus 4%. In March
          2004, we further restructured both the vendor financing facility and
          the promissory note, primarily to extend the amortization periods for
          both the vendor financing facility and the promissory note. We
          amortized the combined balances in the amount of $100,000 per month
          beginning in March 2004. We also agreed that interest would be paid on
          the vendor financing facility at LIBOR plus 4%. As part of this
          restructuring, we agreed to grant Motorola a second lien (junior to
          the lien held by the lenders under our term credit facility) on the
          stock of Motient License. This pledge secures our obligations under
          both the vendor financing facility and the promissory note. As of
          December 30, 2003 and May 31, 2004, approximately $4.8 million and
          $4.2 million, respectively, was outstanding under these debt
          obligations to Motorola. In June, 2004, we reached an agreement to
          prepay the entire amounts outstanding under these obligations in
          negotiated settlements with Motorola and issue a warrant to purchase
          200,000 shares of our common stock at a price of $8.68 per share, in
          full satisfaction of the outstanding balances.

Term Credit Facility

On January 27, 2003, our wholly-owned subsidiary, Motient Communications, closed
a $12.5 million term credit agreement with a group of lenders, including several
of our existing stockholders. The lenders include the following entities or
their affiliates: M&E Advisors, L.L.C., Bay Harbour Partners, York Capital and
Lampe Conway & Co. York Capital is affiliated with James G. Dinan and JGD
Management Corp. JGD Management Corp., James G. Dinan, James D. Dondero and
Highland Capital Management each hold 5% or more of our common stock. The
lenders also include Gary Singer, directly or through one or more entities. Gary
Singer is the brother of Steven G. Singer, one of our directors.

The table below shows, as of June 24, 2004 the number of shares of Motient
common stock beneficially owned by the following parties to the term credit
agreement, based solely on filings made by such parties with the SEC:

                                       74
<PAGE>

         Name of Beneficial Owner           Number of Shares
         ------------------------           ----------------
         James G. Dinan*                       2,276,445
         JGD Management Corp.*                 2,276,445
         Highland Capital Management**         4,424,559
         James Dondero**                       4,424,559

         *JGD Management Corp and James G. Dinan share beneficial ownership
         with respect to the 2,276,445 shares of our common stock. Mr. Dinan is
         the president and sole stockholder of JGD Management Corp, which
         manages the other funds and accounts that hold our common stock over
         which Mr. Dinan has discretionary investment authority.

         ** James D. Dondero, a member of our board of directors, is the
         President of Highland Capital Management, L.P., which, pursuant to an
         arrangement with M&E Advisors, L.L.C., has indirectly made a
         commitment under the credit facility.

In the credit agreement, the lenders have made commitments to lend Motient
Communications up to $12.5 million. The commitments are not revolving in nature
and amounts repaid or prepaid may not be reborrowed. Borrowing availability
under our term credit facility terminated on December 31, 2003. On March 16,
2004, we entered into an amendment to the credit facility which extended the
borrowing availability period until December 31, 2004. As part of this
amendment, we provided the lenders with a pledge of all of the stock of a
newly-formed special purpose subsidiary of Motient Communications, Motient
License, which holds all of Motient's FCC licenses formerly held by Motient
Communications. On March 16, 2004, in connection with the execution of the
amendment to our credit agreement, we issued warrants to the lenders to
purchase, in the aggregate, 2,000,000 shares of our common stock. The number of
warrants was reduced to an aggregate of 1,000,000 shares of common stock since,
within 60 days after March 16, 2004, we obtained $23.2 million of equity
financing in a private placement of our common stock. The exercise price of the
warrants is $4.88 per share. The warrants were immediately exercisable upon
issuance and have a term of five years. The warrants were valued using a
Black-Scholes pricing model at $6.7 million and were recorded as a debt discount
and are being amortized as additional interest expense over three years, the
term of the related debt. The warrants are also subject to a registration rights
agreement. Under such agreement, we agreed to register the shares underlying the
warrants upon the request of a majority of the warrantholders, or in conjunction
with the registration of other common stock of the company. We will bear all the
expenses of such registration. We were also required to pay a commitment fee to
the lenders of $320,000, which accrued into the principal of the credit facility
at closing. This fee was recorded on our balance sheet and will be amortized as
additional interest expense over three years, the term of the related debt.

Under this facility, the lenders have agreed to make loans to Motient
Communications through December 31, 2004 upon Motient Communications' request no
more often than once per month, in aggregate principal amounts not to exceed
$1.5 million for any single loan, and subject to satisfaction of other
conditions to borrowing, including certain financial and operating covenants,
contained in the credit agreement. As of the date of this report, we had
borrowed $6.0 million in principal amounts under this facility, all of which,
including additional accrued interest, was repaid in April 2004 and may not be
reborrowed.

                                       75
<PAGE>

Each loan borrowed under the credit agreement has a term of three years. Loans
carry interest at 12% per annum. Interest accrues, compounding annually, from
the first day of each loan term, and all accrued interest is payable at each
respective loan maturity, or, in the case of mandatory or voluntary prepayments,
at the point at which the respective loan principal is repaid. Loans may be
prepaid at any time without penalty.

The obligations of Motient Communications under the credit agreement are secured
by a pledge of all the assets owned by Motient Communications that can be
pledged as security. Motient Communications, directly or indirectly, owns all of
our assets relating to our terrestrial wireless communications business. In
addition, we and our wholly-owned subsidiary, Motient Holdings, have guaranteed
Motient Communications' obligations under the credit agreement, and we have
delivered a pledge of the stock of Motient Holdings, Motient Communications,
Motient Services Inc. and Motient License to the lenders. Upon the repayment in
full of the outstanding $19,750,000 in senior notes due 2005 issued by MVH
Holdings to Rare Medium and CSFB in connection with our approved Plan of
Reorganization, we will pledge the stock of MVH Holdings to the lenders.


In connection with the signing of the credit agreement in January 2003, we
issued warrants at closing to the lenders to purchase, in the aggregate,
3,125,000 shares of our common stock. The exercise price for the warrants is
$1.06 per share. The warrants were immediately exercisable upon issuance and
have a term of five years. The warrants were valued at $10 million using a
Black-Scholes pricing model and have been recorded as a debt discount and are
being amortized as additional interest expense over three years, the term of the
related debt. Upon the closing of the credit agreement, we paid closing and
commitment fees to the lenders of $500,000. These fees have been recorded on our
balance sheet and are being amortized as additional interest expense over three
years, the term of the related debt. Under the credit agreement, we must pay an
annual commitment fee of 1.25% of the daily average of undrawn amounts of the
aggregate commitments from the period from the closing date to December 31,
2003. In December 2003, we paid a commitment fee to the lenders of approximately
$113,000.


In each of April, June and August 2003 and March 2004, we made draws under the
credit agreement in the amount of $1.5 million, for an aggregate principal
amount of $6.0 million each of which would have been due three years from the
date of the draw, if not earlier repaid. We used such funds to fund general
working capital requirements of operations.

In April 2004, Motient repaid all principal amounts then owing under its term
credit facility, including accrued interest thereon, in an amount of $6.8
million. The remaining availability under the credit facility of $5.7 million
will be available for borrowing to Motient until December 31, 2004, subject to
the lending conditions in the credit agreement.

For the monthly periods ended April 2003 through December 2003, we reported
events of default under the terms of the credit facility to the lenders. These
events of default related to non-compliance with covenants requiring minimum
monthly revenue, earnings before interest, depreciation and amortization and
taxes, and free cash flow performance. In each period, the lenders waived these
events of default. There can be no assurance that Motient will not have to

                                       76
<PAGE>

report additional events of default or that the lenders will continue to provide
waivers in such event. Ultimately, there can be no assurances that the liquidity
provided by the credit facility will be sufficient to fund our ongoing
operations. For further details, please see "Risk Factors - We will need
additional liquidity to fund our operations."

The following table reflects the maturity of our various obligations over the
next five years.

<TABLE>
<CAPTION>

                                                                        Less then                              More than
                                                                        ---------                              ---------
                                                             Total       1 year   1-3 years    3 - 5 Years      5 years
                                                             -----       ------   ---------    -----------      -------
<S>                                                        <C>             <C>      <C>            <C>             <C>
(in thousands)
Notes Payable                                              $22,885         $---     $22,885        $---            $---
Term Credit Facility                                         4,914          ---       4,914         ---             ---
Capital lease obligations, including interest thereon        3,504        1,752       1,752         ---             ---
Vendor financing commitment and note payable                 4,814        2,413       2,401         ---             ---
                                                           -------       ------     -------       -----           -----
  Total Contractual Cash Obligations                       $36,117       $4,165     $31,952        $---            $---
</TABLE>


Commitments

As of December 31, 2003, we had the following outstanding cash contractual
commitments:
<TABLE>
<CAPTION>

                                                                                                                         More than 5
                                                                  Total      <1 year      1-3 years      3 - 5 years        years
                                                                  -----      -------      ---------      -----------        -----
<S>                                                             <C>         <C>          <C>                <C>            <C>
(in thousands)
Operating leases (1)                                            $33,685     $12,170      $17,417            $1,614         $2,484
Capital lease obligations, including interest thereon (1)         3,504       1,752        1,752              ---            ---
Notes Payable (2)                                                22,885         ---       22,885              ---            ---
Term Credit Facility                                              4,914         ---        4,914              ---            ---
Equipment financing commitment (1)                                4,814       2,413        2,401              ---            ---
                                                                  -----       -----        -----              ---            ---
  Total Contractual Cash Obligations                            $69,802     $16,335      $49,369           $1,614         $2,484
                                                                =======     =======      =======           ======         ======
</TABLE>


(1) These commitments generally contain provisions that provide for an
acceleration of rent upon a default by us, except that certain long-term real
estate leases, categorized as Operating Leases, may not contain such provisions.

(2) In addition to being accelerable upon default, notes payable to Rare Medium
and CSFB, which comprise approximately $21 million of this amount, must be
prepaid with 25% of the proceeds due from any repayment of the $15 million
principal note issued to Motient by MSV.

In May 2002, the FCC filed a proof of claim with the United States Bankruptcy
Court, asserting a pre-petition claim in the approximate amount of $1.0 million
in fees incurred as a result of our withdrawal from certain auctions. Under our
court-approved Plan of Reorganization, subsequent to June 30, 2002 the FCC's
claim was classified as an "other unsecured" claim, and the FCC was issued a
pro-rata portion of 97,256 shares of common stock issued to creditors with
allowed claims in such class. We recorded a $1.0 million expense in April 2002
for this claim.

                                       77
<PAGE>

At April 30 2002, we had certain contingent and/or disputed obligations under
our satellite construction contract entered into in 1995, which contained flight
performance incentives payable by us to the contractor if the satellite
performed according to the contract. Upon the implementation of the Plan of
Reorganization, this contract was terminated, and in satisfaction of all amounts
alleged to be owed by us under this contract, the contractor received a pro-rata
portion of the 97,256 shares issued to creditors holding allowed unsecured
claims. The shares were issued upon closure of the bankruptcy claims process.


On December 1, 2002, we entered into a letter agreement with UPS under which UPS
made a series of eight prepayments to us totaling $5 million for future services
we are obligated to provide to it after January 1, 2004. UPS may terminate its
airtime agreement with us on 30 days' notice, at which point any remaining
prepayment would be required to be repaid. The balance remaining as of May 31,
2004 under this prepayment was $4.3 million.


Summary of Cash Flow for the year ended December 31, 2003 (Successor Company),
the eight months ended December 31, 2002 (Successor Company), and the four
months ended April 30, 2002 (Predecessor Company)
<TABLE>
<CAPTION>
                                                                                                                         Predecessor
                                                                                        Successor Company                  Company
                                                                                        -----------------                  -------

                                                                                                    Eight Months         Four Months
                                                                                  Year Ended           Ended               Ended
                                                                                 December 31,        December 31,         April 30,
                                                                                     2003               2002                2002
                                                                                     ----               ----                ----
<S>                                                                              <C>                  <C>                  <C>
Cash (Used In) Provided by Operating Activities                                  $ (7,120)            $ (8,908)            $(14,546)
                                                                                 --------             --------             --------
Cash (Used In) Provided by Investing Activities                                     4,893               (1,173)                (122)
                                                                                 --------             --------             --------
Cash (Used In) Provided by Financing Activities:
      Equity issuances                                                                 --                   --                   17
      Debt payments on capital leases and
      vendor financing                                                             (4,006)              (1,425)              (1,273)
      Net proceeds from debt issuances                                              4,500                   --                   --
      Other                                                                          (489)                (117)                  --
                                                                                 --------             --------             --------

Cash Provided (Used) in Financing Activities                                            5               (1,542)              (1,256)
                                                                                 --------             --------             --------

Total Change in Cash                                                               (2,222)             (11,623)             (15,924)
                                                                                 ========             ========             ========

Cash and Cash Equivalents, end of period                                         $  3,618             $  5,840             $ 17,463
                                                                                 ========             ========             ========

</TABLE>

Cash used in operating activities decreased from the year ended December 31,
2002 to December 31, 2003 as a result of decreases in operating losses, due
substantially to our reduction in employee salary and related expenditures,
reductions in network maintenance, site lease and telecommunications charges,
lower insurance costs subsequent to reorganization, and decreases in funds
provided by working capital, among other things discussed above.

                                       78
<PAGE>

The increase in cash provided by investing activities for the year ended
December 31, 2002 to December 31, 2003 was primarily attributable to the sale of
FCC licenses, offset by the purchase of restricted investments in 2002.

The increase in cash provided by financing activities for the year ended
December 31, 2002 to December 31, 2003 was the result of the proceeds from
borrowings under the term credit facility, offset by vendor debt and capital
lease repayments.

Other

On May 1, 2002, the effective date of our Plan of Reorganization, the financing
agreements that included restrictions on our ability to pay dividends were
terminated as part of the implementation of our Plan of Reorganization; however,
various financing documents prohibit us from paying cash dividends. We have
never paid dividends and do not expect to do so in the near future.

Derivatives

In September 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which requires
the recognition of all derivatives as either assets or liabilities measured at
fair value, with changes in value reflected as current period income (loss). The
effective date of SFAS No. 133, as amended by SFAS 138, is for fiscal years
beginning after September 15, 2000. Except for the Rare Medium note embedded
call options and the bank financing swap agreement discussed in the following
paragraphs, SFAS No. 133 was not material to our financial position or results
of operations as of or for the periods ended December 31, 2001, April 30, 2002,
December 31, 2002 and December 31, 2003.

In April and July 2001, we sold notes to Rare Medium totaling $50.0 million. The
notes were collateralized by up to five million of our XM Radio shares, and,
until maturity, which was extended until October 12, 2001, Rare Medium had the
option to exchange the note for a number of XM Radio shares equivalent to the
principal of the note plus any accrued interest thereon. We determined the
embedded call options in the notes, which permit Rare Medium to convert the
borrowings into shares of XM Radio, were derivatives which were accounted for in
accordance with SFAS No. 133 and accordingly we recorded a gain in the amount of
$1.5 million in 2001 related to the Rare Medium note call options. On October
12, 2001, the embedded call options in the Rare Medium notes expired
unexercised.

In connection with our bank financing in March 1998, we entered into an interest
rate swap agreement, with an implied annual rate of 6.51%. The swap agreement
reduced the impact of interest rate increases on our then-existing term loan
facility. We paid a fixed fee of approximately $17.9 million for the swap
agreement. In return, the counter-party was obligated to pay a variable rate
equal to LIBOR plus 50 basis points, paid on a quarterly basis directly to the

                                       79
<PAGE>

respective banks on our behalf, on a notional amount of $100 million until the
termination date of March 31, 2001. In connection with the pay down of a portion
of the term loan facility during 1999, we reduced the notional amount of our
swap agreement from $100 million to $41 million and realized net proceeds of
approximately $6 million due to early termination of a portion of the swap
agreement. The interest rate swap agreement expired in March 2001, and our bank
financing credit facility was extinguished in 2001.

Critical Accounting Policies and Significant Estimates

Below are our accounting policies that are both important to our financial
condition and operating results, and require management's most difficult,
subjective and complex judgments in determining the underlying estimates and
assumptions. The estimates and assumptions affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates as they require assumptions that are inherently uncertain.

"Fresh-Start" Accounting

In accordance with SOP No. 90-7, effective May 1, 2002, we adopted "fresh-start"
accounting and allocated the reorganization value of $221.0 million to our net
assets in accordance with procedures specified by Statement of Financial
Standards No. 141, "Business Combinations".


We allocated the $221.0 million reorganization value among our net assets
based upon our estimates of the fair value of our assets and liabilities. In the
case of current assets, we concluded that their carrying values approximated
fair values. The values of our frequencies and its investment in and notes
receivable from MSV were based on independent analyses presented to the
bankruptcy court and subsequently modified as part of our valuation process in
November 2003. Please see "--Overview and Introduction --Mobile Satellite
Ventures LP" and Note 2, "Significant Accounting Policies - Restatement of
Financial Statements," and Note 16, "Subsequent Events," of notes to the
consolidated financial statements for further information concerning MSV. The
value of our fixed assets was based upon a valuation of our software and
estimates of replacement cost for network and other equipment, for which we
believe that our recent purchases represent a valid data point. The value of our
other intangible assets was based on third party valuations as of May 1, 2002.


For a complete description of the application of "fresh-start" accounting,
please refer to Note 2, "Significant Accounting Policies", of notes to the
consolidated financial statements.

Inventory

Inventory, which consists primarily of communication devices and accessories,
such as power supplies and documentation kits, are stated at the lower of cost
or market. Cost is determined using the weighted average cost method. We
periodically assess the market value of our inventory, based on sales trends and
forecasts and technological changes and record a charge to current period income
when such factors indicate that a reduction to net realizable value is
appropriate. We consider both inventory on hand and inventory that we have
committed to purchase, if any. Periodically, we will offer temporary discounts
on equipment purchases. In cases where this causes a write-down of the inventory
basis to the lower of cost or market, the write-down is recorded in the period
of the offer.

                                       80
<PAGE>

Investment in MSV and Note Receivable from MSV

As reported in our current report on Form 8-K dated March 14, 2003 and detailed
in Note 2, "Significant Accounting Policies - Restatement of Financial
Statements", of notes to the consolidated financial statements we have
determined that certain adjustments to our historical financial information for
2000, 2001 and 2002 were required to reflect the effects of several complex
transactions, including the formation of and transactions with MSV.

As a result of the application of "fresh-start" accounting and as subsequently
modified by our valuation process in November 2003 (please see "--Recent
Developments--Mobile Satellite Ventures LP," and Note 2, "Significant Accounting
Policies - Restatement of Financial Statements," and Note 16, "Subsequent
Events," of notes to the consolidated financial statements for further
information concerning MSV), the notes and investment in MSV were valued at fair
value, and we recorded an asset in the amount of approximately $53.9 million
representing the estimated fair value of our investment in and note receivable
from MSV. Included in this investment is the historical cost basis of our
approximately 48% of common equity ownership as of May 1, 2002, or approximately
$19.3 million. In accordance with the equity method of accounting, we recorded
our approximately 48% share of MSV losses against this basis.

Of the $53.9 million, approximately $6.2 million of the value attributed to MSV
is the excess of fair value over cost basis and is amortized over the estimated
lives of the underlying MSV assets that gave rise to the basis difference. We
are amortizing this excess basis in accordance with the pro-rata allocation of
various components of MSV's intangible assets as determined by MSV through
recent independent valuations. Such assets consist of FCC licenses, intellectual
property and customer contracts.

At December 31, 2002, our investment in MSV was impaired and we recorded a
charge of approximately $15.4 million. As of January 1, 2003, approximately $6.2
million is the excess of fair value over cost basis subject to amortization.

Of the $53.9 million, we have recorded the $15.0 million note receivable from
MSV, plus accrued interest thereon at its fair value, estimated to be
approximately $13.0 million as of the "fresh-start" accounting date, after
giving affect to discounted future cash flows at market interest rates. This
note matures in November 2006, but may be fully or partially repaid prior to
maturity in certain circumstances, subject to certain conditions and priorities
with respect to payment of other indebtedness, involving the consummation of
additional investments in MSV. We also recorded the $2.5 million convertible
note issued to Motient from MSV. Please see "--Recent Developments--Mobile
Satellite Ventures LP," for additional information regarding payments on the
$15.0 million note.

                                       81
<PAGE>

In November 2003, we engaged CTA to perform a valuation of our equity interests
in MSV as of December 31, 2002. Concurrent with CTA's valuation, Motient reduced
the book value of its equity interest in MSV from $54 million (inclusive of
Motient's $2.5 million convertible note from MSV) to $41 million as of May 1,
2002 to reflect certain preference rights on liquidation of certain classes of
equity holders in MSV. Including its note receivable from MSV ($13 million at
May 1, 2002), the book value of Motient's aggregate interest in MSV as of May 1,
2002 was reduced from $67 million to $53.9 million. Also, as a result of CTA's
valuation of MSV, we determined that the value of our equity interest in MSV was
impaired as of December 31, 2002. This impairment was deemed to have occurred in
the fourth quarter of 2002. Motient reduced the value of its equity interest in
MSV by $15.4 million as of December 31, 2002. Including its notes receivable
from MSV ($19 million at December 31, 2002), the book value of Motient's
aggregate interest in MSV was $32 million as of December 31, 2002. It was
determined that no further impairment was required at December 31, 2003. For
additional information concerning this valuation process, please see Note 2,
"Significant Accounting Policies," of notes to the consolidated financial
statements.

The valuation of our investment in MSV and our note receivable from MSV are
ongoing assessments that are, by their nature, judgmental given that MSV is not
traded on a public market and is in the process of developing certain next
generation technologies, which depend on approval by the FCC. While the
financial statements currently assume that there is value in our investment in
MSV and that the MSV note is collectible, there is the inherent risk that this
assessment will change in the future and we will have to write down the value of
this investment and note.

Deferred Taxes

We have generated significant net operating losses for tax purposes as of
December 31, 2003. We have had our ability to utilize these losses limited on
two occasions as a result of transactions that caused a change of control in
accordance with the Internal Revenue Service Code Section 382. Additionally,
since we have not yet generated taxable income, we believe that our ability to
use any remaining net operating losses has been greatly reduced; therefore, we
have provided a full valuation allowance for any benefit that would have been
available as a result of our net operating losses. See Note 2, "Significant
Accounting Policies - Deferred Taxes," of notes to the consolidated financial
statements for further details.

Revenue Recognition

We generate revenue principally through equipment sales and airtime service
agreements. In 2000, we adopted SAB No. 101, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements. In
certain circumstances, SAB No. 101 requires us to defer the recognition of
revenue and costs related to equipment sold as part of a service agreement.

                                       82
<PAGE>

In December 2003, the Staff of the SEC issued SAB No. 104, "Revenue
Recognition", which supersedes SAB No. 101, "Revenue Recognition in Financial
Statements." SAB No. 104's primary purpose is to rescind accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements and to
rescind the SEC's "Revenue Recognition in Financial Statements Frequently Asked
Questions and Answers" ("FAQ") issued with SAB No. 101. Selected portions of the
FAQ have been incorporated into SAB No. 104. The adoption of SAB No. 104 did not
have a material impact on our revenue recognition policies.

Revenue is recognized as follows:


Service revenue: Revenues from the Company's wireless services are recognized
when the services are performed, evidence of an arrangement exists, the fee is
fixed and determinable and collectibility is probable. Service discounts and
incentives are recorded as a reduction of revenue when granted, or ratably over
a contract period. The Company defers any revenue and costs associated with
activation of a subscriber on the Company's network over an estimated customer
life of two years.

We package airtime usage on our network that involves a wide variety of volume
packaging, for example, anything from a 35 kilobytes per month plan up to
unlimited kilobyte usage per month, with various gradations in between.
Discounts may be applied when comparing one customer to another, and such
service discounts are recorded as a reduction of revenue when granted. The
Company does not offer incentives generally as part of its service offerings;
however, if offered they would be recorded as a reduction of revenue ratably
over a contract period.

Service discounts and incentives are recorded as a reduction of revenue when
granted, or ratably over a contract period. The Company defers any revenue and
costs associated with activation of a subscriber on the Company's network over
an estimated customer life of two years.


To date, the majority of our business has been transacted with
telecommunications, field services, natural resources, professional service and
transportation companies located throughout the United States. We grant credit
based on an evaluation of the customer's financial condition, generally without
requiring collateral or deposits. We establish a valuation allowance for
doubtful accounts receivable for bad debt and other credit adjustments.
Valuation allowances for revenue credits are established through a charge to
revenue, while valuation allowances for bad debts are established through a
charge to general and administrative expenses. We assess the adequacy of these
reserves quarterly, evaluating factors such as the length of time individual
receivables are past due, historical collection experience, the economic
environment and changes in credit worthiness of our customers. As of December
31, 2003 and December 31, 2002, we had a valuation allowance of approximately
16.6% and 9.7% of our accounts receivable, respectively. We believe that our
established valuation allowance was adequate as of December 31, 2003 and 2002.
If circumstances related to specific customers change or economic conditions

                                       83
<PAGE>

worsen such that our past collection experience and assessments of the economic
environment are no longer relevant, our estimate of the recoverability of our
trade receivables could be further reduced.

Equipment and service sales: We sell equipment to resellers who market our
terrestrial product and airtime service to the public. We also sell our product
directly to end-users. Revenue from the sale of the equipment as well as the
cost of the equipment, are initially deferred and are recognized over a period
corresponding to our estimate of customer life of two years. Equipment costs are
deferred only to the extent of deferred revenue.

Long-lived Assets

On January 1, 2002, we adopted the provisions of SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No.
141 requires business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting, and broadens the criteria for
recording intangible assets separate from goodwill. Recorded goodwill and
intangibles will be evaluated against these new criteria and may result in
certain intangibles being subsumed into goodwill, or alternatively, amounts
initially recorded as goodwill may be separately identified and recognized apart
from goodwill. SFAS No. 142 requires the use of a nonamortization approach to
account for purchased goodwill and certain intangibles. Under a nonamortization
approach, goodwill and certain intangibles will not be amortized into results of
operations, but instead will be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. As of January
1, 2002, we had approximately $5.0 million of recorded goodwill. However, as
part of our adoption of "fresh-start" accounting, our recorded goodwill was
reduced to zero.

We account for our frequencies as finite-lived intangibles and amortize them
over a 20-year estimated life. As described in note 5 of notes to consolidated
financial statements, we are monitoring a pending FCC rulemaking proposal that
may affect our 800 MHz spectrum, and we may change our accounting policy for FCC
frequencies in the future as new information is available.

On January 1, 2002, we also adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which supercedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of". The statement requires that all long-lived assets be measured at the lower
of carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. Therefore, discontinued
operations will no longer be measured on a net realizable value basis and will
not include amounts for future operating losses. The statement also broadens the
reporting requirements for discontinued operations to include disposal
transactions of all components of an entity (rather than segments of a
business). Components of an entity include operations and cash flows that can be
clearly distinguished from the rest of the entity that will be eliminated from
the ongoing operations of the entity in a disposal transaction. Subsequent to

                                       84
<PAGE>

the period covered by this report, we engaged a financial advisor to value
certain of our assets as of December 31, 2002, among other things, to test for
potential impairment of certain of our long-lived assets under SFAS No. 144.
This testing included valuations of software and customer-related intangibles.
Based on these tests, no recording of impairment charges was required. However,
we subsequently engaged this financial advisor to reevaluate the value of our
customer-related intangibles as of September 30, 2003 due primarily to the
decline in revenue from UPS in this time period. This valuation resulted in an
impairment of the customer-related intangibles of $5.5 million in the third
quarter of 2003. The adoption of SFAS No. 144 had no other material impact on
our financial statements.

Recent Accounting Standards

In February, 2002, EITF No. 01-09, "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products)", was
issued to provide guidance on whether consideration paid by a vendor to a
reseller should be recorded as expenses or against revenues. The Company has
reviewed EITF 01-09 and believes that all such consideration is properly
recorded by the Company as operating expenses. The Company adopted the
provisions of this consensus on January 1, 2002, and it had no material impact
on the Company's consolidated financial statements.

In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.". SFAS
No. 145 rescinded three previously issued statements and amended SFAS No. 13,
"Accounting for Leases". The statement provides reporting standards for debt
extinguishments and provides accounting standards for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
We adopted SFAS No. 145 as of our "fresh-start" accounting date of May 1, 2002.
In accordance with SFAS No. 145, we have reclassified all prior period
extraordinary losses on extinguishment of debt as ordinary non-operating losses
on extinguishment of debt.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing or other exit or disposal activity. Previous accounting
guidance was provided by Emerging Issues Task Force, or EITF, No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS
No. 146 replaces EITF No. 94-3. SFAS No. 146 is to be applied prospectively to
exit or disposal activities initiated after December 31, 2002. We adopted SFAS
No. 146 as of January 1, 2003, and this adoption had no material impact on our
consolidated financial statements.

                                       85
<PAGE>

In November 2002, the EITF reached consensus on EITF No. 00-21, "Accounting for
Revenue Arrangements with Multiple Deliverables". This consensus requires that
revenue arrangements with multiple deliverables be divided into separate units
of accounting if the deliverables in the arrangement meet specific criteria. In
addition, arrangement consideration must be allocated among the separate units
of accounting based on their relative fair values, with certain limitations. The
sale of our equipment with related services constitutes a revenue arrangement
with multiple deliverables. We will be required to adopt the provisions of this
consensus for revenue arrangements entered into after June 30, 2003, and we have
decided to apply it on a prospective basis. We do not have any revenue
arrangements that would have a material impact on our consolidated financial
statements with respect to EITF No. 00-21.

In November 2002, the FASB issued FASB Interpretation, or FIN No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. However, a liability does not have to be recognized for a
parent's guarantee of its subsidiary's debt to a third party or a subsidiary's
guarantee of the debt owed to a third party by either its parent or another
subsidiary of that parent. The initial recognition and measurement provisions of
FIN No. 45 are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002 irrespective of the guarantor's fiscal year
end. The disclosure requirements of FIN No. 45 are effective for financial
statements with annual periods ending after December 15, 2002. Motient does not
have any guarantees that would require disclosure under FIN No. 45.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-based
Compensation - Transition and Disclosure - an Amendment to SFAS No. 123". SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value-based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 for
public companies. This statement is effective for fiscal years beginning after
December 15, 2002. We adopted the disclosure requirements of SFAS No. 148 as of
January 1, 2003 and plan to continue to follow the provisions of APB Opinion No.
25 for accounting for stock based compensation.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities -- An Interpretation of ARB No. 51", which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN No. 46 provides guidance related to identifying
variable interest entities (previously known generally as special purpose
entities, or SPEs) and determining whether such entities should be consolidated.
FIN No. 46 must be applied immediately to variable interest entities created or
interests in variable interest entities obtained, after January 31, 2003. For
those variable interest entities created or interests in variable interest
entities obtained on or before January 31, 2003, the guidance in FIN No. 46 must
be applied in the first fiscal year or interim period beginning after June 15,
2003. FIN No. 46 did not have a material impact on our results of operations.

                                       86
<PAGE>

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies the characteristics of
an obligation of the issuer. This standard is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. We have determined that we do not have any financial instruments that are
impacted by SFAS No. 150.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
-------------------------------------------------------------------

Prior to our reorganization, we were exposed to the impact of interest rate
changes related to our credit facilities and we managed interest rate risk
through the use of fixed rate debt. Currently, we are only exposed to the impact
of interest rate changes related to our capital lease and vendor financing
obligations. We do not use derivative financial instruments to manage our
interest rate risk. We invest our cash in short-term commercial paper,
investment-grade corporate and government obligations and money market funds.

Effective May 1, 2002, Motient's senior notes and accrued interest thereon were
eliminated in exchange for new common stock of the company. All of Motient's
remaining debt obligations, excluding its vendor financing, are fixed rate
obligations. We do not believe that we have any material cash flow exposure due
to general interest rate changes on these debt obligations.

Item 8. Financial Statements and Supplementary Data
---------------------------------------------------

The financial statements and supplementary data required by this item are found
at the end of this annual report, beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure
--------------------

Matters required by this item were previously reported in our current reports on
Form 8-K filed with the SEC on June 4, 2002 and April 23, 2003 and the amendment
to our current report on Form 8-K/A filed with the SEC on March 9, 2004.

In March 2003, we obtained the concurrence of the staff of the SEC with respect
to our conclusions regarding the appropriate accounting relating to the
formation of and certain transactions with MSV in 2000 and 2001 and the sale of
some of our transportation assets to Aether Systems in 2000. The staff of the

                                       87
<PAGE>

SEC did not object to some aspects of our prior accounting with respect to the
MSV and Aether Systems transactions, but did object to other aspects of our
prior accounting for these transactions. For a description of the material
differences between our original accounting treatment with respect to these
transactions and the revised accounting treatment that we concluded is
appropriate as a result of this process, please see our current report on Form
8-K dated March 14, 2003 and Note 2, "Significant Accounting Policies -
Restatement of Financial Statements," of notes to the consolidated financial
statements.

On April 17, 2003, we dismissed PricewaterhouseCoopers as our independent
auditors, effective upon the completion of services related to the audit of our
consolidated financial statements for the period May 1, 2002 to December 31,
2002. On April 25, 2003, our board of directors approved the engagement of
Ehrenkrantz Sterling & Co. LLC as our independent auditors to (i) re-audit our
consolidated financial statements for the fiscal years ended December 31, 2000
and 2001 and (ii) audit our consolidated financial statements for the period
from January 1, 2002 to April 30, 2002 and the fiscal year that ended on
December 31, 2003.


On March 2, 2004, we dismissed PricewaterhouseCoopers as our independent
auditors. The audit committee of our board of directors approved the dismissal
of PricewaterhouseCoopers. PricewaterhouseCoopers was previously appointed to
audit our consolidated financial statements for the period May 1, 2002 to
December 31, 2002, and, by its terms, such engagement was to terminate upon the
completion of services related to such audit. PricewaterhouseCoopers has not
reported on our consolidated financial statements for such period or for any
other fiscal period. On March 2, 2004, the audit committee engaged Ehrenkrantz
Sterling & Co. LLC as Motient's independent auditors to audit our consolidated
financial statements for the period May 1, 2002 to December 31, 2002 and for the
fiscal year ended December 31, 2003.

On June 1, 2004, Ehrenkrantz Sterling & Co. LLC, merged with the firm of
Friedman Alpren & Green LLP. The new entity, Friedman LLP has been retained by
Motient and the audit committee of Motient's board of directors approved this
decision on June 4, 2004.

As discussed in Note 2, "Significant Accounting Policies," of notes to the
consolidated financial statements, the 2001 and first quarter of 2002
comparative financial statements provided herein have been restated and have
been re-audited by our current independent auditing firm, Friedman LLP. The 2001
financial information and the 2002 financial results for the period January 1,
2002 to April 30, 2002 included herein are referred to as Predecessor Company
results and the financial results for the period May 1, 2002 to December 31,
2002 and the year ended December 31, 2003 included herein are referred to as
Successor Company results.


Item 9A. Controls and Procedures
--------------------------------


(a) Evaluation of Disclosure Controls and Procedures
----------------------------------------------------


                                       88
<PAGE>


As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our principal executive officer (currently our executive vice
president, chief operating officer and treasurer), principal financial officer
and chief accounting officer (currently our controller and chief accounting
officer), of the effectiveness of our disclosure controls and procedures. Based
on this evaluation, our management, principal executive officer and principal
financial officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by the report.

(b) Evaluation of Internal Controls by PricewaterhouseCoopers
-------------------------------------------------------------

During the course of the fiscal 2002 year-end closing process and subsequent
audit of the financial statements for the eight month period ended December 31,
2002, our management and our then-current independent auditors,
PricewaterhouseCoopers, identified several matters related to internal controls
that needed to be addressed. Several of these matters were classified by the
auditors as "reportable conditions" in accordance with the standards of the
American Institute of Certified Public Accountants, or AICPA. Reportable
conditions involve matters coming to management's or our auditor's attention
relating to significant deficiencies in the design or operation of internal
control that, in the judgment management and the auditors, could adversely
affect our ability to record, process, summarize and report financial data in
the financial statements. Our principal executive officer, chief technology
officer, principal financial officer and audit committee are aware of these
conditions and of our responses thereto, and consider them to be significant
deficiencies as defined in the applicable literature embodying generally
accepted auditing standards, or GAAS. PricewaterhouseCoopers and management,
however, did not believe that these reportable conditions, separately or in
aggregate, represented any material weaknesses in our internal controls. On
March 2, 2004, we dismissed PricewaterhouseCoopers as our independent auditors.
PricewaterhouseCoopers has not reported on Motient's consolidated financial
statements for any fiscal period. On March 2, 2004, we engaged Ehrenkrantz
Sterling & Co. LLC as our independent auditors to replace PricewaterhouseCoopers
and audit our consolidated financial statements for the period May 1, 2002 to
December 31, 2002 and the year ended December 31, 2003. These reportable
conditions were materially remedied by December 31, 2003, and Friedman did not
identify any reportable conditions to management or the audit committee of the
board of directors as a result of the audit for the year ended December 31,
2003.

The following factors contributed to the reportable conditions identified by
PricewaterhouseCoopers during 2002:


     o    Rapid shifts in strategy following our emergence from bankruptcy on
          May 1, 2002, particularly with respect to a sharply increased focus on
          cost reduction measures;

     o    Significant reductions in workforce following our emergence from
          bankruptcy and over the course of 2002 and 2003, in particular layoffs
          of accounting personnel, which significantly reduced the number and
          experience level of our accounting staff;

     o    Turnover at the chief financial officer position during the 2002 audit
          period and subsequently in March of 2003; and

     o    The closure in mid-2003 of our Reston, VA facility, which required a
          transition of a large number of finance and general and administrative
          personnel to our Lincolnshire, IL facility.


Set forth below are the reportable conditions identified by management and
PricewaterhouseCoopers, together with a discussion of our corrective actions
with respect to such conditions through June 15, 2004. Our current auditors,
Friedman LLP, successors-in-interest to Ehrenhrantz Sterling & Co. LLC, agree
that the matters described below constitute significant deficiencies and have
communicated this view to our audit committee.


                                       89
<PAGE>

PricewaterhouseCoopers recommended several adjustments to the financial
statements for the periods ended April 30, June 30, September 30 and December
31, 2002. During the 2002 audit period, PricewaterhouseCoopers noted several
circumstances where our internal controls were not operating effectively.
However, management believes that its controls and procedures were effective as
of December 31, 2003, at the reasonable assurance level in timely alerting
management to material information relating to us required to be disclosed in
our Exchange Act filings.

Specifically, PricewaterhouseCoopers generally noted over the entire course of
its audit review on the 2002 financial statements during 2003, that:


     o    Timely reconciliation of certain accounts between the general ledger
          and subsidiary ledger, in particular accounts receivable and fixed
          assets, was not performed;

     o    Review of accounts and adjustments by supervisory personnel on monthly
          cut-off dates, in particular fixed assets clearing accounts, accounts
          receivable reserve and inventory reserve calculations, was not
          performed;

     o    Cut-off of accounts at balance sheet dates related to accounts
          payables, accrued expenses and inventories was not achieved; and

     o    No formal policy existed to analyze impairment of long-lived assets on
          a recurring basis.

PricewaterhouseCoopers recommended that management institute a thorough
close-out process, including a detailed review of the financial statements,
comparing budget to actual and current period to prior period to determine any
unusual items. They also recommended that we prepare an accounting policy and
procedures manual for all significant transactions to include procedures for
revenue recognition, inventory allowances, accounts receivable allowance, and
accruals, among other policies.


In response to these comments none of which were considered "material
weaknesses", we have taken the following actions:

     o    In June 2003, we initiated a process of revising, updating and
          improving our month-end closing process and created a checklist
          containing appropriate closing procedures. We believe that our
          month-end closing processes and procedures were effective as of
          September 2003.

     o    Beginning in July 2003, we increased our efforts to perform monthly
          account reconciliations on all balance sheet accounts in a timely
          fashion, which have been taking place on all accounts since September
          2003.

     o    Beginning in July 2003, on a monthly basis the corporate controller
          began reviewing balance sheet account reconciliations. No material
          issues have since been identified as part of these reconciliations.

     o    As of July, 2003, Motient reviews all long lived asset values on both
          a quarterly and annual basis.

                                       90
<PAGE>


     o    In July 2003, we implemented and distributed a written credit and
          collections policy, which includes reserve calculations and write-off
          requirements. Reserve calculation and write-off requirements have been
          performed on a timely basis since September 2003.

     o    As of July 2003, all accounts receivable sub-ledgers are reconciled to
          the general ledger monthly, and on a monthly basis inventory reports
          are produced, sub-ledgers are reconciled to the general ledger and the
          reserve account is analyzed. No material issues have since been
          identified as part of these reconciliations.

     o    Since September 2003, the fixed assets clearing account is no longer
          being used, and all asset additions are reviewed by the corporate
          controller to determine proper capitalization and balance sheet
          classification. No material issues have since been identified as part
          of these reviews.

     o    As of July 2003, all monthly income statement accounts are analyzed by
          the corporate controller prior to release of the financial statements.
          No material issues have since been identified as part of this
          analysis.


     o    We are preparing an accounting policy and procedures manual to include
          procedures for all significant policies, business practices, and
          routine and non-routine procedures performed by each functional area.
          Our goal is to finalize this manual by July 31, 2004. While we believe
          our procedures are adequate, our efforts in this regard have been
          delayed to our continuing efforts to produce our financial reports on
          a timely basis.

     o    Over the course of the third quarter of 2003, we updated our
          procedures for the preparation of a monthly financial reporting
          package to include management's discussion and analysis of results of
          operations, financial statements, cash and investments reporting and
          month-to-month variances. Under these procedures, since September
          2003, departmental results of operations are also prepared and
          provided to appropriate department managers on a monthly basis.

In addition to the above, since April 2003 we have reevaluated our staffing
levels, reorganized the finance and accounting organization and replaced ten
accounting personnel with more experienced accounting personnel, including,
among others, a new chief financial officer, chief accounting officer and
corporate controller, a manager of revenue assurance and a manager of financial
services. We believe that our staffing levels were appropriate as of September
2003.

We believe that out controls and procedures are currently effective, and we
further believe that the financial statements included in this annual report on
Form 10-K are fairly stated in all material respects.



                                       91
<PAGE>


                                    PART III


Item 10. Directors and Executive Officers of Motient
----------------------------------------------------

The following table sets forth certain information about our executive officers,
directors and key employees.
<TABLE>
<CAPTION>

Name                                 Title                                              Age     Began Service
----                                 -----                                              ---     -------------
<S>                                  <C>                                                <C>         <C>
Christopher W. Downie                Executive Vice President, Chief Operating          35          2003
                                     Officer and Treasurer
Dennis W. Matheson                   Senior Vice President and Chief                    43          1993
                                     Technology Officer
Robert L. Macklin                    General Counsel and Secretary                      29          2003
Myrna J. Newman                      Controller and Chief Accounting Officer            47          2003
Steven G. Singer                     Director, Chairman                                 43          2002
Gerald S. Kittner                    Director                                           51          2002
Peter D. Aquino                      Director                                           43          2003
Jonelle St. John                     Director                                           50          2000
James D. Dondero                     Director                                           41          2002
Raymond L. Steele                    Director                                           69          2004
</TABLE>


Christopher W. Downie, 35. Mr. Downie was appointed executive vice president,
chief operating officer and treasurer in May 2004. From March 2004 to May 2004,
Mr. Downie was the executive vice president, chief financial officer and
treasurer, and designated our principal executive officer. From April 2003 to
March 2004, he served as vice president, chief financial officer and treasurer.
From May 2002 to April 2003, Mr. Downie worked as a consultant for CTA, a
communications consulting firm. While with CTA, Mr. Downie was primarily engaged
on Motient-related and other telecom-related matters. From February 2000 to May
2002, Mr. Downie served as a senior vice president and chief financial officer
of BroadStreet Communications, Inc. From August 1993 to February 2000, Mr.
Downie was a vice president in the Investment Banking Division of Daniels &
Associates, LP, an investment bank focused on communications. From 1991 to 1993,
Mr. Downie served as a financial analyst at Bear Stearns & Co. Inc.

Dennis W. Matheson, 43. Mr. Matheson has been Motient's senior vice president
and chief technology officer since March 2000. From 1993 to March 2000, Mr.
Matheson held other technical positions within Motient, most recently as vice
president of engineering and advanced technology. Before joining Motient, Mr.
Matheson was senior manager of systems architecture for Bell Northern Research,
a subsidiary of Nortel Networks Corporation (formerly known as Northern Telecom
Limited). Prior to that, he held various positions with Northern Telecom and
Bell Northern Research within the design and product management organizations
and held various engineering positions with Texas Instruments Incorporated.

Mr. Matheson was an executive officer of Motient at the time it filed for
Chapter 11 protection. Information regarding Motient's filing under Chapter 11
of the Bankruptcy Code is provided in "Business - Motient's Chapter 11 Filing,"
and is incorporated herein by reference.

                                       92
<PAGE>

Robert Macklin, 29. Mr. Macklin has served as Motient's general counsel and
secretary since May 2004. From September 2003 to May 2004, Mr. Macklin served as
Motient's associate general counsel and secretary. From May 2001 to September
2003, he was in-house counsel to Herman Dodge & Son, Inc., a national housewares
manufacturer and distributor. Prior to May 2001, he was an attorney in the
corporate department of Skadden, Aprs, Slate, Meagher & Flom (Illinois).

Myrna J. Newman, 47. Ms. Newman has served as Motient's controller, chief
accounting officer and principal financial officer since May 2004. From April
2003 to May 2004, she served as controller and chief accounting officer. From
2001 to 2003, she was vice president of finance for Heads and Threads
International LLC, a subsidiary of Allegheny Corporation and distributor of
fasteners. Prior to that, from 1995 to 2001, she was the controller of Heads and
Threads.

Steven G. Singer, 43. Mr. Singer has been a Motient director since May 2002 and
chairman of the board since June 2003. Since November 2000, Mr. Singer has
served as chairman and chief executive officer of American Banknote Corporation,
a public company providing documents of value (such as currency, checks,
passports, and credit cards) and related services. Since 1994, Mr. Singer has
also been chairman and chief executive officer of Pure 1 Systems, a privately
held drinking water treatment company. From 1994 to 2000, Mr. Singer was
executive vice president and chief operating officer of Romulus Holdings, Inc.,
a family-owned investment fund. Mr. Singer also currently serves as the
non-executive chairman of Globix Corporation, a public company.

Gerald S. Kittner, 50. Mr. Kittner has been a Motient director since May 2002.
Since October 2001, Mr. Kittner has been an advisor and consultant for CTA. From
1996 to 1999, Mr. Kittner was a senior vice president for legislative and
regulatory affairs with CAI Wireless Systems. When CAI Wireless Systems was
acquired by WorldCom, Inc. (then MCI) in 1999, Mr. Kittner remained with
WorldCom as a senior vice president for approximately one year. From 1996 to
2000, Mr. Kittner served on the board of directors of the Wireless
Communications Association, and was a member of its executive and government
affairs committees. Previously, Mr. Kittner was a partner with the law firm
Arter & Hadden and worked with a variety of telecommunications clients.

Mr. Kittner was involved with CAI Wireless Systems, Inc. when it filed for
protection under Chapter 11 of the Bankruptcy Code in 1998. During all relevant
time periods relating to the Chapter 11 proceeding captioned In re CAI Wireless
Systems, Inc., Debtor, Chapter 11 Case No. 98-1766 (JJF) and In re Philadelphia
Choice Television, Inc., Debtor, Chapter 11 Case No. 98-1765 (JJF), commenced in
the United States Bankruptcy Court for the District of Delaware on July 30,
1998, Mr. Kittner was a senior vice president of CAI Wireless Systems. CAI
Wireless Systems and Philadelphia Choice Television consummated their joint plan
of reorganization and emerged from bankruptcy on October 14, 1998.

Peter D. Aquino, 43. Mr. Aquino has been a Motient director since June 2003. Mr.
Aquino has been a senior managing director of CTA since February 2002. From July
1995 to January 1998, Mr. Aquino was a partner of Wave International, Inc., a
telecommunications investment firm. From January 1998 to February 2002, Mr.
Aquino was the chief operating officer of, and a board advisor to, Veninfotel,
LLC, one of Wave International's private telecom holdings in Venezuela. From
1983 to 1995, Mr. Aquino held various positions in finance, regulatory and
corporate development at Bell Atlantic Corporation (now Verizon). Mr. Aquino is
a director of Neon Communications, Inc., a private company.

                                       93
<PAGE>

Jonelle St. John, 50. Ms. St. John has been a Motient director since November
2000. Ms. St. John was the chief financial officer of MCI WorldCom International
in London from 1998 through 2000 following her positions as the treasurer of MCI
Communications Corporation from 1993 to 1998. Prior to working with WorldCom,
Ms. St. John was the vice president and treasurer and the vice president and
controller of Telecom*USA, which she joined in 1985. Before 1985, Ms. St. John
held various positions at Arthur Andersen LLP.

James D. Dondero, 41. Mr. Dondero has been a Motient director since July 2002.
Mr. Dondero has been president of Highland Capital Management, L.P. since 1993.
Mr. Dondero is also a director of Audio Visual Services Corp., Genesis Health
Ventures, Inc. and American Banknote Corporation, all of which are public
companies.

Raymond L. Steele, 69. Mr. Steele was elected to the board of directors in May
2004. Mr. Steele has been a director of Globix since June 2003, and is also a
member of the board of directors of Dualstar Technologies Corporation and
American Banknote Corporation. From August 1997 until October 2000, Mr. Steele
served as a board member of Video Services Corp. Prior to his retirement, Mr.
Steele held various senior positions such as Executive Vice President of
Pacholder Associates, Inc. (from August 1990 until September 1993), Executive
Advisor at the Nickert Group (from 1989 through 1990), and Vice President, Trust
Officer and Chief Investment Officer of the Provident Bank (from 1984 through
1988).

Audit Committee Financial Expert


Our board of directors has determined that Jonelle St. John and Raymond L.
Steele are "audit committee financial experts", as such term is defined under
Item 401(h) of Regulation S-K. Each of them is "independent" of management as
independence for audit committee members is defined by NASDAQ rules.
Stockholders should understand that this designation is a disclosure requirement
of the SEC related to Ms. St. John's and Mr. Steele's experience and
understanding with respect to certain accounting and auditing matters. The
designation does not impose on Ms. St. John or Mr. Steele any duties,
obligations or liability that are greater than are generally imposed on them as
members of the audit committee and board of directors, and their designations as
audit committee financial experts pursuant to this SEC requirement does not
affect the duties, obligations or liability of any other member of the audit
committee or board of directors.


Board Compensation

Each non-employee member of the board of directors is entitled to receive $2,000
per month, and each member of the audit committee (currently Ms. St. John, Mr.
Aquino, Mr. Kittner and Mr. Steele) and the compensation and stock option
committee (currently Mr. Singer, Mr. Kittner and Mr. Dondero) are entitled to
receive an additional $500 and $250 per month, respectively. Each non-employee
member of the board of directors also is entitled to receive an additional
$1,000 for each board or committee meeting that is in excess of four meetings
per year. In calculating the number of meetings held with respect to which this
additional fee is to be paid, multiple meetings held on the same day are
regarded as a single meeting. Further, each non-employee member of our board is
eligible to receive grants of stock options under our 2002 stock option plan. No
options have been granted to non-employee directors.


                                       94
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance


Under the securities laws of the United States, our directors, executive
officers and any persons holding more than ten percent of our common stock are
required to report their ownership of the common stock and any changes in that
ownership to the SEC. Specific due dates for these reports have been established
by the SEC, and we are required to report in this annual report any failure to
file by these dates. Based on our review of these reports filed during and in
connection with the year ended December 31, 2003, and on certain written
representations, we do not believe that any of our directors, officers or
beneficial owners of more than ten percent of our common stock failed to file a
form or report a transaction on a timely basis other than a Form 3 for Peter D.
Aquino, and a Form 4 for each of Walter Purnell, Michael Fabbri, Daniel Croft,
Dennis Matheson and Christopher Downie, each of which were not filed on a timely
basis (but have been filed).


Code of Ethics


We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer and principal accounting officer, which is
intended to comply with Item 406 of Regulation S-K. This code of ethics has been
approved by our board of directors, and has been designed to deter wrongdoing
among directors, officers and employees and promote honest and ethical conduct,
full, fair, accurate and timely disclosure, compliance with applicable laws,
rules and regulations, prompt internal reporting of code violations, and
accountability for adherence to our code. We will, upon request, provide any
person, without charge, a copy of our code of ethics. To request a copy, please
contact our investor relations department at 847-478-4200.




Item 11.  Executive Compensation.

The following tables set forth (a) the compensation paid or accrued by Motient
to Motient's chief executive officer and its six other most highly compensated
executive officers receiving over $100,000 per year in 2003, all of whom are
referred to herein as the "named executive officers" for services rendered
during the fiscal years ended December 31, 2001, 2002, and 2003 and (b) certain
information relating to options granted to such individuals.


                                       95
<PAGE>

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                                                   All Other
                                                    Annual Compensation             Long-Term Compensation       Compensation
                                           --------------------------------------------------------------------------------------
                                                                                                    Restricted     Securities
          Name and                                                                  Other Annual      Stock         Underlying
      Principal Position                     Year        Salary          Bonus     Compensation(1)  Awards(2) $   Options/SARs3)
      ------------------                     ----        ------          -----     ---------------  -----------   ---------------

<S>                                         <C>        <C>            <C>            <C>            <C>              <C>
Christopher W. Downie                       2003       $129,688       $      0       $     88       $      0         40,000
Executive Vice President, Chief
Operating Officer and Treasurer (4)

Walter V. Purnell, Jr. (5)                  2003       $272,813       $      0       $    774       $      0        160,000
Former President and                        2002       $280,763       $ 50,000       $    774       $      0        500,000
Chief Executive Officer                     2001       $286,953       $ 83,000       $    774       $ 46,508        100,000

Dennis W. Matheson                          2003       $181,067       $      0       $    168       $      0         40,000
Senior Vice President                       2002       $177,923       $ 25,000       $    476       $      0        120,000
and Chief Technology Officer                2001       $182,355       $ 51,940       $    158       $ 15,609         40,000

Daniel Croft(6)                             2003       $168,420       $      0       $    229       $      0         50,000
Former Senior Vice President,               2002       $173,184       $ 20,000       $ 40,146       $      0        120,000
Business Development                        2001       $177,145       $ 14,892       $ 19,319       $  5,850         15,000

Michael Fabbri(6)                           2003       $171,658       $      0       $ 24,446       $      0         40,000
Former Senior Vice                          2002       $176,515       $ 30,000       $ 29,539       $      0        120,000
President, Sales                            2001       $184,220       $ 22,423       $ 41,175       $  9,604         40,000

Robert L. Macklin (7)                       2003       $ 32,392       $      0       $     14       $      0         25,000
General Counsel and Secretary

Myrna J. Newman (8)                         2003       $ 80,985       $      0       $     87       $      0         15,000
Controller and Chief
Accounting Officer
</TABLE>


(1) Includes group term life insurance premiums. For Mr. Croft, also includes
commissions in 2001, 2002 and 2003 in the amounts of $19,086, $39,913 and $0,
respectively. For Mr. Fabbri, also includes commissions in 2001, 2002 and 2003
in the amounts of $40,942, $29,062 and $24,290, respectively.

                                       96
<PAGE>


(2) In September 2001, Motient completed an option exchange program in which
holders of previously-granted options, including the named executive officers,
were entitled to exchange such options for a number of shares of restricted
stock equal to 75% of the number of shares covered by the exchanged options. The
amounts shown in this column for 2001 represent such restricted stock awarded in
September 2001. Under Motient's Plan of Reorganization, all shares of restricted
stock were cancelled as of May 1, 2002, the effective date of the Plan. On that
date, holders of restricted stock received warrants to purchase 0.02613 shares
of common stock at a price of $0.01 per share for each vested share of
restricted stock held. Holders did not receive anything in exchange for their
canceled unvested shares. The warrants expired May 1, 2004, and were never
exercisable. The shares of restricted stock issued in the exchange program were
to vest according to the vesting schedule of the options that were exchanged,
except that no shares of restricted stock vested before May 1, 2002. These
shares of restricted stock were to have vested as follows:

<TABLE>
<CAPTION>
            Name                    Total Number of Shares                          Vesting Schedule
            ----                    ----------------------                          ----------------
<S>                                         <C>                       <C>         <C>
Walter V. Purnell, Jr.                      357,750                   182,750     shares on March 25, 2002
                                                                       25,000     shares on January 25, 2003
                                                                       12,500     shares on January 27, 2003
                                                                       25,000     shares on January 25, 2004
                                                                      112,500     shares on January 27, 2007

Dennis W. Matheson                          120,073                    72,573     shares on March 25, 2002
                                                                       10,000     shares on January 25, 2003
                                                                        2,500     shares on January 27, 2003
                                                                        2,500     shares on March 23, 2003
                                                                       10,000     shares on January 25, 2004
                                                                       22,500     shares on January 27, 2007

Daniel Croft                                45,000                     33,750     shares on March 25, 2002
                                                                        3,750     shares on January 25, 2003
                                                                        3,750     shares on January 27, 2003
                                                                        3,750     shares on January 25, 2004

Michael Fabbri                              73,875                     46,375     shares on March 25, 2002
                                                                       10,000     shares on January 25, 2003
                                                                        7,500     shares on January 27, 2003
                                                                       10,000     shares on January 25, 2004
</TABLE>

As of December 31, 2001, the dollar value of restricted stock held by each of
Messrs. Purnell, Matheson, Croft, and Fabbri was $150,255, $50,431, $18,900 and
$31,028 respectively, and the total number of shares of restricted stock held by
each of Messrs. Purnell, Matheson, Croft and Fabbri was 357,750, 120,073,
45,000 and 73,875, respectively.

(3) For 2000 and 2001, the numbers reflect grants of options to purchase shares
of common stock under Motient's former stock award plan, which was terminated in
conjunction with Motient's Plan of Reorganization in 2002. Under Motient's Plan
of Reorganization, all unexercised options outstanding as of May 1, 2002 were
cancelled on May 1, 2002, the effective date of the Plan. For 2002 and 2003, the
numbers reflect grants of options to purchase shares of common stock under
Motient's 2002 stock option plan. Motient has not granted stock appreciation
rights, or SARs.

(4) Mr. Downie's employment began in April 2003.

(5) Mr. Purnell's employment terminated in March 2004.

                                       97
<PAGE>

(6) Mr. Croft's and Mr. Fabbri's employment terminated in February 2004.

(7) Mr. Macklin's employment began in September 2003.

(8) Ms. Newman's employment began in April 2003.

The following table sets forth each grant of stock options made during fiscal
year 2003 to each of the named executive officers.


                      Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>

                                                   Individual Grants
                             --------------------------------------------------------------- Potential Realizable
                                                                                            Value at Assumed Annual
                                                                                              Rates of Stock Price
                                                                                                Appreciation for
                               Number of       % of Total                                        Option Term(1)
                               Securities    Options/SARs                                        -------------
                               Underlying      Granted to   Exercise or
                             Options/SARs      Employees/    Base Price
            Name                Granted       Fiscal Year    ($/Share)     Expiration Date        5%        10%
            ----                -------       -----------     ---------    ---------------   ----------------------

<S>                             <C>               <C>          <C>           <C>            <C>         <C>
Christopher W. Downie (5)        40,000            8%           $5.15         7/15/2013      $130,000    $329,000
Walter V. Purnell, Jr.          160,000           31%           $5.15         7/15/2013      $519,000    $1,314,000
Dennis W. Matheson               40,000            8%           $5.15         7/15/2013      $130,000    $329,000
Daniel Croft(4)                  50,000           10%           $5.15         7/15/2013      $162,000    $411,000
Michael Fabbri(4)                40,000            8%           $5.15         7/15/2013      $130,000    $329,000
Robert Macklin                   25,000            5%           $5.65         9/14/2013      $89,000     $225,000
Myrna Newman                     15,000            3%           $3.00         4/20/2013      $29,000     $72,000
</TABLE>



(1) The amounts shown as potential realizable value represent hypothetical gains
that could be achieved for the respective options if exercised at the end of the
option term. These amounts represent certain assumed rates of appreciation in
the value of our common stock. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent our estimate or projection of the future price
of our common stock. The potential realizable value is calculated based on the
ten year term of the option at its time of grant. It is calculated based on the
assumption that our common stock appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock price.
Actual gains, if any, on stock option exercises depend on the future performance
of our common stock. The amounts reflected in the table may not necessarily be
achieved.


(2) One-half of these options become exercisable in three annual installments,
vesting at the rate of 33-1/3% per year for three years. The other one-half of
these options become exercisable only upon the attainment of specified operating
and performance targets for the year ending December 31, 2004.

(4) Mr. Croft's and Mr. Fabbri's vested options will terminate on February 18,
2006.

(5) Mr. Downie's options vested with his designation as principal executive
officer in April 2004.

The following table sets forth, for each of the named executive officers, the
value of unexercised options at fiscal year-end.


                                      98
<PAGE>

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values (1)
<TABLE>
<CAPTION>

                                                                        Number of Securities    Value of Unexercised
                                                                             Underlying             in-the-Money
                                                                       Unexercised Options at      Options/SARs at
                                    Shares                                 Fiscal Year-End       Fiscal Year-End($)
                                 Acquired on                                Exercisable/            Exercisable/
             Name                Exercise (#)    Value-Realized ($)         Unexercisable           Unexercisable
             ----                ------------    ------------------         -------------           -------------
<S>                                   <C>               <C>                   <C>                        <C>
Christopher W. Downie                 --                 --                   0/40,000                   0/0
Walter V. Purnell, Jr.                --                 --                493,316/660,000               0/0
Dennis W. Matheson                    --                 --                40,000/120,000                0/0
Daniel Croft                          --                 --                40,000/130,000                0/0
Michael Fabbri                        --                 --                40,000/120,000                0/0
Robert Macklin                        --                 --                   0/25,000                   0/0
Myrna Newman                          --                 --                   0/15,000                   0/0

</TABLE>

(1)      Motient has not granted SARs.
(2)      Upon the termination of Messers. Croft and Fabbri as part of its
         February 2004 reduction in force, Motient accelerated outstanding
         options to purchase an aggregate of 100,000 shares of our common stock
         at $3.00 per share and 22,500 shares at $5.15 per share (split
         approximately equally between Messrs. Croft and Fabbri). All remaining
         outstanding options held by Messrs. Croft and Fabbri were cancelled.

Change of Control Agreements

Pursuant to the Plan of Reorganization, Motient entered into a change of control
agreement, effective May 1, 2002, with each of Messrs. Matheson, Fabbri, and
Croft and six other vice presidents of Motient. Under the agreements, each
officer is eligible to receive one year of their annual base salary (excluding
cash bonus) in the event that both (x) a "change in control" or an anticipated
"change in control," as defined in the change of control agreement, has occurred
and (y) the employee is terminated or his or her compensation or
responsibilities are reduced. The events constituting a "change of control"
generally involve the acquisition of greater than 50% of the voting securities
of Motient, as well as certain other transactions or events with a similar
effect. In July 2002, Mr. Purnell's change of control agreement was superseded
by the executive retention agreement described below. As part of their
termination from Motient in February 2004, Messrs. Fabbri and Croft were
provided severance pay and certain outstanding options were accelerated as
settlement of their change of control agreements.

Executive Retention Agreement for Mr. Purnell

On July 16, 2002, we entered into an executive retention agreement with Mr.
Purnell, which was amended in connection with the termination of Mr. Purnell's
employment in March 2004. Pursuant to the terms of the amended agreement, we
will pay Mr. Purnell a severance payment equal to one-half of his base salary
through September 2005. Additionally, we agreed to make a lump sum severance
payment to Mr. Purnell in September 2005 equal to the other half of his base
salary through such period. Mr. Purnell is entitled to receive certain medical
benefits until September 2005. As part of these severance arrangements, Mr.
Purnell entered into a waiver and release agreement and a non-compete agreement.

                                      99
<PAGE>


Compensation of Directors

Information about compensation of directors appears in Item 10 of this annual
report on Form 10-K and is incorporated herein by reference.

2002 Stock Option Plan

Our 2002 stock option plan was adopted by the board of directors on May 31, 2002
and received stockholder approval on July 11, 2002. A total of 2,993,024 shares
of common stock have been reserved for issuance under the 2002 stock option
plan. Under the 2002 stock option plan, we are authorized to grant options to
purchase shares of common stock intended to qualify as incentive stock options,
as defined under section 422 of the Internal Revenue Code of 1986, as amended,
and non-qualified stock options to any employees, outside directors,
consultants, advisors and individual service providers whose participation in
the 2002 stock option plan is determined by our compensation and stock option
committee to be in our best interests. The term of each stock option is fixed by
the board of directors or the compensation committee, and each stock option is
exercisable within ten years of the original grant date. Generally, an option is
not transferable by the recipient except by will or the laws of descent and
distribution. Some change of control transactions, such as a sale of Motient,
may cause awards granted under the 2002 stock option plan to vest. As of
December 31, 2003, options to purchase 1,757,513 shares of our common stock were
outstanding. In March 2003, the board of directors approved a reduction in the
exercise price of all of our then-outstanding stock options from $5.00 per share
to $3.00 per share.

Compensation and Stock Option Committee Interlocks and Insider Participation

From January 1, 2002 to May 1, 2002, the compensation and stock option committee
of Motient's board of directors consisted of Ms. St. John and Messrs. Parrott,
Parsons, Purnell and Quartner. During this time, Messrs. Parsons and Purnell
were executive officers of Motient. From May 1, 2002 to December 31, 2002, the
compensation and stock option committee of Motient's board of directors
consisted of Messrs. Singer, Kittner and Stranzl. During this time, none of
these individuals were executive officers of Motient. In 2003, the compensation
and stock option committee of Motient's board of directors consisted of Messrs.
Singer, Kittner and Dondero. During this time, none of these individuals were
executive officers of Motient.

Mr. Kittner is an advisor and consultant for CTA. During 2002, Motient and/or
certain of its subsidiaries were party to certain contracts and/or transactions
with CTA. All of these contracts and transactions were approved by Motient's
board of directors, and Motient believes that the contracts and transactions
were made on terms substantially as favorable to Motient as could have been
obtained from unaffiliated third parties. The following is a description of such
contracts and transactions. In addition, this section describes the relationship
between Steven Singer and one of the lenders under our credit facility. For
additional information concerning these relationships, see "Item 13 -- Certain
Relationships and Related Transactions."

                                      100
<PAGE>

In May 2002, we entered into a consulting agreement with CTA under which CTA
provided consulting services to us. CTA is a consulting and private advisory
firm specializing in the technology and telecommunications sectors. Our
agreement with CTA had an initial term of three months ending August 15, 2002,
and was extended by mutual agreement for several additional terms of two or
three months each. For the first three months of the agreement, CTA was paid a
flat fee of $60,000 per month, and for the period August 2002 to May 2003, the
monthly fee was $55,000. We also agreed to reimburse CTA for CTA's out-of-pocket
expenses incurred in connection with rendering services during the term of the
agreement.

Beginning in May 2003, the monthly fee was reduced to $39,000. This agreement
was modified on January 30, 2004.

In November 2003, CTA was engaged to provide valuation of Motient's equity
interest in MSV as of December 31, 2002. CTA was paid $150,000 for this
valuation.

On January 30, 2004, Motient engaged CTA to act as chief restructuring entity.
The term of CTA's engagement is currently scheduled to end in August 2004. As
consideration for this work, we agreed to pay to CTA a monthly fee of $60,000.
The new agreement modifies the consulting arrangement discussed above.

CTA had previously acted as the spectrum and technology advisor to the official
committee of unsecured creditors in connection with our Chapter 11 case. CTA
received a total of $475,000 in fees for such advice and was reimbursed a total
of $4,896 for expenses in connection with the rendering of such advice.

Except for the warrant offered and provided to certain CTA affiliates described
below, neither CTA, nor any of its principals or affiliates is a stockholder of
Motient, nor does it hold any debt of Motient (other than indebtedness as a
result of consulting fees and expense reimbursement owed to CTA in the ordinary
course under our existing agreement with CTA). CTA has informed us that in
connection with the conduct of its business in the ordinary course, (i) it
routinely advises clients in and appears in restructuring cases involving
telecommunications companies throughout the country, and (ii) certain of our
stockholders and bondholders and/or certain of their respective affiliates or
principals, may be considered to be (A) current clients of CTA in matters
unrelated to Motient; (B) former clients of CTA in matters unrelated to Motient;
and (C) separate affiliates of clients who are (or were) represented by CTA in
matters unrelated to Motient.

In July 2002, our board of directors approved the offer and sale to CTA (or
affiliates thereof) of a warrant (or warrants) for 500,000 shares of our common
stock, for an aggregate purchase price of $25,000. The warrant (or warrants) has
an exercise price of $3.00 per share and a term of five years. These warrants
were valued at $1.5 million and were recorded as a consultant compensation
expense in December of 2002. Certain affiliates of CTA purchased the warrants in
December 2002.

In April 2004 and July, 2004, as part of two private placements, certain CTA
affiliates received warrant for 400,000 and 340,000 shares, respectively, of our
common stock at an exercise price of $5.50 and $8.57, respectively, per share.

In addition, on January 27, 2003, our wholly-owned subsidiary, Motient
Communications, closed a term credit agreement with a group of lenders,
including several of our existing stockholders. The lenders include Gary Singer,
directly or through one or more entities. Gary Singer is the brother of Steven
G. Singer, one of our directors serving on the compensation and stock option
committee. Steven Singer has, and continues to recuse himself from all
discussions of the credit agreement and has abstained from voting on all matters
regarding the credit agreement.



                                      101
<PAGE>


Item 12. Security Ownership Of Certain Beneficial Owners and Management and
---------------------------------------------------------------------------
Related Shareholder Matters
---------------------------

The following table and the accompanying notes set forth certain information, as
of June 24, 2004 (or any other date that is indicated) concerning the beneficial
ownership of Motient's common stock by (i) each person who is known by Motient
to own beneficially more than five percent of Motient's common stock, (ii) each
director, (iii) each executive officer named in the summary compensation table
and (iv) all directors and executive officers as a group. Except as otherwise
indicated, each person listed in the table has informed Motient that such person
has sole voting and investment power with respect to such person's shares of
common stock and record and beneficial ownership with respect to such person's
shares of common stock.
<TABLE>
<CAPTION>

                                                                      Number of Shares        % of Class
Name of Beneficial Owner                                                    (1)                  (1)
------------------------                                                    ---                  ---
<S>                                                                       <C>                   <C>
Highland Capital Management, L.P. (2)
13445 Noel Road
Suite 3300
Dallas, TX  75240                                                         4,424,559             14.9%

Paul Tudor Jones, II (3)
c/o Tudor Investment Corporation
1275 King St.                                                             2,545,455              8.5%
Greenwich, CT 06831

George W.  Haywood (4)
c/o Cronin & Vris, LLP
380 Madison Avenue
24th Floor                                                                3,389,500             11.4%
New York, NY 10017

James G.  Dinan (5)
York Capital Management & affiliates
350 Park Avenue
4th Floor                                                                 2,276,445              7.6%
New York, NY 10022

John C. Waterfall
c/o Morgens, Waterfall, Vintiadis & Co., Inc. (6)
600 Fifth Avenue                                                          2,610,000              8.8%
27th Floor
New York, NY 10020
</TABLE>

                                      102
<PAGE>
<TABLE>

Directors and Executive Officers
<S>                                                                         <C>                  <C>
Dennis W. Matheson (7)                                                       60,990              *
Christopher W. Downie (8)                                                   141,160              *
Robert Macklin (7)                                                              619              *
Myrna Newman (7)                                                              2,500              *
Peter D. Aquino                                                                   0              *
Gerald S. Kittner                                                                 0              *
Steven G. Singer                                                                  0              *
Jonelle St. John                                                                  0              *
Raymond L. Steele                                                                 0              *
James D. Dondero (2)                                                      4,424,559             14.9%
All directors and named executive officers as a group (13 persons)        4,629,828             15.5%


* Less than 1% of the outstanding shares.
</TABLE>

(1) The information regarding beneficial ownership of our common stock has been
    presented in accordance with the rules of the SEC and is not necessarily
    indicative of beneficial ownership for any other purpose. Under these rules,
    beneficial ownership of common stock includes any shares as to which a
    person, directly or indirectly, has or shares voting power or investment
    power and also any shares as to which a person has the right to acquire such
    voting or investment power within 60 days through the exercise of any stock
    option or other right. The percentage of beneficial ownership as to any
    person as of a particular date is calculated by dividing the number of
    shares beneficially owned by such person by the sum of the number of shares
    outstanding as of such date and the number of shares as to which such person
    has the right to acquire voting or investment power within 60 days. As used
    in this report, "voting power" is the power to vote or direct the voting of
    shares and "investment power" is the power to dispose or direct the
    disposition of shares. Except as noted, each stockholder listed has sole
    voting and investment power with respect to the shares shown as beneficially
    owned by such stockholder.

(2) Highland Capital Management, L.P., Strand Advisors, Inc. and James Dondero
    are deemed to beneficially own 4,424,559 shares of our common stock, which
    include 1,155,224 shares owned by Prospect Street High Income Portfolio
    Inc., 1,627,545 shares owned by Highland Crusader Offshore Partners, L.P.,
    223,880 shares owned by Highland Legacy, Limited, 223,880 shares owned by
    Pamco Cayman Limited, 1,082,090 shares owned by Pam Capital Funding, LP and
    111,940 shares owned by Prospect Street Income Shares Inc. Highland Capital
    Management is the investment advisor of the above-named entities, and Strand
    Advisors is the general partner of Highland Capital Management. As such,
    Highland Capital Management and Strand Advisors has shared voting and
    investment power over these shares and accordingly is deemed to beneficially
    own them. Mr. Dondero is the president of Highland Capital Management and
    the president and a director of Strand Advisors, Inc., Prospect Street High
    Income Portfolio Inc. and Prospect Street Income Shares Inc. and may be
    deemed to share voting and investment power with respect to all shares held
    by the Highland Capital Management entities named above. Mr. Dondero
    disclaims beneficial ownership of such shares except to the extent of his
    pecuniary interest.

                                      103
<PAGE>

(3) The shares of common stock reported herein as beneficially owned are owned
    directly by Tudor Proprietary Trading, L.L.C. (224,221 shares), The Altar
    Rock Fund, L.P. (20,682 shares), The Raptor Global Portfolio, Ltd.
    (1,882,115 shares), and The Tudor BVI Global Portfolio Ltd. (418,437
    shares). Because Tudor Investment Corporation is the sole general partner of
    Altar Rock and provides investment advisory services to Raptor Portfolio and
    BVI Portfolio, Tudor Investment Corporation may be deemed beneficially to
    own the shares of Common Stock owned by each. Tudor Investment Corporation
    expressly disclaims such beneficial ownership. In addition, because Mr.
    Jones is the controlling shareholder of Tudor Proprietary Trading and the
    indirect controlling equity holder of Tudor Investment Corporation, Mr.
    Jones may be deemed beneficially to own the shares of Common Stock deemed
    beneficially owned by Tudor Investment Corporation and Tudor Proprietary
    Trading. Mr. Jones expressly disclaims such beneficial ownership. Share
    ownership is based on a Schedule 13G filed April 26, 2004.

(4) Does not includes 130,000 shares owned indirectly, including 50,000 shares
    of our common stock beneficially owned by Mr. Haywood's spouse and 36,000
    shares of our common stock beneficially owned by Mr. Haywood's children.
    Share ownership is based on the latest publicly available information, a
    Form 4 filed with the SEC on May 5, 2004.

(5) James G. Dinan beneficially owns the 2,276,445 shares of our common stock,
    which includes shares owned by York Investment Limited, York Capital
    Management L.P., York Select L.P., York Select Unit Trust, York Distressed
    Opportunities Fund, L.P., York Offshore Investment Unit Trust and certain
    shares held by certain other funds and accounts over which Mr. Dinan has
    discretionary investment authority. Mr. Dinan is the senior managing member
    and holder of a controlling interest in Dinan Management, L.L.C., York
    Select Domestic Holdings, LLC, York Select Offshore Holdings, LLC, York
    Offshore Holdings L.L.C. and York Distressed Domestic Holdings, LLC. Mr.
    Dinan is also a director and holder of a controlling interest in York
    Offshore Holdings, Limited. York Offshore Holdings is the investment manager
    of York Investment. Dinan Management is the general partner of York Capital
    Management. York Select Domestic Holdings is the general partner of York
    Select. York Select Offshore Holdings is the investment manager of York
    Select Unit Trust. York Distressed Domestic Holdings is the investment
    manager of York Distressed Opportunities Fund. York Offshore Holdings is the
    investment manager of York Offshore Investors. Mr. Dinan is the president
    and sole shareholder of JGD Management Corp., which manages the other funds
    and accounts that hold our common stock over which Mr. Dinan has
    discretionary investment authority. Share ownership is based on a Schedule
    13G/A and a Form 3 filed with the SEC on March 10, 2004 and a form 4 filed
    on April 5, 2004. York Capital Management, York Investment Limited, York
    Distressed Opportunities Fund and York Offshore Investors Unit Trust
    received warrants to purchase 52,500, 118,750, 72,500 and 68,750 shares of
    our common stock, respectively, in January 2003 upon the closing of a term
    credit facility. These warrants are fully vested and exercisable.

(6) John C. Waterfall is the president and treasurer of Morgens, Waterfall,
    Vintiadis & Co., Inc. and beneficially owns 2,610,000 shares of common
    stock, which includes 200,000 shares of common stock for his own account and
    10,000 shares of common stock held in trust for his children. Morgens,
    Waterfall, Vintiadis & Co. beneficially owns 2,400,000 shares of common
    stock, which includes 967,200 shares held by Phaeton International (BVI)
    Ltd., 1,101,600 shares Morgens, the vice president and secretary of Morgens,
    Waterfall, Vintiadis & Co. beneficially owns 2,410,000 shares of our common
    stock. Share ownership is based on a Form 3 and a Schedule 13G/A filed with
    the SEC on March 10, 2004.

(7) Comprised of shares underlying stock options that have vested.

(8) Comprised of shares underlying options and a warrant that are fully vested
    and exercisable.



                                      104
<PAGE>

Securities Issued Under Equity Compensation Plans

The following table provides information regarding equity compensation plans
under which our equity securities were authorized for issuance as of December
31, 2003.

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>

                                                                                                      Number of
                                                                                                      securities
                                                                                                      remaining
                                                             Number of                               available for
                                                         securities to be                           future issuance
                                                            issued upon        Weighted-average       under equity
                                                            exercise of       exercise price of       compensation
                                                            outstanding          outstanding        plans (excluding
                                                         options, warrants    options, warrants  securities reflected
                                                            and rights            and rights        in column(a))
Plan Category                                                   (a)                  (b)                (c)
-------------                                                   ---                  ---                ---
<S>                                                          <C>                  <C>                 <C>
Equity compensation plans approved by security holders       2,993,024            $3.61(1)            1,235,511

Equity compensation plans not approved by security
holders                                                              0                0                       0
                                                             ---------            -------             ---------
Total                                                        2,993,024            $3.61(1)            1,235,511
</TABLE>

(1) In March 2003, our board of directors approved the reduction in the exercise
price of all of the outstanding stock options from $5.00 per share to $3.00 per
share.

Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------
This section describes arrangements with CTA, an entity in which (i) Jared E.
Abbruzzese, a director until June 20, 2003, is the chairman, (ii) Gerald S.
Kittner, a Motient director, is an advisor and consultant, (iii) Christopher W.
Downie, Motient's executive vice president, chief operating officer and
treasurer, was formerly affiliated and (iv) Peter Aquino, a Motient director, is
a senior managing director. Additionally, this section describes related party
transactions concerning our credit facility.

Communication Technology Advisors LLC

Jared E. Abbruzzese, a director until June 20, 2003, is the chairman of CTA.
Gerald S. Kittner, a Motient director, is an advisor and consultant for CTA.
Peter D. Aquino, also a Motient director, is a senior managing director of CTA.
Christopher W. Downie was formerly affiliated with CTA and is now our executive
vice president, chief operating officer and treasurer.

In May 2002, we entered into a consulting agreement with CTA under which CTA
provided consulting services to us. CTA is a consulting and private advisory
firm specializing in the technology and telecommunications sectors. Our

                                      105
<PAGE>

agreement with CTA had an initial term of three months ending August 15, 2002,
and was extended by mutual agreement for several additional terms of two or
three months each. For the first three months of the agreement, CTA was paid a
flat fee of $60,000 per month, and for the period August 2002 to May 2003, the
monthly fee was $55,000. We also agreed to reimburse CTA for CTA's out-of-pocket
expenses incurred in connection with rendering services during the term of the
agreement.

Beginning in May 2003, the monthly fee was reduced to $39,000. This agreement
was modified on January 30, 2004.

In November 2003, CTA was engaged to provide valuation of Motient's equity
interest in MSV as of December 31, 2002. CTA was paid $150,000 for this
valuation.

On January 30, 2004, we engaged CTA to act as chief restructuring entity. The
term of CTA's engagement is currently scheduled to end in August, 2004. As
consideration for this work, Motient agreed to pay to CTA a monthly fee of
$60,000. The new agreement amends the consulting arrangement discussed above.

CTA had previously acted as the spectrum and technology advisor to the official
committee of unsecured creditors in connection with our Chapter 11 case. CTA
received a total of $475,000 in fees for such advice and was reimbursed a total
of $4,896 for expenses in connection with the rendering of such advice.

Except for the warrants offered to certain CTA affiliates described below, or
certain warrants received by certain CTA affiliates in connection with the April
7, 2004 and July 1, 2004 private placements of our common stock, neither CTA,
nor any of its principals or affiliates is a stockholder of Motient, nor does it
hold any debt of Motient (other than indebtedness as a result of consulting fees
and expense reimbursement owed to CTA in the ordinary course under our existing
agreement with CTA). CTA has informed us that in connection with the conduct of
its business in the ordinary course, (i) it routinely advises clients in and
appears in restructuring cases involving telecommunications companies throughout
the country, and (ii) certain of our stockholders and bondholders and/or certain
of their respective affiliates or principals, may be considered to be (A)
current clients of CTA in matters unrelated to Motient; (B) former clients of
CTA in matters unrelated to Motient; and (C) separate affiliates of clients who
are (or were) represented by CTA in matters unrelated to Motient.

In July 2002, our board of directors approved the offer and sale to CTA (or
affiliates thereof) of a warrant (or warrants) for 500,000 shares of our common
stock, for an aggregate purchase price of $25,000. The warrant (or warrants) has
an exercise price of $3.00 per share and a term of five years. These warrants
were valued at $1.5 million and were recorded as a consultant compensation
expense in December of 2002. Certain affiliates of CTA purchased the warrants in
December 2002. Christopher W. Downie received a warrant for 100,000 of the
500,000 shares.

In April 2004, certain CTA affiliates received warrants to purchase 400,000
shares of our common stock at an exercise price of $5.50. The warrant (or
warrants) has a term of five years. These warrants were valued at $2.5 million
and were recorded in April of 2004.

                                      106
<PAGE>

In July 2004, certain CTA affiliates received warrants to purchase 340,000
shares of our common stock at an exercise price of $8.57 per share. The warrants
have a term of five years.

Mr. Abbruzzese, Mr. Kittner and Mr. Aquino did not participate in the
deliberations or vote of the board of directors with respect to the foregoing
matters while serving as a member of the board.

Term Credit Facility

On January 27, 2003, our wholly-owned subsidiary, Motient Communications, closed
a $12.5 million term credit agreement with a group of lenders, including several
of our existing stockholders. For more information regarding the term credit
agreement, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Term
Credit Facility". The lenders include the following entities or their
affiliates: M&E Advisors, L.L.C, Bay Harbour Partners, York Capital, and Lampe
Conway & Co. York Capital is affiliated with James G. Dinan and JGD Management
Corp. JGD Management Corp., James G. Dinan, James D. Dondero and Highland
Capital Management each hold 5% or more of our common stock. The lenders also
include Gary Singer, directly or through one or more entities. Gary Singer is
the brother of Steven G. Singer, one of our directors.

The table below shows, as of June 24, 2004 the number of shares of Motient
common stock beneficially owned by the following parties to the term credit
agreement, based solely on filings made by such parties with the SEC:

         Name of Beneficial Owner           Number of Shares
         ------------------------           ----------------
         James G. Dinan*                    2,276,445
         JGD Management Corp.*              2,276,445
         Highland Capital Management**      4,424,559
         James Dondero**                    4,424,559

         *JGD Management Corp and James G. Dinan share beneficial ownership with
         respect to the 2,276,445 shares of our common stock. Mr. Dinan is the
         president and sole stockholder of JGD Management Corp, which manages
         the other funds and accounts that hold our common stock over which Mr.
         Dinan has discretionary investment authority.
         ** James D. Dondero, a member of our board of directors, is the
         President of Highland Capital Management, L.P., which, pursuant to an
         arrangement with M&E Advisors, L.L.C., has indirectly made a
         commitment under the credit facility.

Private Placement of Common Stock

Certain of our directors and holders of more than 5% of our common stock
participated in the April 7, 2004, and July 1, 2004, private placements of our
common stock. PDA Group, LLC, an entity wholly owned by Peter D. Aquino, one of
our directors, was assigned by Tejas Securities, our placement agent, warrants
to purchase 56,250 shares of our common stock at a price of $5.50 per share.
James D. Dondero, a director and beneficial owner of more than 5% of our common
stock, purchased an aggregate of 1,020,455 shares of our common stock in such
private placement. In addition, he also received warrants to purchase 136,364
shares of our common stock at a price of $5.50 per share, and warrants to
purchase 71,250 shares of our common stock at a price of $8.57 per share, which
will vest if and only if we do not meet certain deadlines with respect to the
registration of the common stock sold in the private placement.




                                      107
<PAGE>


Item 14. Principal Accountant Fees and Services
-----------------------------------------------

Auditor Fees

The following table outlines our fees from our auditors for 2003 and 2002.
<TABLE>
<CAPTION>

                                               Twelve Months Ended       Twelve Months Ended
                                                December 31, 2003         December 31, 2002
                                                -----------------         -----------------
<S>                                                 <C>                      <C>
               Audit fees                           $695,193                 $237,558
               Audit related fees                     64,425                    8,846
               Tax fees                               25,325                       --
               All other fees                         20,338                       --
               --------------                       --------                 --------
                  Total                             $805,281                 $246,404

</TABLE>


Audit Committee Policies
------------------------

The audit committee of Motient's board of directors is solely responsible for
the approval in advance of all audit and permitted non-audit services to be
provided by the independent auditors (including the fees and other terms
thereof), subject to the de minimus exceptions for non-audit services provided
by Section 10A(i)(1)(B) of the Exchange Act, which services are subsequently
approved by the audit committee prior to the completion of the audit. None of
the fees listed above are for services rendered pursuant to such de minimus
exceptions.








                                      108
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)
The following documents are filed as part of this Form 10-K:


      (1)(a) The consolidated financial statements of Motient Corporation are
 included as follows:


<TABLE>
                                                                                  Page
<S>                                                                               <C>
Independent Auditors' Report....................................................  F-1

Consolidated Statements of Operations...........................................  F-2

Consolidated Balance Sheets.....................................................  F-3

Consolidated Statements of Changes in Stockholders' Equity (Deficit)  ..........  F-4

Consolidated Statements of Cash Flows...........................................  F-5

Notes to Consolidated Financial Statements......................................  F-6

Quarterly Financial Data........................................................  F-72
</TABLE>


      (1)(b) The consolidated financial statements of XM Radio are included
as follows:

<TABLE>
<S>                                                                               <C>
Independent Auditors' Report ...................................................  X-2

Consolidated Balance Sheets ....................................................  X-3

Consolidated Statements of Operations ..........................................  X-4

Consolidated Statements of Stockholders' Equity (Deficit) ......................  X-5

Consolidated Statements of Cash Flows ..........................................  X-6

Notes to Consolidated Financial Statements .....................................  X-7

Independent Auditors' Report on Consolidated Financial Statement Schedule ......  X-28

Schedule I--Valuation and Qualifying Accounts ..................................  X-29


                    XM SATELLITE RADIO INC. AND SUBSIDIARIES

Independent Auditors' Report ...................................................  X-30

Consolidated Balance Sheets ....................................................  X-31

Consolidated Statements of Operations ..........................................  X-32

Consolidated Statements of Stockholder's Equity ................................  X-33

Consolidated Statements of Cash Flows ..........................................  X-34

Notes to Consolidated Financial Statements .....................................  X-35

Independent Auditors' Report on Consolidated Financial Statement Schedule ......  X-53

Schedule I--Valuation and Qualifying Accounts ..................................  X-54
</TABLE>



                                      109
<PAGE>


      (1)(c) The consolidated financial statements of Mobile Satellite Ventures
LP are included as follows:

<TABLE>
<S>                                                                               <C>
Report of Independent Auditors....................................................M-1

Audited Consolidated Financial Statements

Consolidated Balance Sheets.......................................................M-2
Consolidated Statements of Operations.............................................M-3
Consolidated Statements of Partners' (Deficit) Equity.............................M-4
Consolidated Statements of Cash Flows.............................................M-5
Notes to Consolidated Financial Statements........................................M-6
</TABLE>






                                      110
<PAGE>




(2)  Financial Statement Schedules

Financial Statement Schedules not included below have been omitted because they
are not required or not applicable, or because the required information is shown
in the financial statements or notes thereto.

     Schedule II - Valuation and Qualifying Accounts

(3)           Exhibits


3.1     -     Restated Certificate of Incorporation of the Company (as restated
              effective May 1, 2002) (incorporated by reference to Exhibit 3.1
              of the Company's Amendment No. 2 to Registration Statement on
              Form 8-A, filed May 1, 2002).

3.2     -     Amended and Restated Bylaws of the Company (as amended and
              restated effective May 1, 2002) (incorporated by reference to
              Exhibit 3.1 of the Company's Amendment No. 2 to Registration
              Statement on Form 8-A, filed May 1, 2002).

4.1     -     Specimen of Common Stock Certificate (incorporated by reference
              to Exhibit 4.1 of the Company's Amendment No. 2 to Registration
              Statement on Form 8-A, filed May 1, 2002).

4.2     -     Warrant Agreement between the Registrant and Equiserve Trust
              Company, N.A., as warrant agent, dated May 1, 2002 (incorporated
              by reference to Exhibit 4.1 of the Company's Registration
              Statement on Form 8-A, filed May 1, 2002).

4.2a    -     Specimen of Warrant Certificate of the Company (incorporated by
              reference to Exhibit 4.2 of the Company's Registration Statement
              on Form 8-A, filed May 1, 2002).

10.2    -     Credit Agreement by and between Motorola Inc. and ARDIS Company
              dated June 17, 1998 (incorporated by reference to Exhibit 10.61
              to the Company's Current Report on Form 10-Q dated June 30, 1998
              (File No. 0-23044)).

10.2a   -     Amendment No. 2, dated September 1, 2000, to the Credit
              Agreement, dated as of June 17, 1998, by and between Motorola,
              Inc. and Motient Communications Company (formerly known as ARDIS
              Company) (incorporated by reference to Exhibit 10.22a to the
              Company's Quarterly Report on Form 10-Q for the quarter ended
              September 30, 2000 (File No. 0-23044)).

10.2b   -     Assumption, Release, Amendment and Waiver Agreement by and among
              Motorola, Inc., Motient Communications Inc. and Motient
              Communications Company, dated as of December 29, 2000
              (incorporated by reference to Exhibit 10.22b to the Company's
              Annual Report on Form 10-K for the year ended December 31, 2001
              (File No. 0-23044)).

10.3    -     Investment Agreement dated as of June 22, 2000, by and among the
              Company, Motient Satellite Ventures LLC, and certain other
              investors (incorporated by reference to Exhibit 10.41 to the
              Company's Quarterly Report on Form 10-Q for the quarter ended
              June 30, 2000 (File No. 0-23044)).

                                     111
<PAGE>

10.4    -     Asset Sale Agreement between Motient Satellite Ventures LLC and
              Motient Services Inc. dated as of June 29, 2000 (incorporated by
              reference to Exhibit 10.42 to the Company's Quarterly Report on
              Form 10-Q for the quarter ended June 30, 2000 (File No.
              0-23044)).

10.4a   -     Amendment No. 1, dated as of November 29, 2000, to Asset Sale
              Agreement, dated as of June 29, 2000, between Motient Satellite
              Ventures LLC and Motient Services Inc. (incorporated by reference
              to Exhibit 10.42a to the Company's annual report on Form 10-K for
              the year ended December 31, 2000 (File No. 0-23044)).

10.4b   -     Amended and Restated Asset Sale Agreement, dated as of January 8,
              2001, between Mobile Satellite Ventures LLC and Motient Services
              Inc. (incorporated by reference to Exhibit 10.42b to the
              Company's annual report on Form 10-K for the year ended December
              31, 2000 (File No. 0-23044)).

10.4c   -     Amendment, dated as of October 12, 2001, to the Amended and
              Restated Asset Sale Agreement, dated as of January 8, 2001, by
              and between Motient Services Inc. and Mobile Satellite Ventures
              LLC (incorporated by reference to Exhibit 10.42c to the Company's
              quarterly report on Form 10-Q for the quarter ended September 30,
              2001 (File No. 0-23044)).

10.5    -     Asset Sale Agreement, dated November 29, 2000, by and among the
              Company, Motient Services Inc. and Aether Systems, Inc.
              (incorporated by reference to Exhibit 10.46 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 2000
              (File No. 0-23044)).

10.6    -     January 2001 Investment Agreement, dated as of January 8, 2001,
              by and among the Company, Mobile Satellite Ventures LLC, TMI
              Communications and Company, Limited Partnership, and the other
              investors named therein (incorporated by reference to Exhibit
              10.48 to the Company's Annual Report on Form 10-K for the year
              ended December 31, 2000 (File No. 0-23044)).

10.7    -     Document Standstill and Termination Agreement, dated as of
              January 8, 2001, by and among the Company, Mobile Satellite
              Ventures LLC, Motient Services Inc., and certain investors named
              therein (incorporated by reference to Exhibit 10.50 to the
              Company's annual report on Form 10-K for the year ended December
              31, 2000 (File No. 0-23044)).

10.7a   -     Amended and Restated Document Standstill and Termination
              Agreement, dated as of October 12, 2001 (incorporated by
              reference to Exhibit 10.50a to the Company's Quarterly Report on
              Form 10-Q for the quarter ended September 30, 2001 (File No.
              0-23044)).

10.8    -     Amended and Restated Investment Agreement, dated October 12,
              2001, by and among Motient Corporation, Mobile Satellite Ventures
              LLC, TMI Communications and Company, Limited Partnership, and the
              other investors named therein (incorporated by reference to
              Exhibit 10.55 to the Company's quarterly report on Form 10-Q for
              the quarter ended September 30, 2001 (File No. 0-23044)).

                                     112
<PAGE>


10.9    -     Form of Stockholders' Agreement of Mobile Satellite Ventures GP
              Inc. (incorporated by reference to Exhibit 10.56 to the Company's
              quarterly report on Form 10-Q for the quarter ended September 30,
              2001 (File No. 0-23044)).

10.9a   -     Stockholders' Agreement, dated as of November 26, 2001, of Mobile
              Satellite Ventures GP Inc. (incorporated by reference to Exhibit
              10.56a of the Company's Current Report on Form 8-K dated November
              19, 2001 (File No. 0-23044)).

10.10   -     Form of Limited Partnership Agreement of Mobile Satellite
              Ventures LP (incorporated by reference to Exhibit 10.57 to the
              Company's quarterly report on Form 10-Q for the quarter ended
              September 30, 2001 (File No. 0-23044)).

10.11   -     Form of Convertible Note of Mobile Satellite Ventures LP, in the
              amount of $50.0 million issued to MSV Investors LLC (incorporated
              by reference to Exhibit 10.58 to the Company's quarterly report
              on Form 10-Q for the quarter ended September 30, 2001 (File No.
              0-23044)).

10.12   -     Form of Promissory Note of Mobile Satellite Ventures LP, in the
              amount of $15.0 million issued to Motient Services Inc.
              (incorporated by reference to Exhibit 10.59 to the Company's
              quarterly report on Form 10-Q for the quarter ended September 30,
              2001 (File No. 0-23044)).

10.13   -     Registration Rights Agreement between the Company and Highland
              Capital Management, L.P., and Morgan Stanley Investment
              Management, dated May 1, 2002 (incorporated by reference to
              Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
              the quarter ended March 31, 2002) (File No. 0-23044)).

10.14*  -     Form of Change of Control Agreement for Officers of the Company
              (incorporated by reference to Exhibit 10.2 to the Company's
              Quarterly Report on Form 10-Q for the quarter ended March 31,
              2002 (File No. 0-23044)).

10.15   -     Senior Indebtedness Note of MVH Holdings Inc., in the amount of
              $19.0 million issued to Rare Medium Group, Inc., dated May 1,
              2002 (incorporated by reference to Exhibit 10.3 to the Company's
              Quarterly Report on Form 10-Q for the quarter ended March 31,
              2002 (File No. 0-23044)).

10.16   -     Senior Indebtedness Note of MVH Holdings Inc., in the amount of
              $750,000 issued to Credit Suisse First Boston, dated May 1, 2002
              (incorporated by reference to Exhibit 10.4 to the Company's
              Quarterly Report on Form 10-Q for the quarter ended March 31,
              2002 (File No. 0-23044)).

10.17   -     Settlement Agreement by and among the Registrant and Rare Medium
              Group, Inc., dated March 28, 2002 (incorporated by reference to
              Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for
              the quarter ended March 31, 2002 (File No. 0-23044)).

10.18   -     Form of Warrant to purchase 343,450 shares of the Company's
              common stock at an exercise price of $3.95 per share issued to
              Evercore Partners, L.P. (incorporated by reference to Exhibit
              10.28 to Amendment No. 1 to the Company's Registration Statement
              on Form S-1 (File No. 333-87844)).

                                     113
<PAGE>

10.19   -     Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of
              the Bankruptcy Code, dated February 27, 2002 (incorporated by
              reference to Exhibit 99.2 to the Registrant's Current Report on
              Form 8-K dated March 4, 2002 (File No. 0-23044)).

10.20*  -     Motient Corporation 2002 Stock Option Plan (incorporated by
              reference to Exhibit 99.1 to the Company's registration statement
              on Form S-8 (File No. 333-92326)).

10.21*  -     Form of Stock Option Agreement (incorporated by reference to
              Exhibit 99.2 to the Company's registration statement on Form S-8
              (File No. 333-92326)).

10.22   -     Form of Warrant to purchase up to 500,000 shares of the Company's
              common stock at an exercise price of $3.00 per share issued to
              certain affiliates of Communication Technology Advisors LLC
              (incorporated by reference to Exhibit 10.22 to the Company's
              Quarterly Report on Form 10-Q for the quarter ended June 30,
              2002).

10.23*  -     Executive Retention Agreement, dated as of July 16, 2002, by and
              between Walter V. Purnell, Jr. and the Company (incorporated by
              reference to Exhibit 10.23 to the Company's Quarterly Report on
              Form 10-Q for the quarter ended September 30, 2002).

10.24   -     Amended and Restated Term Credit Agreement, dated January 27,
              2003, by and among the Company, Motient Communications Inc.,
              Motient Holdings Inc., the Lenders named therein, and M&E
              Advisors, L.L.C., as Administrative Agent and Collateral Agent
              (incorporated by reference to Exhibit 10.24 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 2002).

10.25   -     Security Agreement, dated as of January 27, 2003, between Motient
              Communications Inc. and M&E Advisors L.L.C. as Collateral Agent
              (incorporated by reference to Exhibit 10.25 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 2002).

10.26   -     First Amendment to Security Agreement, dated as of January 30,
              2003, between Motient Communications Inc. and M&E Advisors L.L.C.
              as Collateral Agent (incorporated by reference to Exhibit 10.26
              to the Company's Annual Report on Form 10-K for the year ended
              December 31, 2002).

10.27   -     Motient Corporation Share Pledge Agreement, dated as of January
              27, 2003, between Motient Corporation and M&E Advisors L.L.C., as
              Collateral Agent (incorporated by reference to Exhibit 10.27 to
              the Company's Annual Report on Form 10-K for the year ended
              December 31, 2002).

10.28   -     Motient Holdings Share Pledge Agreement, dated as of January 27,
              2003, between Motient Holdings Inc. and M&E Advisors L.L.C., as
              Collateral Agent (incorporated by reference to Exhibit 10.28 to
              the Company's Annual Report on Form 10-K for the year ended
              December 31, 2002).

                                     114
<PAGE>

10.29   -     Form of Warrant to purchase shares of common stock of Motient
              Corporation issued to lenders under the Amended and Restated Term
              Credit Agreement dated as of January 27, 2003 (incorporated by
              reference to Exhibit 10.29 to the Company's Annual Report on Form
              10-K for the year ended December 31, 2002).

10.30*  -     Letter amendment to Executive Retention Agreement, dated as of
              February 10, 2004, by and between Walter V. Purnell, Jr. and the
              Company (incorporated by reference to Exhibit 10.30 to the
              Company's Annual Report on Form 10-K for the year ended December
              31, 2002).

10.31   -     Amendment No. 1 to Amended and Restated Term Credit Agreement,
              dated March 16, 2004, by and among Motient Communications Inc.,
              Motient License Inc., the Required Lenders party thereto, and M&E
              Advisors, L.L.C., as Administrative Agent and Collateral Agent
              (incorporated by reference to Exhibit 10.31 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 2002).

10.32   -     Omnibus Amendment to SLA Note and Credit Facility, dated as of
              March 16, 2004, by and among Motient Communications Inc., Motient
              Corporation, Motient Holdings Inc., Motient Services Inc., and
              Motorola, Inc. (incorporated by reference to Exhibit 10.32 to the
              Company's Annual Report on Form 10-K for the year ended December
              31, 2002).

10.33   -     Share Pledge Agreement, dated as of March 16, 2004, by and
              between Motient Communications Inc. and M&E Advisors, L.L.C.
              (incorporated by reference to Exhibit 10.33 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 2002).

10.34   -     Warrant to purchase shares of common stock of Motient
              Corporation, issued to lenders under Amendment No. 1 to Amended
              and Restated Term Credit Agreement, dated March 16, 2004
              (incorporated by reference to Exhibit 10.34 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 2002).

10.35   -     Registration Rights Agreement, dated March 16, 2004, by and
              between Motient Corporation and M&E Advisors, L.L.C. in its
              capacity as Administrative and Collateral Agent under Amendment
              No. 1 to Amended and Restated Term Credit Agreement (incorporated
              by reference to Exhibit 10.35 to the Company's Annual Report on
              Form 10-K for the year ended December 31, 2002).

10.36   -     Collateral Agency, Subordination and Intercreditor Agreement,
              dated as of March 16, 2004, by and among Motient Communications
              Inc., Motient License Inc., M&E Advisors L.L.C., and Motorola,
              Inc. (incorporated by reference to Exhibit 10.36 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 2002).

10.37   -     Subordinate Motient Communications Share Pledge Agreement, dated
              as of March 16, 2004, by and between Motient Communications Inc.
              and Motorola, Inc. (incorporated by reference to Exhibit 10.37 to
              the Company's Annual Report on Form 10-K for the year ended
              December 31, 2002).

                                     115
<PAGE>

10.38   -     Common Stock Purchase Agreement, dated as of April 7, 2004, by
              and among Motient Corporation and the Raptor Global Portfolio,
              Ltd., et al (incorporated by reference to Exhibit 10.38 to the
              Company's Quarterly Report on Form 10-Q for the quarter ended
              March 31, 2003).

10.39   -     Registration Rights Agreement, dated as of April 7, 2004, by and
              among Motient Corporation and the Raptor Global Portfolio, Ltd.,
              et al (incorporated by reference to Exhibit 10.39 to the
              Company's Quarterly Report on Form 10-Q for the quarter ended
              March 31, 2003).

10.40   -     Form of Common Stock Purchase Warrant, dated as of April 7, 2004
              (incorporated by reference to Exhibit 10.40 to the Company's
              Quarterly Report on Form 10-Q for the quarter ended March 31,
              2003).

10.41   -     Form of Common Stock Purchase Warrant, dated as of April 7, 2004
              (incorporated by reference to Exhibit 10.41 to the Company's
              Quarterly Report on Form 10-Q for the quarter ended March 31,
              2004).

21.1    -     Subsidiaries of the Company (filed herewith).

23.1    -     Consent of Friedman LLP, Independent Registered Public Accounting
              Firm (filed herewith)

23.2    -     Consent of Ernst & Young, Independent Auditors (filed herewith)

23.3    -     Consent of KPMG LLP, Independent Auditors (filed herewith)


31.1    -     Certification Pursuant to Rule 13a-14(a)/15d-14(a), of the
              Executive Vice President, Chief Operating Officer and Treasurer
              (principal executive officer).

31.2    -     Certification Pursuant to Rule 13a-14(a)/15d-14(a), of the
              Controller and Chief Accounting Officer (principal financial
              officer)

32.1    -     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
              Executive Vice President, Chief Operating Officer and Treasurer
              (principal executive officer)

32.2    -     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the
              Controller and Chief Accounting Officer (principal financial
              officer)

----------------------------------

*              Management contract or compensatory plan or arrangement required
               to be filed as an exhibit to this report pursuant to Item 14(c)
               of this report.

(b)            Reports on Form 8-K:

               On November 4, 2003, the Company filed a Current Report on Form
               8-K, in response to Item 5, to report an update of recent
               transaction with Nextel, to report the loss of its largest
               customer, UPS, and to provide an update on the status of its
               periodic SEC reports.

                                      116
<PAGE>

               On December 11, 2003, the Company filed a Current Report on Form
               8-K, in response to Item 5, to report a recent transaction with
               Nextel.

               On February 13, 2004, the Company filed a Current Report on Form
               8-K, in response to Item 5, to report that the termination of
               employment of Walter V. Purnell, Jr. as the Company's president
               and chief executive officer, and to provide an update on the
               status of its periodic SEC reports.

               On February 20, 2004, the Company filed a Current Report on Form
               8-K, in response to Item 5, to report a reduction in personnel.

               On March 9, 2004, the Company filed an amendment to Current
               Report on Form 8-K/A, in response to Item 4, to report the
               dismissal of PricewaterhouseCoopers as its independent auditors
               for the period May 1, 2002 to December 31, 2002 and the
               engagement of Ehrenkrantz Sterling & Co. LLC as the Company's
               independent auditors for the period May 1, 2002 to December 31,
               2002.

               On April 8, 2004, the Company filed a Current Report on Form 8-K,
               in response to Items 5 and 7, to report the sale of 4,215,910
               shares of its common stock at a per share price of $5.50 per
               share.




                                      117
<PAGE>


                                   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.

                                   MOTIENT CORPORATION


                                   By   /s/ Christopher W. Downie
                                       ---------------------------------
                                       Christopher W. Downie
                                       Executive Vice President
                                       Chief Operating Officer and Treasurer


                                   Date: May 23, 2005


Each person whose signature appears below constitutes and appoints Robert L.
Macklin and Christopher W. Downie, his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, from such person
and in each person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or any
of them, or his, her or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.


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 and
in the capacities and on the dates indicated.


<TABLE>
<S>                                        <C>                                                    <C>

/s/ Christopher W. Downie                  Executive Vice President, Chief Operating              May 23, 2005
-------------------------------------      Officer and Treasurer (principal executive
Christopher W. Downie                      officer)

/s/ Myrna J. Newman                        Controller and Chief Accounting Officer                May 23, 2005
-------------------------------------      (principal financial officer)
Myrna J. Newman

/s/ Steven G. Singer                       Chairman of the Board                                  May 23, 2005
-------------------------------------
Steven G. Singer

/s/ Jonelle St. John                       Director                                               May 23, 2005
-------------------------------------
Jonelle St. John

/s/ Gerald S. Kittner                      Director                                               May 23, 2005
-------------------------------------
Gerald S. Kittner

/s/ James D. Dondero                       Director                                               May 23, 2005
-------------------------------------
James D. Dondero

/s/ Raymond L. Steele                      Director                                               May 23, 2005
-------------------------------------
Raymond J. Steele

                                           Director                                               -----------
-------------------------------------
Barry A. Williamson

                                           Director                                               May 23, 2005
-------------------------------------
C. Gerald Goldsmith


</TABLE>


                                      118
<PAGE>




                          INDEX TO FINANCIAL STATEMENTS

                      MOTIENT CORPORATION AND SUBSIDIARIES

<TABLE>
<S>                                                                                                                     <C>
Report of Independent Registered Public Accounting Firm.............................................................  F-1

Consolidated Statements of Operations   ............................................................................  F-2

Consolidated Balance Sheets.........................................................................................  F-3

Consolidated Statements of Changes in Stockholders' Equity (Deficit)................................................  F-4

Consolidated Statements of Cash Flows   ............................................................................  F-5

Notes to Consolidated Financial Statements .........................................................................  F-6

Quarterly Financial Data............................................................................................ F-72
</TABLE>






<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Motient Corporation:

We have audited the accompanying consolidated balance sheets of Motient
Corporation (a Delaware Corporation) and Subsidiaries (together the "Company")
as of December 31, 2003 and 2002 (Successor Company), and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the year ended December 31, 2003 (Successor Company), the
eight months ended December 31, 2002 (Successor Company), the four months ended
April 30, 2002 (Predecessor Company) and the year ended December 31, 2001
(Predecessor Company). Our audits also included the financial statement schedule
listed in the index at Item 15(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Motient
Corporation and Subsidiaries as of December 31, 2003 and 2002 (Successor
Company) and the results of their operations and their cash flows flows for the
year ended December 31, 2003 (Successor Company), the eight months ended
December 31, 2002 (Successor Company), the four months ended April 30, 2002
(Predecessor Company) and the year ended December 31, 2001 (Predecessor
Company), in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.


/s/ Friedman LLP
----------------

Livingston, New Jersey
July 2, 2004


                                      F-1
<PAGE>


                      Motient Corporation and Subsidiaries
                      Consolidated Statements of Operations
 For the Year Ended December 31, 2003, the Eight Months Ended December 31, 2002,
   the Four Months Ended April 30, 2002 and the Year Ended December 31, 2001
                      (in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                             Successor Company              Predecessor Company
                                                                             -----------------              -------------------

                                                                                        Eight Months     Four Months     (Restated)
                                                                         Year Ended        Ended           Ended         Year Ended
                                                                        December 31,    December 31,      April 30,     December 31,
                                                                            2003            2002            2002            2001
                                                                            ----            ----            ----            ----
<S>                                                                    <C>              <C>              <C>              <C>
REVENUES
   Services and related revenues                                       $  49,275        $  35,501        $  16,809        $  68,063
   Sales of equipment                                                      5,210            1,116            5,564           22,202
                                                                       ---------        ---------        ---------        ---------
       Total revenues                                                     54,485           36,617           22,373           90,265
                                                                       ---------        ---------        ---------        ---------

COSTS AND EXPENSES
   Cost of services and operations (including
   stock-based compensation of $211 for the year
   ended December 31, 2003; exclusive of
   depreciation and amortization below)                                   51,393           38,141           21,909           73,064
   Cost of equipment sold (exclusive of
   depreciation and amortization)                                          5,942            2,226            5,980           34,116
   Sales and advertising (including stock-based
   compensation of $151 for the year ended December 31, 2003)              4,552            4,825            4,287           22,618
   General and administrative (including
   stock-based compensation of $241 for the year
   ended December 31, 2003)                                               11,299            9,691            4,130           20,543
   Restructuring charges                                                    --                 25              584            4,739
   Depreciation and amortization                                          21,466           15,509            6,913           32,408
   Loss on impairment of asset                                             5,535             --               --               --
   Gain (loss) on disposal of assets                                       3,037            2,116              591              (67)
   Gain on sale of transportation and satellite assets                      --               (385)            (372)         (23,201)
                                                                       ---------        ---------        ---------        ---------
    Total Costs and Expenses                                             103,224           72,148           44,022          164,220
                                                                       ---------        ---------        ---------        ---------

       Operating loss                                                    (48,739)         (35,531)         (21,649)         (73,955)

   Interest and other income (expense)                                       662              (89)             145            1,128
   Interest expense                                                       (6,365)          (1,910)          (1,850)         (61,675)
   Other income from Aether/MSV                                            2,203            1,017            1,125             --
   Gain on Rare Medium Note call option                                     --               --               --              1,511
   Rare Medium merger costs                                                 --               --               --             (4,054)
   XM Radio equity investment impairment charge                             --               --               --            (81,467)
   Equity in losses of XM Radio and MSV                                   (9,883)         (22,273)          (1,909)         (48,488)
                                                                       ---------        ---------        ---------        ---------
   Loss before reorganization items                                      (62,122)         (58,786)         (24,138)        (267,000)

   Reorganization items:
   Costs associated with debt restructuring                                 --               (772)         (22,324)          (1,254)
   Gain (loss) on extinguishment of debt                                    --               --            183,725           (1,243)
   Gain on fair market adjustment of assets/liabilities                     --               --             94,715             --
                                                                       ---------        ---------        ---------        ---------

   (Loss) income before income taxes                                     (62,122)         (59,558)         231,978         (269,497)

   Income tax provision                                                     --               --               --               --
                                                                       ---------        ---------        ---------        ---------

   Net (loss) income                                                   $ (62,122)       $ (59,558)       $ 231,978        $(269,497)
                                                                       =========        =========        =========        =========

   Net (loss) income -  basic and diluted                              $   (2.47)       $   (2.37)       $    3.98        $   (5.27)
                                                                       =========        =========        =========        =========

   Weighted-Average Common Shares Outstanding -                           25,145           25,097           58,251           51,136
   basic and diluted

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                       F-2
<PAGE>

                      Motient Corporation and Subsidiaries
                           Consolidated Balance Sheets
                        as of December 31, 2003 and 2002
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                                          Successor     Successor
                                                                                           Company       Company
                                                                                           -------       -------
                                                                                             2003          2002
                                                                                             ----          ----
        ASSETS
        CURRENT ASSETS:
<S>                                                                                          <C>       <C>
           Cash and cash equivalents                                                         $3,618    $  5,840
           Accounts receivable-trade, net of allowance for doubtful accounts of $759
           and $1,003 at December 31, 2003 and 2002                                           3,804       9,339
           Inventory                                                                            240       1,077
           Due from Mobile Satellite Ventures LP, net                                            93         234
           Assets held for sale                                                               2,734          --
           Deferred equipment costs                                                           3,765       2,755
           Other current assets                                                               5,091       6,796
           Restricted cash and short-term investments                                           504         604
                                                                                                ---         ---
              Total current assets                                                           19,849      26,645
                                                                                             ------      ------

        RESTRICTED INVESTMENTS                                                                1,091          --
        PROPERTY AND EQUIPMENT, net                                                          31,381      46,405
        FCC LICENSES AND OTHER INTANGIBLES, net                                              74,021      94,921
        INVESTMENT IN AND NOTES RECEIVABLE FROM MSV                                          22,610      32,493
        DEFERRED CHARGES AND OTHER ASSETS                                                     8,076       1,757
                                                                                              -----       -----
              Total assets                                                                 $157,028    $202,221
                                                                                           ========    ========

        LIABILITIES AND STOCKHOLDERS' EQUITY
        CURRENT LIABILITIES:
           Accounts payable and accrued expenses                                            $12,365    $ 13,040
           Deferred equipment revenue                                                         3,795       2,861
           Deferred revenue and other current liabilities                                    11,005       5,308
           Obligations under capital leases, current                                          1,454       3,031
           Vendor financing commitment, current                                               2,413       1,020
                                                                                              -----       -----
              Total current liabilities                                                      31,032      25,260
                                                                                             ------      ------
        LONG-TERM LIABILITIES:
           Notes payable, including accrued interest thereon                                 22,885      20,943
           Term Credit Facility                                                               4,914          --
           Capital lease obligations, net of current portion                                  1,642       3,219
           Vendor financing commitment, net of current portion                                2,401       4,927
           Other long-term liabilities                                                        1,347       4,824
                                                                                              -----       -----
              Total long-term liabilities                                                    33,189      33,913
                                                                                             ------      ------
              Total liabilities                                                              64,221      59,173
                                                                                             ------      ------
        COMMITMENTS AND CONTINGENCIES                                                            --          --

        STOCKHOLDERS' EQUITY:
        Preferred Stock; par value $0.01; authorized 5,000,000 shares and no shares              --          --
        outstanding at December 31, 2003 and 2002
        Common Stock; voting, par value $0.01; authorized 100,000,000 shares;
        25,196,840 and 25,097,256 shares issued and outstanding at December 31, 2003
        and 2002, respectively                                                                  252         251
        Additional paid-in capital                                                          198,743     197,814
        Common stock purchase warrants                                                       15,492       4,541
        Accumulated deficit                                                                (121,680)    (59,558)
                                                                                           ---------    --------
        STOCKHOLDERS' EQUITY                                                                 92,807     143,048
                                                                                             ------     -------
        Total liabilities, and stockholders' equity                                        $157,028    $202,221
                                                                                           ========    ========

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                       F-3
<PAGE>
<TABLE>

                      Motient Corporation and Subsidiaries
      Consolidated Statements of Changes In Stockholders' Equity (Deficit)
 For the Year Ended December 31, 2003, the Eight Months Ended December 31, 2002,
the Four Months Ended April 30, 2002 and the Year Ended December 31, 2001 (Restated)
<CAPTION>

                                                                                              Common
                                                     Common Stock     Additional  Deferred    Stock   Unamortized
                                                               Par     Paid-In     Stock     Purchase  Guarantee  Accumulated
                                                    Shares    Value    Capital  Compensation Warrants  Warrants    Deficit    Total
                                                    ------    -----    -------  ------------ --------  --------    -------    -----
<S>                                               <C>           <C>    <C>        <C>       <C>      <C>       <C>          <C>
  Predecessor Company
  -------------------
  BALANCE, December 31, 2000                      $49,539,222   $495   $984,532   $(1,327)  $92,249  $(11,504) $(1,043,861) $20,584
    Common Stock issued under the 401(k)
    Savings & Stock Purchase Plan                   3,006,756     30      1,475       --        --        --           --     1,505
    Common Stock issued for exercise of stock
    options and award of bonus stock                    2,015    --           1       --        --        --           --         1
    Common Stock issued for exercise of Stock
    Purchase Warrants                                  38,228    --         845       --       (845)      --           --       --
    Capital Gain in connection with sale of
    stock by MSV                                          --     --      12,883       --        --        --           --    12,883
    Change in deferred compensation on
    non-cash compensation                                 --     --         539     1,048       --        --           --     1,587
    Cancellation of restricted stock                  (88,200)   --        (264)      264       --        --           --       --
    Reduction of Guarantee Warrants for
    extinguishment of debt                                --     --         --        --        --      8,837          --     8,837
    Compensatory stock options issued to
    employees                                             --     --         138       --        --        --           --       138
    Amortization of Guarantee Warrants                    --     --         --        --        --      4,993          --     4,993
    Loss in connection with sale of stock by
    XM Radio                                              --     --     (12,180)      --        --        --           --   (12,180)
    Guarantee Warrants revaluation                        --     --         --        --      2,326    (2,326)         --       --
    Issuance of Restricted Stock                    3,219,236     32        386      (418)      --        --           --       --
    Net Loss                                              --     --         --        --        --        --      (269,497)(269,497)
                                                   --------------------------------------------------------------------------------
  BALANCE, December 31, 2001                       55,717,257    557    988,355      (433)   93,730       --    (1,313,358)(231,149)
    Common Stock issued under the 401(k)
    Savings & Stock Purchase Plan                   2,718,041     27        176       --        --        --           --       203
    Change in deferred compensation on
    non-cash compensation                                 --     --         --         97       --        --           --        97
    Net Income - Predecessor Company                      --     --         --        --        --        --       231,978  231,978
                                                   ----------   ----   --------    ------   -------    ------  -----------   ------
    Balance before fresh-start-Predecessor
    Company                                        58,435,298   $584   $988,531     $(336)  $93,730      $--   $(1,081,380)  $1,129
                                                   ==========   ====   ========    ======   =======    ======  ===========   ======

    Successor Company
    -----------------
    Issuance of New Equity through bankruptcy      25,097,256   $251   $197,814      $--       $--       $--         $--   $198,065
    Issuance of Common Stock Warrants                     --     --         --        --      3,077       --          --      3,077
                                                   --------------------------------------------------------------------------------
  BALANCE, April 30, 2002                           25,097,256   251    197,814       --      3,077       --          --    201,142
    Issuance of Common Stock Warrants                     --     --         --        --      1,464       --          --      1,464
    Net Loss                                              --     --         --        --        --        --       (59,558) (59,558)
                                                   --------------------------------------------------------------------------------
  BALANCE, December 31, 2002                       25,097,256    251    197,814       --      4,541       --       (59,558) 143,048
    Common Stock issued under the 401(k)
    Savings & Stock Purchase Plan                      84,172      1        280       --        --        --           --       281
    Common  Stock issued for exercise of stock
    options                                            15,412    --          46       --        --        --           --        46
    Issuance of Common Stock Warrants                     --     --         --        --     10,951       --           --    10,951
    Change in deferred compensation on
    non-cash compensation                                 --     --         603       --        --        --           --      603
    Net loss                                              --     --         --        --        --        --       (62,122) (62,122)
                                                   --------------------------------------------------------------------------------
  BALANCE, December 31, 2003                       25,196,840   $252   $198,743      $--    $15,492      $--     $(121,680) $92,807
                                                   ==========   ====   ========    =====    =======    ======    =========  =======


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>



                                       F-4
<PAGE>

                      Motient Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
 For the Year Ended December 31, 2003, the Eight Months Ended December 31, 2002,
   the Four Months Ended April 30, 2002 and the Year Ended December 31, 2001
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                          Successor Company            Predecessor Company
                                                                          -----------------            -------------------
                                                                                                        Four
                                                                                    Eight Months       Months         (Restated)
                                                                      Year Ended       Ended           Ended         Year Ended
                                                                      December 31,  December 31,      April 30,       December 31,
                                                                          2003         2002             2002             2001
                                                                          ----         ----             ----             ----
<S>                                                                  <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                                    $ (62,122)      $ (59,558)      $ 231,978       $(269,497)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
   Amortization of Guarantee Warrants and debt related costs              --              --             5,629          11,499
   Depreciation and amortization                                        21,466          15,509           6,913          32,408
   Provision for inventory write-downs                                    --              --              --             7,891
   Equity in loss of XM Radio and MSV                                    9,883          22,319           1,909          48,488
   (Gain) loss on disposal of assets                                     8,572           2,116             591             (67)
   Impairment loss on XM Radio common stock held for sale                 --              --              --            81,467
   Gain on Rare Medium Note call option                                   --              --              --            (1,511)
   Gain on sale of transportation assets                                  --              (385)           (372)        (23,201)
   (Gain) loss on extinguishment of debt                                  --              --          (183,725)          1,243
   Gain on debt restructuring                                             (573)           --              --              --
   Issuance of warrants                                                    927            --              --              --
   Fresh-Start valuation and other non-cash adjustments                   --              --           (94,715)           --
   Non cash amortization of deferred financing costs                     3,292            --              --              --
   Non cash stock compensation                                             603            --              --             1,150
   Changes in assets and liabilities, net of acquisitions
   and dispositions:
   Inventory                                                               837           2,765          (2,167)         (1,118)
   Accounts receivable-- trade                                           5,535             782           1,370             462
   Other current assets                                                    (80)          4,263          15,833          10,764
   Accounts payable and accrued expenses                                  (255)           (217)          7,619         (10,327)
   Accrued interest                                                      2,510           1,193           1,320          20,810
   Deferred trade payables                                                --              --              --            (2,212)
   Deferred revenue and other deferred items                             2,285           2,305          (6,729)         (7,097)
                                                                     ---------       ---------       ---------       ---------
   Net cash (used in) operating activities                              (7,120)         (8,908)        (14,546)        (98,848)
                                                                     ---------       ---------       ---------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of assets                                          6,116             616            --              --
   Proceeds from sale of satellite assets to MSV                          --              --              --            42,500
   Proceeds from sale of transportation assets                            --               385             372          10,000
   Proceeds (purchase) of restricted investments                          (991)           (604)           --            11,307
   Proceeds from the sale of XM Radio common stock                        --              --              --            38,289
   Receipt of Senior Note Interest from escrow                            --              --              --            20,503
   Investment in MSV                                                      --              (957)           --              --
   Additions to property and equipment                                    (232)           (613)           (494)        (13,751)
                                                                     ---------       ---------       ---------       ---------
   Net cash (used in) provided by investing activities                   4,893          (1,173)           (122)        108,848
                                                                     ---------       ---------       ---------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of equity securities                            --              --                17             354
   Proceeds from Rare Medium note                                         --              --              --            50,000
   Principal payments under capital leases                              (2,986)         (1,425)         (1,273)         (3,582)
   Principal payments under vendor financing                            (1,020)           --              --            (5,176)
   Repayment from Term Loan                                               --              --              --           (25,500)
   Proceeds from Term Credit Facility                                    4,500            --              --              --
   Proceeds from Bank Financing                                           --              --              --             6,000
   Proceeds from issuance of employee stock options                         47            --              --              --
   Debt issuance costs and other charges                                  (536)           (117)           --            (1,229)
                                                                     ---------       ---------       ---------       ---------
Net cash provided by (used in) financing activities                          5          (1,542)         (1,256)         20,867
                                                                     ---------       ---------       ---------       ---------
Net (decrease) increase in cash and cash equivalents                    (2,222)        (11,623)        (15,924)         30,867
                                                                     ---------       ---------       ---------       ---------
CASH AND CASH EQUIVALENTS, beginning of period                           5,840          17,463          33,387         227,423
   Less XM Radio cash included in 2000 consolidated cash total            --              --              --           224,903
                                                                     ---------       ---------       ---------       ---------
CASH AND CASH EQUIVALENTS, end of period                             $   3,618       $   5,840       $  17,463       $  33,387
                                                                     =========       =========       =========       =========

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       F-5
<PAGE>


                      MOTIENT CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


1.  ORGANIZATION

Motient Corporation (with its subsidiaries, "Motient" or the "Company") provides
two-way mobile communications services principally to business-to-business
customers and enterprises. Motient serves a variety of markets including mobile
professionals, telemetry, transportation and field service. Motient provides its
eLinkSM brand two-way wireless email services to customers accessing email
through corporate servers, Internet Service Providers, Mail Service Provider
accounts and paging network service providers. Motient also offers BlackBerry TM
by Motient, a wireless email solution developed by Research In Motion Ltd.
("RIM") and licensed to operate on Motient's network. BlackBerry TM by Motient
is designed for large corporate accounts operating in a Microsoft Exchange or
Lotus Notes environment. The Company considers the two-way mobile communications
service described in this paragraph to be its core wireless business.


Motient presently has six wholly-owned subsidiaries and a 29.5% interest
(assuming conversion of all outstanding convertible notes) in Mobile Satellite
Ventures LP (MSV). For further details regarding Motient's interest in MSV,
please see "Recent Developments - Mobile Satellite Ventures LP". Motient
Communications Inc. owns the assets comprising Motient's core wireless business,
except for Motient's Federal Communications Commission, or FCC, licenses, which
are held in a separate subsidiary, Motient License Inc. (Motient License).
Motient License was formed on March 16, 2004, as part of Motient's amendment of
its credit facility, and is a special purpose wholly-owned subsidiary of Motient
Communications that holds all of the FCC licenses formerly held by Motient
Communications. A pledge of the stock of Motient License, along with other
assets of Motient Communications, secures borrowings under the term credit
facility. For further details regarding the formation of Motient License, please
see Note 16 ("Subsequent Events"). Our other four subsidiaries hold no material
operating assets other than the stock of other subsidiaries and Motient's
interests in MSV. On a consolidated basis, we refer to Motient Corporation and
its six wholly-owned subsidiaries as "Motient."


Motient is devoting its efforts to expanding its core wireless business, while
also focusing on cost-cutting efforts. These efforts involve substantial risk.
Future operating results will be subject to significant business, economic,
regulatory, technical and competitive uncertainties and contingencies. Depending
on their extent and timing, these factors, individually or in the aggregate,
could have an adverse effect on the Company's financial condition and future
results of operations. In recent periods, certain factors have placed
significant pressures on Motient's financial condition and liquidity position.
These factors also have restrained Motient's ability to accelerate revenue
growth at the pace required to enable it to generate cash in excess of its
operating expenses. These factors include competition from other wireless data
suppliers and other wireless communications providers with greater resources,
cash constraints have limited Motient's ability to generate greater demand,
unanticipated technological and development delays and general economic factors.
Motient's results in recent periods, including the period covered by this


                                      F-6
<PAGE>

report, have also been hindered by the downturn in the economy and capital
markets. These factors contributed to the Company's decision in January 2002 to
file a voluntary petition for reorganization under Chapter 11 of the United
States Federal Bankruptcy Code. Motient's Plan of Reorganization was confirmed
on April 26, 2002 and became effective on May 1, 2002. Please see Note 2
("Significant Accounting Policies -- Motient's Chapter 11 Filing and Plan of
Reorganization and "Fresh-start" Accounting") below.

For a discussion of certain significant recent developments and trends in
Motient's business after the end of the period covered by this report, please
see Note 16 ("Subsequent Events"). As discussed in more detail in Note 2
("Significant Accounting Policies"), the 2002 comparative financial statements
provided herein have been restated and have been audited by the Company's former
independent registered public accounting firm, Ehrenkrantz Sterling & Co. LLC,
predecessor-in-interest to Friedman LLP.

The financial results for the year ended December 31, 2001 and the financial
results for the period January 1, 2002 to April 30, 2002 are herein referred to
as Predecessor Company results and the financial results for the period May 1,
2002 to December 31, 2002 and the year ended December 31, 2003 included herein
are referred to as Successor Company results. Due to the effects of the
"fresh-start" accounting, results for the periods defined above are not
comparable to periods beginning after May 1, 2002. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
all periods presented have been made.

XM Radio

XM Satellite Radio Holdings Inc. ("XM Radio"), a public company that launched
its satellite radio service at the end of 2001, was incorporated on December 15,
1992 for the purpose of procuring a digital audio radio service license. As of
December 31, 2000, Motient had an equity interest of approximately 33.1% (or
21.3% on a fully diluted basis) in XM Satellite Radio Holdings Inc. ("XM
Radio"), and Motient controlled XM Radio through its board of director
membership and common stock voting rights. In January 2001, pursuant to FCC
approval authorizing Motient to relinquish control of XM Radio, the number of
directors appointed by the Company to XM Radio's Board of Directors was reduced
to less than 50% of XM Radio directors, and the Company converted a portion of
its super-voting Class B Common Stock of XM Radio to Class A Common Stock. As a
result, the Company ceased to control XM Radio.


Throughout 2001, Motient disposed of its equity interest in XM Radio, and as of
November 19, 2001, Motient did not hold any interest in XM Radio. For the period
from January 1, 2001 through November 19, 2001, the Company accounted for its
investment in XM Radio pursuant to the equity method of accounting. You may find
XM Radio's financial statements on the EDGAR system, which you can access at the
website of the SEC, www.sec.gov.


Mobile Satellite Ventures LP

On June 29, 2000, the Company formed a joint venture subsidiary, Mobile
Satellite Ventures LP (formerly known as Mobile Satellite Ventures LLC) ("MSV"),
in which it owned, until November 26, 2001, 80% of the membership interests, in


                                      F-7
<PAGE>

order to conduct research and development activities. In June 2000, the other
20% interest in MSV was purchased by three investors unrelated to Motient. The
minority investors had certain participating rights which provided for their
participation in certain business decisions that were made in the normal course
of business; therefore, in accordance with EITF No 96-16, "Investor's Accounting
for an Investee When the Investor Has a Majority of the Voting Interest but the
Minority Shareholder or Shareholders Have Certain Approval or Veto Rights", the
Company's investment in MSV has been recorded for all periods presented in the
consolidated financial statements pursuant to the equity method of accounting.
On November 26, 2002, Motient's interest in MSV was reduced to approximately
48%. As of December 31, 2003 and March 31, 2004, Motient held a 29.5% interest
in MSV on a fully-diluted basis. Please see Note 13 ("Business Acquisitions and
Dispositions - MSV").

Network Offerings: T-Mobile/Verizon Wireless

On March 1, 2003, Motient entered into a national premier dealer agreement with
T-Mobile USA, and, on May 21, 2003, Motient entered into an authorized agency
agreement with Verizon Wireless. These agreements allow Motient to sell each of
T-Mobile's third generation global system for GSM/GPRS network subscriptions and
Verizon's third generation CDMA/1XRTT network subscriptions nationwide. Motient
is paid for each subscriber put onto either network. Each agreement allows
Motient to continue to actively sell and promote wireless email and wireless
Internet applications to enterprise accounts on networks with greater capacity
and speed, and that are voice capable.

Effects of the Chapter 11 Filing and Emergence

As a result of the Company's Chapter 11 bankruptcy filing, the Company saw a
slower adoption rate for its services during the first quarter of 2002. In a
large customer deployment, the upfront cost of the hardware can be significant.
Because the hardware generally is usable only on Motient's network, certain
customers delayed adoption while Motient was in Chapter 11.

Additionally, certain of the Company's trade creditors required either deposits
for future services or shortened payment terms; however, none of these deposits
or changes in payment terms were material, and none of the Company's key
suppliers has ceased to do business with the Company as a result of its
reorganization.

Since emerging from bankruptcy protection in May 2002, the Company has
undertaken a number of actions to reduce its operating expenses and cash burn
rate. The Company's liquidity constraints have been exacerbated by weak revenue
growth since emerging from bankruptcy protection, due to a number of factors
including the weak economy generally and the weak telecommunications and
wireless sector specifically, the financial difficulty of several of its key
resellers, on whom it relies for a majority of its new revenue growth, and its
continued limited liquidity which has hindered efforts at demand generation.

                                      F-8
<PAGE>

Management and Board Changes

On January 17, 2003, David Engvall resigned as senior vice president, general
counsel and secretary.

On March 18, 2003, Brandon Stranzl resigned from the Board of Directors.

On April 17, 2003, the board of directors elected Christopher W. Downie to the
position of Vice President, Chief Financial Officer and Treasurer. Mr. Downie
had previously been a consultant with CTA, working on Motient matters, since May
2002.

On June 20, 2003, Jared Abbruzzese resigned his position as Chairman of the
Board. Steven Singer was elected Chairman of the Board and a new director, Peter
Aquino, was elected to the Board. Mr. Aquino is a senior managing director for
CTA.

For additional information on management and board changes for periods after
this report, please see Note 16, "Subsequent Events".

Change in Accountants

On May 31, 2002, the Company dismissed Arthur Anderson as its independent
auditors. On July 10, 2002, the Company engaged PricewaterhouseCoopers as its
independent auditors.

On April 17, 2003, the Company dismissed PricewaterhouseCoopers as its
independent auditors, effective upon the completion of services related to the
audit of the Company's consolidated financial statements for the period May 1,
2002 to December 31, 2002. On March 2, 2004, Motient dismissed
PricewaterhouseCoopers as its independent auditors effective immediately. The
audit committee of the Company's board approved the dismissal.

On April 25, 2003, the Company's Board approved the engagement of Ehrenkrantz
Sterling & Co. LLC as its independent registered public accounting firm to (i)
re-audit the Company's consolidated financial statements for the fiscal year
ended December 31, 2000 and the fiscal year ended December 31, 2001, and (ii)
audit the Company's consolidated financial statements for the interim period
from January 1, 2002 to April 30, 2002, and the fiscal year that ended on
December 31, 2003.

For additional information on changes in accountants for periods after this
report, please see Note 16, ("Subsequent Events").

Cost Reduction Actions

Predecessor Company reductions in workforce. On September 26, 2001, the Company
announced a plan to restructure its business. As part of this restructuring, the
Company laid off 25% of its workforce, or 50, 22 and 13 employees in the
Company's operations, sales and marketing and general and administrative
functions, respectively, and cancelled certain of its product initiatives. The
Company recorded a restructuring charge in 2001 of $4.74 million. This charge


                                      F-9
<PAGE>

represents $1.6 million of costs directly associated with employee severance
packages, $3.0 million of costs associated with product initiative cancellations
and $0.1 million of costs associated with capital assets that were no longer in
service. Of the $4.7 million charge, approximately $1.7 million represented cash
outlays made over the last quarter of 2001 and the first quarter of 2002. The
balance represents the write down of assets previously acquired. As of December
31, 2001, the Company had a remaining operational restructuring liability of
approximately $0.6 million, which was fully utilized in 2002.

Successor Company Reductions in Workforce. The Company undertook reductions in
its workforce in July 2002, September 2002, March 2003 and February 2004. These
actions eliminated approximately 29% (95 employees), 13% (26 employees), 10% (19
employees) and 32.5% (54 employees), respectively, of its then-remaining
workforce. In the aggregate, the Company has reduced its work force by
approximately 68% since July 2002 and reduced employee and related expenditures
by approximately $1.5 million per month.

Network Rationalization. The Company is in the process of analyzing its wireless
data network in a coordinated effort to reduce network operating costs. One
aspect of this rationalization encompasses reducing unneeded capacity across the
network by deconstructing under-utilized and unprofitable base stations. In
certain instances, the geographic area that the network serves may be reduced by
this process. The full extent of the changes to network coverage have yet to be
determined.

Closure of Reston, VA Facility. On July 15, 2003, the Company substantially
completed the transfer of its headquarters from Reston, VA to Lincolnshire, IL,
where it already had a facility. This action reduced the Company's monthly
operating expenses by a net amount of approximately $65,000 per month, or
$780,000 per year.

Refinancing of Vendor Obligations. During the fourth quarter of 2002 and the
first quarter of 2003, the Company renegotiated several of its key vendor and
customer arrangements in order to reduce recurring expenses and improve its
liquidity position. In some cases, the Company was able to negotiate a flat rate
reduction for continuing services provided to it by its vendors or a deferral of
payable amounts, and in other cases the Company renegotiated the scope of
services provided in exchange for reduced rates or received pre-payments for
future services. The Company continues to aggressively pursue further vendor
cost reductions where opportunities arise.

In the case of financing arrangements, the Company negotiated, among other
things, a deferral of approximately $2.6 million of accounts payable that was
owed for services provided for which the Company issued a promissory note for
such amount, with the note to be paid off ratably over a two-year period
beginning in January 2004. The Company also restructured certain of its vendor
and capital lease obligations to significantly reduce the monthly amortization
requirements of these facilities on an on-going basis. As part of such
negotiations, the Company agreed to fund a letter of credit in twelve monthly
installments during 2003, in the aggregate amount of $1.125 million, to secure
certain payment obligations. This letter of credit will be released to Motient
in fifteen monthly installments beginning in July 2004, assuming no defaults
have occurred or are occurring. In March, 2004, Motient further restructured its


                                      F-10
<PAGE>

vendor financing facility and an outstanding promissory note to the same vendor
by extending the repayment schedule, thereby reducing the combined monthly
amortization requirements under these facilities. In June 2004, the Company
negotiated settlements of its vendor financing obligations, promissory notes and
capital lease and terminated these obligations and leases. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"--Liquidity and Capital Resources - Summary of Liquidity and
Financing" for further details on these facilities. For more information on
these events, please see Note 16, ("Subsequent Events").

UPS Revenue

On December 1, 2002, Motient entered into a letter agreement with UPS under
which UPS agreed to make a series of eight prepayments to Motient totaling $5
million for future services Motient is obligated to provide after January 1,
2004. In addition to any other rights it has under its network services
agreement with Motient, the letter agreement does not contain any minimum
purchase requirement and provides that UPS may terminate the network services
agreement, in whole or in part, by providing 30 days' notice to Motient at which
point any remaining prepayment would be required to be returned. As of July 31,
2003, all eight prepayments had been made. The $5 million prepayment is credited
against airtime services provided to UPS beginning January 1, 2004, until the
prepayment is fully credited.

UPS, the Company's largest customer as of December 31, 2002, has substantially
completed its migration to next generation network technology as of July 2003,
and its monthly airtime usage of the Company's network has declined
significantly in the last six months of 2003. UPS was our second largest
customer for the twelve months ended December 31, 2003 and our eighth largest
customer for the three months ended December 31, 2003. While the Company expects
that UPS will remain a customer for the foreseeable future, the bulk of UPS'
units have migrated to another network. As of December 31, 2003, UPS had
approximately 7,120 active units on Motient's network.

Until June 2003, UPS had voluntarily maintained its historical level of payments
to mitigate the near-term revenue and cash flow impact of its recent and
anticipated continued reduced network usage. However, beginning in July 2003,
the revenues and cash flow from UPS declined significantly. Also, due to the
arrangement entered into in 2002 under which UPS prepaid for network airtime to
be used by it in 2004, the Company does not expect that UPS will be required to
make any cash payments to the Company in 2004 for service to be provided in
2004. Pursuant to such agreement, and, as of May 31, 2004, UPS has not been
required to make any cash payments to the Company in 2004, and the value of the
Company's remaining airtime service obligations to UPS in respect of the
prepayment was approximately $4.3 million. The Company is planning a number of
initiatives to offset the loss of revenue and cash flow from UPS, including the
following:

     o    further reductions in the Company's employee and network
          infrastructure costs;

     o    actions to grow new revenue from the Company's carrier relationships
          with Verizon Wireless and T-Mobile, under which the Company will be
          selling voice and data services on such carrier's next generation
          wireless networks as a master agent;

                                      F-11
<PAGE>

     o    actions to grow revenue from the Company's various telemetry
          applications and initiatives; and

     o    enhancements to the Company's liquidity which are expected to involve
          the sale of unneeded frequency assets, such as the sales of certain
          Specialized Mobile Radio ("SMR") licenses to Nextel.


Despite these initiatives, Motient continues to be cash flow negative, and there
can be no assurances that we will ever be cash flow positive.

Liquidity and Financing Requirements

The Company's future financial performance will depend on its ability to
continue to reduce and manage operating expenses, as well as its ability to grow
revenue. The Company's future financial performance could be negatively affected
by unforeseen factors and unplanned expenses.

The Company expects to continue to require significant additional funds before
it begins to generate cash in excess of its operating expenses, and does not
expect to generate cash from operations in excess of its operating costs until
the second quarter of 2005, at the earliest. Also, even if the Company begins to
generate cash in excess of its operating expenses, it expects to continue to
require significant additional funds to meet remaining interest obligations,
capital expenditures and other non-operating cash expenses.

In March 2004, the Company amended its term credit facility. As of June 25,
2004, the Company had borrowed $6.8 million under this term credit facility, all
of which has been repaid and may not be reborrowed. The Company continues to
pursue all potential funding alternatives. Among the alternatives for raising
additional funds are the issuances of debt or equity securities, other
borrowings under secured or unsecured loan arrangements and sales of assets.
There can be no assurance that additional funds will be available to the Company
on acceptable terms or in a timely manner. In April 2004, the Company sold
4,215,910 shares of its common stock for aggregate consideration of $23.2
million in a private placement. In July 2004, the Company sold an additional
3,500,000 shares of its common stock for aggregate consideration of $30.0
million. For additional information on these events, please see Note 16
("Subsequent Events").

The Company's projected cash requirements are based on certain assumptions about
its business model and projected growth rate, including, specifically, assumed
rates of growth in subscriber activations and assumed rates of growth of service
revenue. While the Company believes these assumptions are reasonable, these
growth rates continue to be difficult to predict and there is no assurance that
the actual results that are experienced will meet the assumptions included in
the Company's business model and projections. If the future results of
operations are significantly less favorable than currently anticipated, the
Company's cash requirements will be more than projected, and it may require
additional financing in amounts that will be material. The type, timing and
terms of financing that the Company obtains will be dependent upon its cash
needs, the availability of financing sources and the prevailing conditions in
the financial markets. The Company cannot guarantee that additional financing
sources will be available at any given time or available on favorable terms.


                                      F-12
<PAGE>

2.  SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

On a consolidated basis, we refer to Motient Corporation and its six
wholly-owned subsidiaries as "Motient." All intercompany transactions have been
eliminated in consolidation.

For the period from January 1, 2001, through November 19, 2001, the Company's
investment in XM Radio was recorded pursuant to the equity method of accounting.
For the year ended December 31, 2001, XM Radio recorded $0.5 million of revenue,
incurred $282.1 million of operating expenses and had a net loss attributable to
common stockholders of $307.5 million.

As noted above (please see Note 1, "Organization"), the results of MSV have been
accounted for pursuant to the equity method of accounting.

Motient's Chapter 11 Filing and Plan of Reorganization and "Fresh-Start"
Accounting

On October 1, 2001, the Company announced that it would not make a $20.5 million
semi-annual interest payment due on the Senior Notes on such date. On November
26, 2001, the Senior Notes trustee declared all amounts owed under the senior
notes immediately due and payable. Following these events, the Company
determined that the continued viability of its business required restructuring
its highly leveraged capital structure. In October 2001, the Company retained
Credit Suisse First Boston ("CSFB") as its financial advisor to assist in the
restructuring the Company's debt. Shortly thereafter, the Company and CSFB began
meeting with the principal creditor constituencies.

On January 10, 2002, the Company filed for protection under Chapter 11 of the
Bankruptcy Code. The Company's Amended Joint Plan of Reorganization was filed
with the United States Bankruptcy Court for the Eastern District of Virginia on
February 28, 2002. The cases were jointly administered under the case name "In
Re Motient Corporation, et. al.," Case No. 02-80125. The Company's Plan of
Reorganization was confirmed on April 26, 2002 and the Company's emergence from
bankruptcy became effective on May 1, 2002 (the "Effective Date"). The Company
adopted "fresh-start" accounting as of May 1, 2002 in accordance with procedures
specified by AICPA Statement of Position ("SOP") No. 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code." The Company determined
that its selection of May 1, 2002 versus April 26, 2002 for the "fresh-start"
date was more convenient for financial reporting purposes and that the results
for the period from April 26, 2002 to May 1, 2002 were immaterial to the
consolidated financial statements. All results for periods prior to the
Effective Date are referred to as those of the "Predecessor Company" and all
results for periods including and subsequent to the Effective Date are referred
to as those of the "Successor Company".

In accordance with SOP No. 90-7, the reorganized value of the Company was
allocated to the Company's assets based on procedures specified by SFAS No. 141,
"Business Combinations". Each liability existing at the plan confirmation date,
other than deferred taxes, was stated at the present value of the amounts to be
paid at appropriate market rates. It was determined that the Company's
reorganization value computed immediately before the Effective Date was $234
million. Subsequent to the determination of this value, the Company determined


                                      F-13
<PAGE>

that the reorganization value ascribed to MSV did not reflect certain preference
rights on liquidation available to certain equity holders in MSV. Therefore, the
reorganization value of MSV was reduced by $13 million and the Company's
reorganization value was reduced to $221 million. The Company adopted
"fresh-start" accounting because holders of existing voting shares immediately
before filing and confirmation of the plan received less than 50% of the voting
shares of the emerging entity and its reorganization value is less than its
postpetition liabilities and allowed claims, as shown below:

<TABLE>
<S>                                                              <C>
Postpetition current liabilities                                 $49.9 million
Liabilities deferred pursuant to Chapter 11 Proceedings          401.1 million
                                                                 -------------
Total postpetition liabilities and allowed claims                451.0 million
Reorganization value                                            (221.0 million)
                                                               ----------------
Excess of liabilities over reorganization value                $(230.0 million)
                                                               ================
</TABLE>


The reorganization value of Motient was determined by considering of several
factors and by reliance on various valuation methods. For the valuation of the
core wireless business, consideration was given to discounted cash flows and
price/earnings and other applicable ratios, a liquidation value analysis,
comparable company trading multiples and comparable acquisition multiple
analysis. The factors considered by Motient included the following:

o    Forecasted operating cash flow results which gave effect to the estimated
     impact of limitations on the use of available net operating loss carryovers
     and other tax attributes resulting from the Plan of Reorganization and
     other events,
o    The discounted residual value at the end of the forecast period based on
     the capitalized cash flows for the last year of that period,
o    Market share and position,
o    Competition and general economic considerations,
o    Projected sales growth, and
o    Working capital requirements.

For the valuation of the Company's investment in MSV, consideration was given to
the valuation of MSV's equity reflected by recent arms-length investments in
MSV, subsequently adjusted as discussed above.

After consideration of the Company's debt capacity, and after extensive
negotiations among parties in interest, it was agreed that Motient's
reorganization capital structure should be as follows:


Notes payable to Rare Medium and CSFB                  $19.8 million
Shareholders' Equity                                   201.2 million
                                                       -------------
                                                      $221.0 million
                                                      ==============

The Company allocated the $221.0 million reorganization value among its net
assets based upon its current estimates of the fair value of its assets. In the
case of current assets, with the exception of inventory, the Company concluded
that their carrying values approximated fair values. The values of the Company's
frequencies and its investment in and note receivable from MSV were based on
independent analyses presented to the bankruptcy court and subsequently adjusted
as discussed above. The value of the Company's fixed assets was based upon a
valuation of the Company's software and estimates of replacement cost for
network and other equipment, for which the Company believes that its recent
purchases represent a valid data point. The value of the Company's other
intangible assets was based on third party valuations as of May 1, 2002.

                                      F-14
<PAGE>

In February 2003, the Company engaged a financial advisory firm to prepare a
valuation of software and customer intangibles. Software and customer
intangibles were not taken into consideration when the original fresh-start
balance sheet was determined at May 1, 2002. The changes for the software and
customer contracts are reflected below and in the financial statements and notes
herein.

The effect of the plan of reorganization and application of "fresh-start"
accounting on the Predecessor Company's balance sheet as of April 30, 2002, is
as follows:

                                      F-15
<PAGE>

<TABLE>
<CAPTION>
                                                                            Debt
                                                      Preconfirmation     Discharge                                    Reorganized
                                                        Predecessor     and Exchange           Fresh Start              Successor
(in thousands)                                           Company(j)       of Stock             Adjustments               Company
                                                        ----------        --------             -----------               -------
<S>                                                     <C>             <C>                    <C>                      <C>
Assets:
Current assets
  Cash                                                      $17,463                                                         $17,463
  Receivables                                                10,121                                                          10,121
  Inventory                                                   8,194                                (4,352)                    3,842
  Deferred equipment costs                                   11,766                               (11,766)        (e)            --
  Other current assets                                       11,443                                                          11,443
                                                             ------                                ------                    ------
     Total current assets                                    58,987                               (16,118)                   42,869
Property and equipment                                       58,031                                (1,553)        (i)        56,478
FCC Licenses and other intangibles                           45,610                                56,866      (f)(i)       102,476
Goodwill                                                      4,981                                (4,981)        (i)            --
Investment in and notes receivable from MSV                  27,262                                26,593         (f)        53,855
Other long-term assets                                        2,864                                (1,141)        (e)         1,723
                                                              -----                               -------                     -----
     Total Assets                                          $197,735                               $59,666                  $257,401
                                                           ========                               =======                  ========

Liabilities & Stockholders' (Deficit) Equity
Liabilities Not Subject to Compromise:
Current liabilities:
  Current maturities of capital leases                       $4,096                                                          $4,096
  Accounts payable - trade                                    1,625                                                           1,625
  Vendor financing                                              655                                                             655
  Accrued expenses                                           15,727                                                          15,727
  Deferred revenue                                           23,284                               (18,913)     (g)(e)         4,371
                                                             ------                              --------                    ------
                                                             45,387                               (18,913)                   26,474
  Long term liabilities:
  Vendor financing                                            2,661                                                           2,661
  Capital lease obligation                                    3,579                                                           3,579
  Deferred revenue                                           19,931                               (16,136)     (e)(g)         3,795


Liabilities Subject to Compromise:
  Prepetition liabilities                                     8,785           (8,785)      (a)                                   --
  Senior note, including accrued interest thereon           367,673         (367,673)      (b)                                   --
  Rare Medium Note, including accrued interest thereon       27,030          (27,030)      (c)                                   --
                                                             ------          -------             --------                ----------
                                                            403,488         (403,488)                                            --
Rare Medium and CSFB Notes                                       --           19,750    (a)(c)                               19,750
                                                         ----------           ------             --------                    ------
  Total liabilities                                         475,046         (383,738)             (35,049)                   56,259

Stockholders' (deficit) equity:
  Common stock - old                                            584             (584)      (h)                                   --
  Common stock - new                                                             251       (d)                                  251
  Additional paid-in capital                                988,531         (988,531)
                                                                             197,814    (d)(h)                              197,814
  Common stock purchase
  warrants - old                                             93,730          (93,730)      (h)
  Common stock purchase
  warrants - new                                                               3,077       (d)                                3,077
  Deferred stock compensation                                  (336)             336       (h)                                   --
  Retained (deficit) earnings                            (1,359,820)       1,359,820               94,715                        --
                                                         -----------        (183,725)              ------                ----------
                                                                             (94,715)   (d)(h)
                                                                             183,725       (h)

Stockholders' Equity (Deficit)                             (277,311)         383,738               94,715                   201,142
                                                           ---------         -------               ------                   -------
Total Liabilities & Stockholders' Equity (Deficit)         $197,735        $      --              $59,666                  $257,401
                                                           ========        =========              =======                  ========
</TABLE>

                                       F-16

<PAGE>

(a) Represents the cancellation of the following liabilities:
     i.   Amounts due to Boeing                                      $1,533
     ii.  Amounts due to CSFB                                         2,000
     iii. Amounts due to JP Morgan Chase                              1,550
     iv.  Amounts due to Evercore Partners LP ("Evercore")            1,948
     v.   Amounts due to the FCC                                      1,003
     vi.  Other amounts                                                 751
                                                                     ------
                                                                     $8,785

     Liabilities were cancelled in exchange for the following:
     a.   97,256 shares of new Motient common stock,
     b.   a note to CSFB in the amount of $750 and
     c.   a warrant to Evercore Partners to purchase 343,450 shares of new
          Motient common stock, and
     d.   a note to Rare Medium in the amount of $19,000.
(b)  Represents the cancellation of the senior notes in the amount of $367,673,
     including interest threron, in exchange for 25,000,000 shares of new
     Motient common stock. Certain of the Company's other creditors received an
     aggregate of 97,256 shares of the Company's common stock in settlement for
     amounts owed to them.
(c)  Represents the cancellation of $27,030 of notes due to Rare Medium,
     including accrued interest thereon, in exchange for a new note in the
     amount of $19,000. The Company also issued CSFB a note in the principal
     amount of $750 for certain investment banking services.
(d)  Represents the issuance of the following:
     i.   25,097,256 shares of new Motient common stock.
     ii.  warrants to the holders of pre-reorganization common stock to purchase
          an aggregate of approximately 1,496,512 shares of common stock, with
          such warrants being valued at approximately $1,100.
     iii. a warrant to purchase up to 343,450 share of common stock to Evercore,
          valued at approximately $1,900.


                                      F-17
<PAGE>

     The retained earnings adjustment includes the gain on the discharge of debt
     of $183,725.
(e)  Represents the write off of deferred equipment costs of $12,907 and
     deferred equipment revenue of $12,907 since there is no obligation to
     provide future service post-"fresh start".
(f)  To reflect the step-up in assets in accordance with the reorganization
     value and valuations performed.
(g)  Represents the write off of the deferred gain associated with the Company's
     sale of its satellite assets to MSV in November 2001 and the write-off of
     the unamortized balance of the $15,000 perpetual license sold to Aether in
     November 2000, both of which total approximately $22,142, since there is no
     obligation to provide future service post-"fresh start".
(h)  To record the cancellation of the Company's pre-reorganization equity and
     to reverse the gain on extinguishment of debt of $183,725 and the gain on
     fair market adjustment of $94,715.
(i)  To record the valuation and resulting increase of customer intangibles of
     approximately $11,501 and frequencies of $45,365. The reduction of $4,981
     is due to a write-off of goodwill. The reduction of property and equipment
     relates to a subsequent reduction in the carrying value of certain software
     from $4,942 to $3,389, reduction to inventory from $8,194 to $3,842 to its
     net realizable value.
(j)  The balances do not match the balances in the Company's Plan of
     Reorganization due to subsequent re-audit adjustments.

Under the Plan of Reorganization, all then-outstanding shares of the Company's
pre-reorganization common stock and all unexercised options and warrants to
purchase the Company's pre-reorganization common stock were cancelled. The
holders of $335 million in senior notes exchanged their notes for 25,000,000
shares of the Company's new common stock. Certain of the Company's other
creditors received an aggregate of 97,256 shares of the Company's new common
stock in settlement for amounts owed to them. These shares were issued following
completion of the bankruptcy claims process; however, the value of these shares
has been recorded in the financial statements as if they had been issued on the
effective date of the reorganization. Holders of the Company's
pre-reorganization common stock received warrants to purchase an aggregate of
approximately 1,496,512 shares of common stock. The warrants expired May 1,
2004, or two years after the Effective Date. The warrants were exerciseable to
purchase shares of Motient common stock at a price of $.01 per share only if and
when the average closing price of Motient's common stock over a period of ninety
consecutive trading days was equal to or greater than $15.44 per share.
Motient's common stock did not trade at this level from May 1, 2002 to May 1,
2004. All warrants issued to the holders of the Company's pre-reorganization
common stock, including those shares held by the Company's 401(k) savings plan,
have been recorded in the financial statements as if they had been issued on the
effective date of the reorganization. Also, in July 2002, Motient issued to
Evercore, financial advisor to the creditors' committee in Motient's
reorganization, a warrant to purchase up to 343,450 shares of common stock, at
an exercise price of $3.95 per share. The warrant was dated May 1, 2002, and has
a term of five years. If the average closing price of Motient's common stock for
thirty consecutive trading days is equal to or greater than $20.00, Motient may
require Evercore to exercise the warrant, provided the common stock is then
trading in an established public market. The value of this warrant has been
recorded in the financial statements as if it had been issued on May 1, 2002.




                                      F-18
<PAGE>

Cash (used) provided by reorganization items were as follows:
<TABLE>
<CAPTION>
                                                                                 Predecessor
                                                      Successor Company            Company
                                                      -----------------            -------
                                                               Eight Months      Four Months
                                                  Year Ended      Ended             Ended
                                                  December 31,  December 31,       April 30,
                                                    2003           2002              2002
                                                    ----           ----              ----
<S>                                              <C>              <C>               <C>
              (in thousands)
              Professional Fees                  $--              $(3,434)          $(5,892)
              Interest Income                     --                   --               145
                                                 ---              --------          --------
                                                 $--              $(3,434)          $(5,747)
                                                 ===              ========          ========
</TABLE>

Further details regarding the plan are contained in Motient's Disclosure
Statement with respect to the plan, which was filed as Exhibit 99.2 to the
Company's current report on Form 8-K dated March 4, 2002.

Accounting Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's most significant estimates relate to the valuation of
its net assets and assets in "fresh-start" accounting, the valuation on its
investment in MSV, the valuation of inventory, the allowance for doubtful
accounts receivable, the valuation of deferred tax assets and the realizability
of long-lived assets.

Cash Equivalents

The Company considers highly liquid investments with original or remaining
maturities at the time of purchase of three months or less to be cash
equivalents.

Short-term Investments

The Company considers highly liquid investments with original or remaining
maturities at the time of purchase of between three months and a year to be
short-term investments.

Restricted Investments

At December 31, 2003, the Company had $1.6 million of restricted investments. At
December 31, 2002, the Company had $0.6 million of restricted investments. The
securities included in restricted investments were classified as
held-to-maturity under the provision of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The Company classified restricted
investment amounts which would mature within one year as current assets in the
accompanying balance sheet. The Company accounted for these investments at their
amortized cost.

                                      F-19
<PAGE>

Inventory

Inventory, which consists primarily of communication devices and accessories,
such as power supplies and documentation kits, is stated at the lower of cost or
market. Cost is determined using the weighted average cost method. The Company
periodically assesses the market value of its inventory, based on sales trends
and forecasts and technological changes and records a charge to current period
income when such factors indicate that a reduction to net realizable value is
appropriate. The Company considers both inventory on hand and inventory which it
has committed to purchase, if any. The Company recorded inventory write-downs to
cost of equipment sold to reduce inventory amounts to its net realizable value,
in the amount of $0.2 million in 2003 and $4.4 million in 2002.

Other Current Assets

Other current assets consist of the following:

                                           Successor Company
                                     -------------------------------

                                               December 31,
                                          2003            2002
                                          ----            ----
                                             (in thousands)

Prepaid site rent                       $3,416          $4,175
Prepaid maintenance                        271             289
Prepaid expenses - other                   806           1,802
Deposits                                    10              55
Non-trade receivables and other            588             475
                                           ---             ---
                                        $5,091          $6,796
                                        ======          ======

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of the fair value of certain financial instruments. The carrying
amount for cash and cash equivalents, short-term investments, accounts
receivable, non-trade receivables included in other assets, accounts payable and
accrued expenses, and deferred revenues approximates their fair values. For debt
issues that are not quoted on an exchange, interest rates currently available to
the Company for issuance of debt with similar terms and remaining maturities are
used to estimate fair value. The fair value of the Company's equity investment
in MSV was determined by an independent third-party valuation performed in
November 2003 as part of Company's preparation of its December 31, 2002
financial statements. This same valuation methodology was utilized to value the
Company's equity interest in MSV as of December 31, 2003. The fair value of the
notes receivable from MSV approximates its carrying value as of December 31,
2003.




                                      F-20
<PAGE>

<TABLE>
<CAPTION>

                                                    As of December 31, 2003       As of December 31, 2002
                                                    -----------------------       -----------------------
                                                       Successor Company             Successor Company
                                                       -----------------             -----------------
                                                    Carrying                      Carrying
                                                     Amount       Fair Value       Amount       Fair Value
                                                     ------       ----------       ------       ----------
<S>                                                     <C>            <C>              <C>           <C>
(in thousands)
Assets:
Restricted investments                                  $1,595         $1,595           $604          $604
Investment in and notes receivable from MSV             22,610         31,294         32,493        32,493

Liabilities:
Rare Medium Note                                       $22,016        $22,016        $20,148       $20,148
CSFB Note                                                  869            869            795           795
Term Credit Facility                                     4,914          4,914             --            --
Vendor financing commitment                              4,814          4,814          6,096         6,096
Capital leases                                          $3,096         $3,096         $6,250        $6,250
</TABLE>

Concentrations of Credit Risk and Major Customers

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, short term investments, and accounts
receivable. The Company periodically invests its cash balances in temporary or
overnight investments. The Company's short term investments included debt
securities such as commercial paper, time deposits, certificates of deposit,
bankers acceptances, and marketable direct obligations of the United States
Treasury.

To date, the majority of the Company's business has been transacted with
telecommunications, field services, natural resources, professional service and
transportation companies located throughout the United States. The Company
grants credit based on an evaluation of the customer's financial condition,
generally without requiring collateral or deposits. Exposure to losses on trade
accounts receivable, for both service and for equipment sales, is principally
dependent on each customer's financial condition.


Motient's rights to use and sell the BlackBerryTM software and RIM's handheld
devices may be limited or made prohibitively expensive as a result of a patent
infringement lawsuit brought against RIM by NTP Inc. As a purchaser of those
products, Motient could be adversely affected by the outcome of that litigation.
Please see Note 14, "Legal and Regulatory Matters".


For the year ended December 31, 2003, five customers accounted for approximately
47% of the Company's service revenue, with two of those customers, SkyTel and
UPS, each accounting for more than 11% of the Company's service revenue. As of
December 31, 2003, no single customer accounted for more than 6% of the
Company's net accounts receivable.

For the four months ended April 30, 2002 and the eight months ended December 31,
2002, SkyTel and UPS accounted for approximately 11% and 16%, respectively, and
15% and 18%, respectively of the Company's service revenue. As of December 31,
2002, SkyTel represented approximately 14% of the Company's net receivables, all
of which was current.
For the year ended December 31, 2001, revenue from the MSV research and
development efforts accounted for approximately 9% of the Company's service
revenue. Excluding revenue earned from MSV, six other customers accounted for

                                      F-21
<PAGE>

approximately 41% of the Company's service revenue, with one customer
individually accounting for more than 10% of such revenue.

The revenue attributable to such customers varies with the level of network
airtime usage consumed by such customers, and none of the service contracts with
such customers requires that the customers use any specified quantity of network
airtime, nor do such contracts specify any minimum level of revenue. There can
be no assurance that the revenue generated from these customers will continue in
future periods.

Software Development Costs

During 1998, the Company adopted SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." As of December 31,
2003 and 2002, net capitalized internal use software costs were $1.3 million and
$4.0 million, respectively, are included in property and equipment in the
accompanying consolidated balance sheets and are amortized over three years.

Deferred Charges and Other Assets

Deferred charges and other assets consist of the following:


                                                  Successor Company
                                                  -----------------
                                                    December 31,
                                                    ------------
                                                 2003          2002
                                                 ----          ----
                                                   (in thousands)
        Deferred equipment costs                 $709        $1,640
        Term credit facility financing fees     7,367            --
        Other long term assets                     --           117
                                                -----         -----
                                               $8,076        $1,757
                                               ======        ======


Financing costs are amortized over the term of the 36 month related facility
using the straight-line method, which approximates the effective interest
method.


Deferred Revenue and Other Current Liabilities

Deferred revenue and other current liabilities consist of the following:

                                                Successor Company
                                                -----------------
                                                   December 31,
                                                 2003         2002
                                                 ----         ----
                                                  (in thousands)

                  Deferred Revenue - UPS         $4,678        $--
                  Deferred Revenue - Aether       3,447      1,947
                  Deferred Revenue - RIM          1,397      3,163
                  Deferred Registration fees        175         90
                  Deposits - other                  693         10
                  Deferred Revenue - other          615         98
                                                    ---         --
                                                $11,005     $5,308
                                                =======     ======

                                      F-22
<PAGE>

Other Long-Term Liabilities

Other long-term liabilities consist of the following:

                                                  Successor Company
                                                  -----------------
                                                    December 31,
                                                    ------------
                                                 2003         2002
                                                 ----         ----
                                                   (in thousands)
Deferred revenue, Aether, RIM, MSV and other     $622       $3,115
Deferred equipment revenue                        725        1,709
                                                  ---        -----
                                               $1,347       $4,824
Revenue Recognition

The Company generates revenue through equipment sales, airtime service
agreements and consulting services. In 2000, the Company adopted SAB No. 101,
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. In certain circumstances, SAB No. 101 requires
the Company to defer the recognition of revenue and costs related to equipment
sold as part of a service agreement.

In December 2003, the Staff of the SEC issued SAB No. 104, "Revenue
Recognition", which supersedes SAB No. 101, "Revenue Recognition in Financial
Statements." SAB No. 104's primary purpose is to rescind accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements and to
rescind the SEC's "Revenue Recognition in Financial Statements Frequently Asked
Questions and Answers" ("FAQ") issued with SAB No. 101. Selected portions of the
FAQ have been incorporated into SAB No. 104. The adoption of SAB No. 104 will
not have a material impact on the Company's revenue recognition policies.

Revenue is recognized as follows:


Service revenue: Revenues from the Company's wireless services are recognized
when the services are performed, evidence of an arrangement exists, the fee is
fixed and determinable and collectibility is probable. Service discounts and
incentives are recorded as a reduction of revenue when granted, or ratably over
a contract period. The Company defers any revenue and costs associated with
activation of a subscriber on the Company's network over an estimated customer
life of two years.

We package airtime usage on our network that involves a wide variety of volume
packaging, anything from a 35 kilobytes per month plan up to unlimited kilobyte
usage per month, with various gradations in between. Discounts may be applied
when comparing one customer to another, and such service discounts are recorded
as a reduction of revenue when granted. The Company does not offer incentives
generally as part of its service offerings, however, if offered they would be
recorded as a reduction of revenue ratably over a contract period.

Service discounts and incentives are recorded as a reduction of revenue when
granted, or ratably over a contract period. The Company defers any revenue and
costs associated with activation of a subscriber on the Company's network over
an estimated customer life of two years.


                                      F-23
<PAGE>

To date, the majority of the Company's business has been transacted with
telecommunications, field services, natural resources, professional service and
transportation companies located throughout the United States. The Company
grants credit based on an evaluation of the customer's financial condition,
generally without requiring collateral or deposits. The Company establishes a
valuation allowance for doubtful accounts receivable for bad debt and other
credit adjustments. Valuation allowances for revenue credits are established
through a charge to revenue, while valuation allowances for bad debts are
established through a charge to general and administrative expenses. The Company
assesses the adequacy of these reserves quarterly, evaluating factors such as
the length of time individual receivables are past due, historical collection
experience, the economic environment and changes in credit worthiness of the
Company's customers. If circumstances related to specific customers change or
economic conditions worsen such that the Company's past collection experience
and assessments of the economic environment are no longer relevant, the
Company's estimate of the recoverability of its trade receivables could be
further reduced.

Equipment and service sales: The Company sells equipment to resellers who market
its terrestrial product and airtime service to the public. The Company also
sells its product directly to end-users. Revenue from the sale of the equipment,
as well as the cost of the equipment, are initially deferred and are recognized
over a period corresponding to the Company's estimate of customer life of two
years. Equipment costs are deferred only to the extent of deferred revenue.


As of December 31, 2003 and 2002, the Company had capitalized a total of $4.5
million and $4.4 million of deferred equipment revenue, respectively, and had
deferred equipment costs of $4.5 million and $4.4 million, respectively.


Advertising Costs

Advertising costs are charged to operations as incurred and totaled $6.6 million
in 2003, $4.3 million for the eight months ended December 31, 2002 and $2.5
million for the four months ended April 30, 2002 and $10.0 million in 2001. In
2001, a portion of the advertising costs associated with certain of the
Company's Internet promotions, were prepaid in the form of warrants to acquire
common stock issued by the Company, valued at $4.8 million. The warrants were
expensed as the associated page views were delivered. The Company recognized
advertising expense associated with the warrants issued for this Internet
promotion in the amount of $1.4 million in 2001. In September 2001, the Company
cancelled the Internet promotion, and the $2.9 million of remaining prepaid
advertising was written off.

Stock-Based Compensation

As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", which
establishes a fair value based method of accounting for stock-based compensation
plans, the Company has elected to follow Accounting Principles Board Opinion
No.25 "Accounting for Stock Issued to Employees" for recognizing stock-based
compensation expense for financial statement purposes. For companies that choose
to continue applying the intrinsic value method, SFAS No. 123 mandates certain
pro forma disclosures as if the fair value method had been utilized. The Company
accounts for stock based compensation to consultants in accordance with EITF
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services" and
SFAS No. 123.

                                      F-24
<PAGE>

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement
No.123", which provides optional transition guidance for those companies
electing to voluntarily adopt the accounting provisions of SFAS No. 123. In
addition, SFAS No. 148 mandates certain new disclosures that are incremental to
those required by SFAS No. 123. The Company continued to account for stock-based
compensation in accordance with APB No. 25.

The following table illustrates the effect on income (loss) attributable to
common stockholders and earnings (loss) per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation.

<TABLE>
<CAPTION>
                                                                                                            Predecessor
                                                                            Successor Company                 Company
                                                                            -----------------                 -------

                                                                            Twelve
                                                                            Months          Eight Months        Four Months
                                                                            Ended              Ended               Ended
                                                                         December 31,       December 31,         April 30,
                                                                             2003               2002                2002
                                                                             ----               ----                ----
<S>                                                                    <C>                 <C>                 <C>
Net loss, as reported                                                  $ (62,122)          $ (59,558)          $ 231,978
Add: Stock-based employee compensation expense
included in net income, net of related tax effects                           603                  --                  --
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of tax related effects                                    (2,488)               (567)                (57)
                                                                       ---------           ---------           ---------
Pro forma net loss                                                     $ (64,007)          $ (60,125)          $ 231,921

Weighted average common shares outstanding                                25,145              25,097              58,251
Earnings per share:
  Basic and diluted---as reported                                      $   (2.47)          $   (2.37)          $    3.98
  Basic and diluted---pro-forma                                        $   (2.55)          $   (2.40)          $    3.98

</TABLE>

Under SFAS No. 123 the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:




                                      F-25
<PAGE>

<TABLE>
<CAPTION>
                                                                       Predecessor
                                    Successor Company                    Company
                                    -----------------                    -------

                              Twelve Months        Eight Months          Four Months
                                Ended                 Ended                 Ended
                              December 31,         December 31,           April 30,
                                 2003                 2002                  2002
                                 ----                 ----                  ----
<S>                                <C>                  <C>                   <C>
Expected life (in years)           10                   10                    10
Risk-free interest rate     0.88%-0.93%               1.71%                 1.71%
Volatility                    148%-162%                173%                  197%
Dividend yield                     0.0%                0.0%                  0.0%
</TABLE>

Options to purchase 1,631,025 shares and 1,757,513 shares of the Company's
common stock were outstanding at December 31, 2002 and 2003, respectively, under
the Company's 2002 Stock Option Plan. Options to purchase 2,683,626 shares of
the Predecessor Company's stock were outstanding at April 30, 2002. These
options were cancelled as part of the Company's reorganization.

In March 2003, the Company's board of directors approved the reduction in the
exercise price of all of the outstanding stock options from $5.00 per share to
$3.00 per share. The repricing requires that all options be accounted for in
accordance with variable plan accounting, under which the value of these options
are measured at their intrinsic value and any change in that value is charged to
the income statement each quarter based on the difference (if any) between the
intrinsic value and the then-current market value of the common stock. The other
options are accounted for as a fixed plan and in accordance with intrinsic value
accounting, which requires that the excess of the market price of stock over the
exercise price of the options, if any, at the time that both the exercise price
and the number of options are known be recorded as deferred compensation and
amortized over the option vesting period. For the three and twelve months ended
December 31, 2003, the Company recorded a mark-to-market adjustment of $(0.6)
million and $0.6 million respectively relating to these re-priced options.

In July 2003, the compensation and stock option committee of the Company's board
of directors, acting pursuant to the Company's 2002 stock option plan, granted
26 employees and officers options to purchase an aggregate of 470,000 shares of
the Company's common stock at a price of $5.15 per share. In September 2003, one
additional employee received a grant for 25,000 shares of the Company's common
stock at a price of $5.65 per share. One-half of each option grant vests with
the passage of time and the continued employment of the recipient, in three
equal increments, on the first, second and third anniversary of the date of
grant. The other half of each grant will either vest or be rescinded based on
the performance of the Company in 2004. If vested and not exercised, the options
will expire on the 10th anniversary of the date of grant.

Assessment of Asset Impairment

                                      F-26
<PAGE>


The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or their fair value less costs to sell. On
January 1, 2002, the Company also adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". The statement requires that all long-lived assets be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. Therefore, discontinued
operations will no longer be measured on a net realizable value basis and will
not include amounts for future operating losses. The statement also broadens the
reporting requirements for discontinued operations to include disposal
transactions of all components of an entity (rather than segments of a
business). Components of an entity include operations and cash flows that can be
clearly distinguished from the rest of the entity that will be eliminated from
the ongoing operations of the entity in a disposal transaction. Subsequent to
the period covered by this report, we engaged a financial advisor to value
certain of our assets as of December 31, 2002, among other things, to test for
potential impairment of certain of our long-lived assets under SFAS No. 144.
This testing included valuations of software and customer-related intangibles.
Based on these tests, no recording of impairment charges was required. However,
we subsequently engaged this financial advisor to reevaluate the value of our
customer-related intangibles as of September 30, 2003 due primarily to the
decline in revenue from UPS in this time period. This valuation resulted in an
impairment of the customer-related intangibles of $5.5 million in the third
quarter of 2003. The adoption of SFAS No. 144 had no material impact on our
financial statements.


Deferred Taxes

The Company accounts for income taxes under the liability method as required in
SFAS No. 109, "Accounting for Income Taxes". Under the liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax laws and rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Under this method, the effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation reserve is established for
deferred tax assets if the realization of such benefits cannot be sufficiently
assured.

Property and Equipment

Property and equipment are recorded at cost for the Predecessor Company and
adjusted for impairment, and includes "fresh-start" adjustments for the
Successor Company and depreciated over their useful life using the straight-line
method. All identifiable assets recognized in accordance with "fresh-start"

                                      F-27
<PAGE>

accounting were recorded at the effective date based upon independent appraisal.
Assets recorded as capital leases are amortized over the shorter of their useful
lives or the term of the lease. The estimated useful lives of office furniture
and equipment vary from two to ten years, and the network equipment is
depreciated over seven years. The Company has also capitalized certain costs to
develop and implement its computerized billing system. These costs are included
in property and equipment and are depreciated over three years. Repairs and
maintenance do not significantly increase the utility or useful life of an asset
and are expensed as incurred.

Segment Disclosures

In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", the Company has one operating segment: its core
wireless business. Since January 1, 2001, the Company had one operating segment:
its core wireless business. The Company provides its core wireless business to
the continental United States, Alaska, Hawaii and Puerto Rico. The following
summarizes the Company's core wireless business revenue by major market
categories:
<TABLE>
<CAPTION>

                                                                     Predecessor        Predecessor
                                   Successor Company                   Company            Company
                                   -----------------                   -------            -------
                                                   Eight Months                          (Restated)
                                 Year Ended            Ended         Four Months         Year Ended
                                December 31,       December 31,     Ended April 30,     December 31,
                                    2003               2002             2002                2001
                                    ----               ----             ----                ----
Summary of Revenue
------------------
<S>                                 <C>               <C>               <C>               <C>
(in millions)
Wireless Internet                   $27.8             $15.5             $5.6              $11.4
Field Services                        9.9              10.5              5.6               19.4
Transportation                        7.9               7.4              4.1               15.9
Telemetry                             2.3               1.8              0.8                2.6
All and other                         1.4               0.3              0.7               18.8
                                      ---               ---              ---               ----
Service Revenue                      49.3              35.5             16.8               68.1
Equipment Revenue                     5.2               1.1              5.6               22.2
                                      ---               ---              ---               ----
    Total                           $54.5             $36.6            $22.4              $90.3
                                    =====             =====            =====              =====
</TABLE>

The Company does not measure ultimate income or loss or track its assets by
these market categories.

(Loss) Per Share

Basic and diluted (loss) income per common share is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.

Options and warrants to purchase shares of common stock were not included in the
computation of loss per share as the effect would be antidilutive for the years
ended December 31, 2003 and 2001 and for the four and eight months ended April

                                      F-28
<PAGE>

30, 2002 and December 31, 2002, respectively. As a result, the basic and diluted
earnings per share amounts for all periods presented are the same. As of
December 31, 2003, there were warrants to acquire approximately 5,664,962 shares
of common stock and 1,757,513 options outstanding that were not included in this
calculation because of their antidilutive effect. As of December 31, 2002, there
were warrants to acquire approximately 2,339,962 shares of common stock and
1,631,025 options outstanding that were not included in this calculation because
of their antidilutive effect. For the four months ended April 30, 2002, no
options or warrants had exercise prices in excess of the fair market value of
the Company's common stock and thus were not factored into the per share
calculation. As of December 31, 2001 there were options outstanding for
approximately 393,353 shares of common stock that were not included in this
calculation because of their antidilutive effect.

Derivatives

In April and July 2001, the Company sold notes to Rare Medium totaling $50
million. The notes were collateralized by up to 5,000,000 of the Company's XM
Radio shares, and, until maturity, which was extended until October 12, 2001,
Rare Medium had the option to exchange the notes for a number of XM Radio shares
equivalent to the principal of the note plus any accrued interest thereon (see
Note 8, "Debt and Capital Leases"). The Company determined the embedded call
options in the notes, which permitted Rare Medium to convert the borrowings into
shares of XM Radio, were derivatives which were accounted for in accordance with
SFAS No. 133 and accordingly recorded a gain in the amount of $1.5 million in
2001 related to the Rare Medium note call options. On October 12, 2001, the
embedded call options in the Rare Medium notes expired unexercised. The Rare
Medium note was cancelled and replaced by a new Rare Medium note in the amount
of $19.0 million as part of the Company's reorganization.

In connection with the bank financing in March 1998, the Company entered into an
interest rate swap agreement, with an implied annual rate of 6.51%. The swap
agreement reduced the impact of interest rate increases on then-existing term
loan facility. The Company paid a fixed fee of approximately $17.9 million for
the swap agreement. In return, the counter-party was obligated to pay a variable
rate equal to LIBOR plus 50 basis points, paid on a quarterly basis directly to
the respective banks on behalf of the Company, on a notional amount of $100
million until the termination date of March 31, 2001. In connection with the pay
down of a portion of the term loan facility during 1999, the Company reduced the
notional amount of its swap agreement from $100 million to $41 million and
realized net proceeds of approximately $6 million due to early termination of a
portion of the swap agreement. The interest rate swap agreement expired in March
2001.

Investment in MSV and Notes Receivable from MSV

As a result of the application of "fresh-start" accounting, restatements and the
subsequent modifications described below, the notes and investment in MSV were
valued at fair value and the Company recorded an asset in the amount of
approximately $53.9 million representing the estimated fair value of our
investment in and note receivable from MSV. Included in this investment is the
historical cost basis of the Company's common equity ownership of approximately
48% as of May 1, 2002, or approximately $19.3 million. In accordance with the
equity method of accounting, we recorded our approximate 48% share of MSV losses
against this basis.

                                      F-29
<PAGE>

Approximately $6.2 million of the value attributed to the equity interest in MSV
is the excess of fair value over cost basis and is amortized over the estimated
lives of the underlying MSV assets that gave rise to the basis difference. The
Company is amortizing the excess basis in accordance with the pro-rata
allocation of various components of MSV's intangible assets as determined by MSV
through recent independent valuations. Such assets consist of FCC licenses,
intellectual property and customer contracts, which are being amortized over a
weighted-average life of approximately 12 years.

Additionally, Motient has recorded the $15.0 million note receivable from MSV,
plus accrued interest thereon at its fair value, estimated to be approximately
$13.0 million at "fresh start", after giving affect to discounted future cash
flows at market interest rates. This note matures in November 2006 and is
subject to certain conditions and priorities with respect to payment of other
indebtedness.

In November 2003, Motient engaged CTA to perform a valuation of its equity
interests in MSV as of December 31, 2002. Concurrent with CTA's valuation,
Motient reduced the book value of its equity interest in MSV from $53.9 million
(inclusive of Motient's $2.5 million convertible notes from MSV) to $40.9
million as of May 1, 2002 to reflect certain preference rights on liquidation of
certain classes of equity holders in MSV.

Also, as a result of CTA's valuation of MSV, Motient determined that the value
of its equity interest in MSV was impaired as of December 31, 2002. This
impairment was deemed to have occurred in the fourth quarter of 2002 and the
Company reduced the value of its equity interest in MSV by $15.4 million as of
December 31, 2002. It was determined that no further impairment was required as
of December 31, 2003.

The valuation of Motient's investment in MSV and its note receivable from MSV
are ongoing assessments that are, by their nature, judgmental given that MSV is
not traded on a public market and is in the process of developing certain next
generation technologies, which depend on approval by the FCC. There is the
inherent future risk that due to the uncertainties described above, Motient may
have to write down the value of this investment and note. For information
regarding recent developments involving MSV, please see Note 16 ("Subsequent
Events").

For the year ended December 31, 2003, MSV had revenues of $27.1 million,
operating expenses of $46.5 million and a net loss of $28 million. For the
eight-month period ended December 31, 2002, MSV had revenues of $19.1 million,
operating expenses of $17.5 million and a net loss of $15.7 million. For the
four-month period ended April 30, 2002, MSV had revenues of $9.1 million,
operating expenses of $9.3 million and a net loss of $9.2 million. For the year
ended December 31, 2003, the Company's equity in losses of MSV were $9.7
million. For the eight-month period ended December 31, 2002, the Company's
equity in losses of MSV were $6.9 million, and for the four-month period ended
April 30, 2002, the Company's equity in losses of MSV were $1.9 million. For
additional financial information regarding MSV, please see the consolidated
financial statements of MSV beginning on page M-1.


                                      F-30
<PAGE>

Recent Accounting Pronouncements

In February, 2002, EITF No. 01-09, "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products)", was
issued to provide guidance on whether consideration paid by a vendor to a
reseller should be recorded as expenses or against revenues. The Company has
reviewed EITF 01-09 and believes that all such consideration is properly
recorded by the Company as operating expenses. The Company adopted the
provisions of this consensus on January 1, 2002, and it had no material impact
on the Company's consolidated financial statements.

In November 2002, the EITF reached consensus on EITF No. 00-21, "Accounting for
Revenue Arrangements with Multiple Deliverables". This consensus requires that
revenue arrangements with multiple deliverables be divided into separate units
of accounting if the deliverables in the arrangement meet specific criteria. In
addition, arrangement consideration must be allocated among the separate units
of accounting based on their relative fair values, with certain limitations. The
sale of the Company's equipment with related services constitutes a revenue
arrangement with multiple deliverables. The Company will be required to adopt
the provisions of this consensus for revenue arrangements entered into after
June 30, 2003, and the Company has decided to apply it on a prospective basis.
Motient did not have any revenue arrangements that would have a material impact
on its financial statements with respect to EITF No. 00-21.

In November 2002, the FASB issued FASB Interpretation, or FIN No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. However, a liability does not have to be recognized for a
parent's guarantee of its subsidiary's debt to a third party or a subsidiary's
guarantee of the debt owed to a third party by either its parent or another
subsidiary of that parent. The initial recognition and measurement provisions of
FIN No. 45 are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002 irrespective of the guarantor's fiscal year
end. The disclosure requirements of FIN No. 45 are effective for financial
statements with annual periods ending after December 15, 2002. Motient does not
have any guarantees that would require disclosure under FIN No. 45.

                                      F-31
<PAGE>


In January 2003, the FASB issued FASB Interpretation No. 46 or FIN No. 46,
"Consolidation of Variable Interest Entities -- An Interpretation of ARB No.
51", which clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN No. 46
provides guidance related to identifying variable interest entities (previously
known generally as special purpose entities, or SPEs) and determining whether
such entities should be consolidated. FIN No. 46 must be applied immediately to
variable interest entities created or interests in variable interest entities
obtained after January 31, 2003. For those variable interest entities created or
interests in variable interest entities obtained on or before January 31, 2003,
the guidance in FIN No. 46 must be applied in the first fiscal year or interim
period beginning after June 15, 2003. The Company has reviewed the implications
that adoption of FIN No. 46 would have on its financial position and results of
operations and it did not have a material impact.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies the characteristics of
an obligation of the issuer. This standard is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company has determined that it does not have any financial instruments
that are impacted by SFAS No. 150.

Restatement of Financial Statements

Subsequent to the issuance of the Company's financial statements for the quarter
ended March 31, 2002 and year ended December 31, 2001, the Company became aware
that certain accounting involving the effects of several complex transactions
from these years, including the formation of and transactions with a joint
venture, MSV, in 2000 and 2001 and the sale of certain of our transportation
assets to Aether in 2000, required revision. These transactions were described
in more detail in Note 13 ("Business Acquisitions and Dispositions") of notes to
consolidated financial statements in each of Motient's annual reports on Form
10-K for the fiscal years ended December 31, 2000 and 2001. In addition, as a
result of the Company's re-audit of the years ended December 31, 2001 and 2000
performed by the Company's former independent accounting firm, Ehrenkrantz
Sterling & Co. LLC, certain accounting adjustments were proposed and accepted by
the Company. A description of these adjustments is provided below.

Summary of Adjustments to Prior Period Financial Statements with respect to MSV
and Aether Transactions

The following is a brief description of the material differences between our
original accounting treatment with respect to the MSV and Aether transactions
and the revised accounting treatment that Motient has concluded was appropriate
and has been reflected in the accompanying financial statements for the
respective periods.

                                      F-32
<PAGE>


Allocation of initial proceeds from MSV formation transactions in June 2000. In
the June 2000 transaction with MSV, Motient Services received $44 million from
MSV. This amount represented payments due under a research and development
agreement, a deposit on the purchase of certain of Motient's assets at a future
date, and payment for a right for certain of the investors in MSV to convert
their ownership in MSV into shares of common stock of Motient. Since the
combined fair value of the three components exceeded $44 million, based on
valuations of each component, Motient initially allocated the $44 million of
proceeds first to the fair value of the research and development agreement and
then the remaining value to the asset deposit and investor conversion option
based on their relative fair values. Upon review, Motient revised its initial
accounting treatment and allocated the $44 million of proceeds first to the
investor conversion option based on its fair value, and the remainder to the
research and development agreement and asset deposit based on their relative
fair values. The effect of this reallocation increased shareholders' equity at
the time of the initial recording by $12 million, as well as reduced subsequent
service revenue by $4 million in 2001, as a result of the lower recorded value
allocated to the research and development agreement. All remaining unamortized
balances were written off as part of the gain on the sale of the satellite
assets.

Recording of suspended losses associated with MSV in fourth quarter of 2001. In
November 2001, when the asset sale described in Note 13 was consummated, Motient
and MSV amended the asset purchase agreement, with Motient agreeing to take a
$15 million note as part of the consideration for the sale of the assets to MSV.
Additionally, at the time of this transaction, Motient purchased a $2.5 million
convertible note issued by MSV. As Motient had no prior basis in its investment
in MSV, Motient had not recorded any prior equity method losses associated with
its investment in MSV. When Motient agreed to take the $15 million note as
partial consideration for the assets sold to MSV, Motient recorded its share of
the MSV losses that had not been previously recognized by Motient ($17.5
million), having the effect of completely writing off the notes receivable in
2001.

Upon review, Motient determined that it should not have recorded any suspended
losses of MSV, since those losses should have been absorbed by certain of the
senior equity holders in MSV. As a result, Motient concluded that it should not
have written off its portion ($17.5 million) of the prior MSV losses against the
value of both notes in 2001.

Recording of increase in Motient's investment in MSV in November 2001. Also in
the November 2001 transaction, MSV acquired assets from another company, TMI, in
exchange for cash, a note and equity in MSV. Motient initially considered
whether or not a step-up in the value of its investment in MSV was appropriate
for the value allocated to TMI for its equity interest, and determined that a
step-up was not appropriate. Upon review, Motient determined that it should have
recognized a step-up in value of the MSV investment of $12.9 million under Staff
Accounting Bulletin No. 51, "Accounting for Sales of Stock of a Subsidiary"
("SAB 51"), with an offsetting gain recorded directly to shareholders' equity.

                                      F-33
<PAGE>


Recognition of gain on sale of assets to MSV in November 2001. Upon the
completion of the November 2001 transactions, Motient determined that 80% of its
gain from the sale of the assets should be deferred, since that was Motient's
equity ownership percentage in MSV at the time the assets were sold to MSV. Upon
review, Motient has determined that it was appropriate to apply Motient's
ownership percentage at the completion of all of the related transactions that
occurred on the same day as the asset sale transaction, since the transactions
were dependent upon one another and effectively closed simultaneously.
Accordingly, Motient should have deferred approximately 48% of the gain
(Motient's equity ownership percentage in MSV following the completion of such
transactions) as opposed to 80%. This change resulted in an increased gain on
the sale of MSV of $7.9 million in 2001.

Allocation of proceeds from the sale of the transportation business to Aether in
November 2000. Motient received approximately $45 million for the sale of its
retail transportation business assets and assumption of its liabilities to
Aether. This consisted of $30 million for the assets, of which $10 million was
held in an escrow account that was subsequently released in the fourth quarter
of 2001 upon the satisfaction of certain conditions, and $15 million for a
perpetual license to use and modify any intellectual property owned or licensed
by Motient in connection with the retail transportation business. In the fourth
quarter of 2000, Motient recognized a gain of $8.9 million, which represented
the difference between the net book value of the assets sold and the $20 million
cash portion of the purchase price for the assets received at closing. Motient
recognized an additional $8.3 million gain in the fourth quarter of 2001 when
the additional $10 million of proceeds were released from escrow. The $1.7
million difference between the proceeds received and the gain recognized is a
result of pricing modifications that were made at the time of the release of the
escrow plus certain compensation paid to former employees of the transportation
business as a result of certain performance criteria having been met.

Motient deferred the $15 million perpetual license payment, which was then
amortized into revenue over a five-year period, the estimated life of the
customer contracts sold to Aether at the time of the transaction. Upon review,
Motient determined that the $15 million in deferred revenue should be recognized
over a four year period, which represents the life of a network airtime
agreement that Motient entered into with Aether at the time of the closing of
the asset sale. The decrease in the amortization period resulted in increased
revenue of $63,000 and $750,000 in 2000 and 2001, respectively.

Recognition of costs associated with certain options granted to Motient
employees who were subsequently transferred to Aether upon consummation of the
sale of Motient's transportation business to Aether in November 2000. Motient
valued the vested options based on their fair value at the date of the
consummation of the asset sale and recorded that value against the gain on the
sale of the assets to Aether. Upon review, Motient has determined to value these
vested options as a repricing under the intrinsic value method, with any charge
recorded as an operating expense. In addition, for each subsequent quarter for
which the unvested options continued to vest, Motient had valued these options
on a fair value basis and recorded any adjustment in value as an operating
expense. Upon review, Motient has determined that any adjustments in value
should have been reflected as an increase or reduction of the gain on the sale
of the assets to Aether. The revised accounting resulted in an increase in
expenses of $1.0 million in 2001.

                                      F-34
<PAGE>


Recognition of difference between strike price and fair market value at
measurement date for options issued to ARDIS employees. Motient has restated its
consolidated financial statements to recognize compensation expense related to
the issuance of stock options with an exercise price below fair market value.
The revised accounting resulted in a decrease in net income and a corresponding
increase in additional paid in capital of $0.01 million for the year ended
December 31, 2001.

Recognition of adoption of SAB 101,"Revenue Recognition in Financial
Statements". Motient has restated its consolidated financial statements as of
January 1, 2000, based on guidance provided in Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements", as amended ("SAB101"). Motient's adoption of SAB101 resulted in a
change of accounting for certain product shipments and activation fees. The
cumulative effect of the change to retained earnings as of January 1, 2000 was
$4.6 million. The cumulative effect was recognized as income in 2001 as the
amounts were amortized into revenue and ultimately recognized as additional gain
on the sale of the Company's satellite, transportation and certain other assets.

Accrual of advertising expense in December 2000. Motient has restated its
consolidated financial statements in 2000 to recognize an additional $1.1
million in advertising expense previously recognized in 2001.

Recognition of costs associated with inventory write-downs. Motient has restated
its consolidated financial statements in 2000 to recognize an additional $1
million in Cost of Goods Sold for inventory write-downs previously recognized in
2001. In addition, Motient has restated its consolidated financial statements
for the three-months ended March 31, 2002 to recognize an additional $0.4
million in Cost of Goods Sold for inventory write-downs not previously recorded.

Summary of Impact of the Restatement

The revised accounting treatment described above required that certain
adjustments be made to the income statements and balance sheets for the years
ended December 31, 2001 and the quarter ended March 31, 2002. The effect of
these adjustments is illustrated in the table below. Certain of the adjustments
are based on assumptions that we have made about the fair value of certain
assets.




                                      F-35
<PAGE>

<TABLE>
<CAPTION>
                                           Quarter Ended        Year Ended
                                              March 31,         December 31,
                                               2002                2001
                                               ----                ----
<S>                                            <C>                  <C>
(in thousands)
Statement of operations data
----------------------------
Net Revenue, as previously reported            $16,495              $93,293
   Adjustments                                     188               (3,028)
                                                   ---              -------
As restated                                    $16,683              $90,265
                                               =======              =======

Net Operating Loss, as previously reported    $(15,970)            $(94,996)
   Adjustments                                     208               (2,227)
                                                   ---              -------
As restated                                   $(15,762)            $(97,223)
                                             =========            =========

Net Loss, as previously reported              $(32,885)           $(292,089)
   Adjustments                                  (2,544)              22,592
                                               -------               ------
As restated - inclusive of the cumulative
effect of $4,677                              $(35,429)           $(269,497)
                                             =========           ==========

Basic and Fully Diluted Loss Per Share of
Common Stock, as previously reported            $(0.56)              $(5.71)
   Adjustments                                   (0.05)                0.44
                                                ------                 ----
As restated                                     $(0.61)              $(5.27)
                                               =======              =======

Balance sheet data
------------------
Total Assets, as previously reported          $177,628             $209,617
   Adjustments                                  27,654               30,848
                                                ------               ------
As restated                                   $205,282             $240,465
                                              ========             ========

Total Liabilities, as previously reported     $485,681             $485,086
   Adjustments                                 (14,122)             (13,472)
                                              --------             --------
As restated                                   $471,559             $471,614
                                              ========             ========

Stockholders' Equity, as previously
reported                                     $(308,053)           $(275,469)
   Adjustments                                  41,776               44,320
                                                ------               ------
As restated                                  $(266,277)           $(231,149)
                                            ==========           ==========

Total Liabilities & Stockholders' Equity,
as previously reported                        $177,628             $209,617
   Adjustments                                  27,654               30,848
                                                ------               ------
As restated                                   $205,282             $240,465
                                              ========             ========
</TABLE>

                                      F-36
<PAGE>

3. STOCKHOLDERS' (DEFICIT) EQUITY

As of December 31, 2003 and 2002, the Company has authorized 5,000,000 shares of
preferred stock and 100,000,000 shares of common stock. For each share of common
stock held, common stockholders are entitled to one vote on matters submitted to
the stockholders.

The Preferred Stock may be issued in one or more series at the discretion of the
Board of Directors (the "Board"), without stockholder approval. The Board is
authorized to determine the number of shares in each series and all
designations, rights, preferences, and limitations on the shares in each series,
including, but not limited to, determining whether dividends will be cumulative
or non-cumulative.

As of December 31, 2003, the Company had reserved common stock for future
issuance as detailed below.

   Shares issuable upon exercise of warrants                  5,664,962
   2002 Stock Option Plan                                     2,993,024
   Defined Contribution Plan                                    115,828
                                                              ---------
        Total                                                 8,773,814
                                                              =========
XM Radio

During 2000 and 2001, XM Radio executed certain equity transactions that
affected the Company's ownership percentage in XM Radio. As a result of these
transactions, and in accordance with SAB 51, the Company recorded a decrease to
its investment in XM Radio of $12.2 million in 2001, and an increase to its
investment in XM Radio of $129.5 million in 2000. SAB 51 addresses the
accounting for sales of stock by a subsidiary. Because XM Radio was a
development stage company until November 12, 2001, SAB 51 required the
difference in the carrying amount of the Company's investment in XM Radio and
the net book value of XM Radio after the stock issuances be reflected in the
financial statements of the Company as a capital transaction in the accompanying
consolidated statements of stockholders' (deficit) equity. As of November 19,
2001, the Company did not hold any interest in XM Radio.

Mobile Satellite Ventures LP

During 2001, MSV executed certain equity transactions that affected the
Company's ownership percentage in MSV. As a result of these transactions, and in
accordance with SAB 51, the Company recorded an increase to its investment in
MSV of $12.9 million in 2001, with an offsetting gain recorded directly to
shareholders' equity.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                      F-37
<PAGE>

                                                   Successor Company
                                                   -----------------
                                                     December 31,
                                                     ------------
                                                  2003              2002
                                                  ----              ----
                                                     (in thousands)
Network equipment                              $35,865           $47,384
Office equipment and furniture                   2,846             3,951
Construction in progress                            --             1,409
                                                ------             -----
                                                38,711            52,744
Less accumulated depreciation and
amortization                                    (7,330)           (6,339)
                                               -------           -------
Property and equipment, net                    $31,381           $46,405
                                               =======           =======

Depreciation expense totaled $13,770 for the year ended December 31, 2003;
$9,816 for the eight months ended December 31, 2002 and $5,924 for the four
months ended April 30, 2002.


5.  FCC LICENSES AND OTHER INTANGIBLE ASSETS

FCC licenses and other intangible assets consist of the following:


                                         Successor Company
                                         -----------------
                                           December 31,
                                           ------------
                                         2003          2002
                                         ----          ----
                                           (in thousands)
FCC Licenses                          $80,594       $88,997
Customer contracts                      1,893        11,501
                                        -----        ------
                                       82,487       100,498
Less accumulated amortization          (8,466)       (5,577)
                                      -------       -------
FCC licenses and other intangible
assets, net                           $74,021       $94,921
                                      =======       =======

Amortization totaled $7,696 for the year ended December 31, 2003; $5,693 for the
eight months ended December 31, 2002 and $989 for the four months ended April
30, 2002.

                                      F-38
<PAGE>


Motient accounts for its frequencies as finite-lived intangibles and amortizes
them over a 20-year estimated life which includes the initial 10 year term,
plus an additional 10 year renewal term. Renewal of Motient's current licenses
are granted in the ordinary course. Motient had amortized its goodwill on a
straight-line basis over 20 years, however, this goodwill was eliminated as part
of Motient's "fresh-start" accounting. As part of its "fresh-start" accounting,
Motient valued its long-term customer contracts and amortizes these contracts
over a four-year life. The fair value of our customer related intangibles is
determined through the based on analysis incorporating a discounted cash flow of
our primary customer contracts and other related considerations.


Subsequent to the period covered by this report, we engaged a financial advisor
to value certain of our customer-intangible assets as of December 31, 2002,
among other things, to test for potential impairment of certain of our
long-lived assets under SFAS No. 144. Based on these tests, no recording of
impairment charges was required. However, we subsequently engaged this financial
advisor to reevaluate the value of our customer-related intangibles as of
September 30, 2003 due primarily to the decline in revenue from UPS in this time
period. This valuation resulted in an impairment of the customer-related
intangibles of $5.5 million in the third quarter of 2003.

The table below outlines Motient's amortization requirements for the five year
period from December 31, 2003.
<TABLE>
<CAPTION>

                                                    December 31,
                                     2004     2005          2006         2007      2008        Thereafter
                                     ----     ----          ----         ----      ----        ----------
<S>                                <C>      <C>           <C>          <C>       <C>              <C>
     FCC Licenses                  $4,819   $4,819        $4,819       $4,819    $4,819           $48,191
     Customer contracts               631      631           473          ---       ---               ---
</TABLE>

6. STOCK OPTIONS AND RESTRICTED STOCK

Prior to its reorganization, the Company had several active stock option plans.
The Motient Corporation Award Plan (the "Award Plan") permitted the grant of
non-statutory options and stock-based awards up to a total of 7.3 million shares
of common stock. Under the Award Plan, the exercise price and vesting schedule
for options was determined by the compensation and stock option committee of the
Board, which was established to administer the Award Plan. Generally, options
vested over a three year period and had an exercise price of not less than the
fair market value of a share on the date the option was granted or have a term
greater than ten years. In May 2000, the Company's stockholders approved certain
amendments to the Award Plan, including permitting non-employee directors to be
eligible for option grants under the Award Plan.

The Company also had a Stock Plan for Non-Employee Directors (the "Director
Plan") which provided for the grant of the options up to a total of 100,000


                                      F-39
<PAGE>

shares of common stock. Effective March 25, 1999, Directors received an initial
option to purchase 5,000 shares of common stock, with annual option grants to
purchase 2,500 shares of common stock. In addition, the Board was allowed to
grant discretionary options at such time and on such terms and conditions as it
deemed appropriate. Options under the Director Plan were excercisable at a price
equal to the fair market value of the stock on the date of grant and were fully
vested and immediately excercisable on the date of grant. Each Director Plan
option expired on the earlier of (i) ten years from the date of grant or (ii)
seven months after the Director's termination.

In January 1998, the Board granted restricted stock to certain members of senior
management. These grants included both a three year vesting schedule as well as
specific corporate performance targets. The Company did not record any
compensation expense associated with these shares during 1999 or 2000 however in
January 2001, in recognition of employee services in entering into the second
MSV transaction, the Board lifted the remaining restrictions, and the shares
were released upon vesting. Accordingly, the Company recorded compensation
expense in the amount of $1.4 million in 2001 associated with the vesting of
these shares.

On September 25, 2001, the Company issued approximately 3.2 million shares of
restricted stock to employees, with a price on the date of issuance of $0.13 per
share, in exchange for approximately 4.3 million outstanding employee stock
options, which were cancelled. With the exception of restricted stock issued to
an employee terminated on September 26, 2001, which shares vested immediately
based on the terminated employees' then-vested exchanged options, all other
shares of restricted stock issued on September 25, 2001 were subject to a six
month holding period, at which time the shares of restricted stock vested in
accordance with the vesting schedule of the options for which the restricted
stock was exchanged. The Company recorded a deferred compensation charge as of
December 31, 2001 in the amount of $419,000 associated with the issuance of
these shares. This compensation was charged expense over the employees' service
period.

All of the above mentioned plans and the respective authorized and issued stock
options were cancelled as part of the Company's reorganization on May 1, 2002.

In May 2002, the Company's Board approved the 2002 Stock Option Plan with
2,993,024 authorized shares of common stock, of which options to purchase
1,757,513 shares of the Company's common stock were outstanding at December 31,
2003. The plan was approved by the Company's stockholders on July 11, 2002. The
2002 options are subject to vesting in two parts - 50% of the shares vest in
three equal parts on the first, second and third anniversary of the date of
grant, and the other 50% vest in three equal parts, or are rescinded, based on a
comparison of the Company's performance in 2002, 2003, and 2004 to certain
objectives established by the compensation and stock option committee of the
Board following the availability of the annual results. A portion of the options
granted under the 2002 Stock Option Plan have a performance-based component.
These options will be accounted for in accordance with variable plan accounting,
which requires that the value of these options are measured at their intrinsic
value and any change in that value be charged to the income statement upon the
determination that the fulfillment of the performance criteria is probable. The
other options were previously accounted for as a fixed plan and in accordance
with intrinsic value accounting, which require that the excess of the market
price of stock over the exercise price of the options, if any, at the time that
both the exercise price and the number of options are known be recorded as
deferred compensation and amortized over the option vesting period.

                                      F-40
<PAGE>

In March 2003, the Company's board of directors approved the reduction in the
exercise price of all of the outstanding stock options from $5.00 per share to
$3.00 per share. The re-pricing requires that all options be accounted for in
accordance with variable plan accounting, which requires that the value of these
options are measured at their intrinsic value and any change in that value be
charged to the income statement each quarter based on the difference (if any)
between the intrinsic value and the then-current market value of the common
stock.

In July and September 2003, the compensation and stock option committee of the
Company's Board, acting pursuant to the Company's 2002 stock option plan,
granted 26 employees and officers options to purchase an aggregate of 470,000
shares of the Company's common stock at a price of $5.15 per share and 25,000
shares of the Company's common stock at a price of $5.65 per share. One-half of
each option grant vests with the passage of time and the continued employment of
the recipient, in three equal increments, on the first, second and third
anniversary of the date of grant. The other half of each grant will either vest
or be rescinded based on the performance of the Company in 2004. If vested and
not exercised, the options will expire on the 10th anniversary of the date of
grant.

Information regarding the Company's stock option plan is summarized below:

<TABLE>
<CAPTION>
                                                             Restricted
                                                             Stock and                                Weighted
                                                              Options         Options Granted          Average
                                                             Available             and              Option Price
                                                             For Grant         Outstanding           Per Share
                                                             ---------         -----------           ---------
<S>                                                         <C>                <C>                    <C>
   Predecessor Company
   -------------------
   Balance, December 31, 2000                                2,194,432          3,920,605              $11.65
      Options granted                                       (1,274,336)         1,274,336                5.88
      Restricted stock granted                              (3,219,236)                --                  --
      Restricted stock cancelled                                88,200                 --                  --
      Exercised                                                     --             (2,015)               0.68
      Forfeited                                              4,799,573         (4,799,573)              10.28
                                                             ---------         ----------
   Balance, December 31, 2001                                2,588,633            393,353                9.65
      MTNT Restricted stock and options available for
      grant cancelled                                       (2,588,633)          (393,353)
                                                             ---------         ----------
   Balance, April 30, 2002 (Predecessor Company)                    --                 --                  --

   --------------------------------------------------------------------------------------------------------------

   Successor Company
   -----------------
      Reorganized MNCP shares authorized for grant           2,993,024                 --                5.00(1)
      MNCP options granted                                  (2,244,250)         2,244,250                  --
      Exercised                                                                                          5.00
      Forfeited                                                     --                 --                5.00
   Balance, December 31, 2002                                  613,225           (613,225)
                                                             ---------         ----------
                                                             1,361,999         1,631,025
      Options granted                                         (495,000)           495,000                5.18
      Exercised                                                 15,412            (15,412)               3.00
      Forfeited                                                353,100           (353,100)               3.02
                                                             ---------         ----------
   Balance, December 31, 2003                                1,235,511          1,757,513
</TABLE>

         (1)  In March 2003, our board of directors approved the reduction in
              the exercise price of all of the outstanding stock options from
              $5.00 per share to $3.00 per share.

Options exercisable at December 31:

                                                         Average
                                     Options         Exercise Price
                                     -------         --------------
                      2003            437,266            $3.00
                      2002                  0             N/A
                      2001            231,844           $10.08



                                      F-41
<PAGE>


Exercise prices for options outstanding as of December 31, 2003, were as
follows:
<TABLE>
<CAPTION>

                                          Options Outstanding                          Options Exercisable
                                          -------------------                          -------------------

                               Number            Weighted                            Number
                             Outstanding          Average          Weighted        Exercisable        Weighted
                                as of           Contractual        Average            as of           Average
Range of                    December 31,           Life            Exercise       December 31,        Exercise
Exercise Prices                 2003             Remaining          Price             2003             Price
---------------                 ----             ---------          -----             ----             -----

<S>      <C>                  <C>                 <C>                 <C>            <C>               <C>
          $5.00(1)            1,265,513           9 years             $3.00          426,289           $3.00
          $5.15                 467,000          10 years             $5.15            ---             $5.15
          $5.65                  25,000          10 years             $5.65            ---             $5.65
</TABLE>

(1)  In March 2003, our board of directors approved the reduction in the
     exercise price of all of the outstanding stock options from $5.00 per share
     to $3.00 per share.

7.  INCOME TAXES

The following is a summary of the Company's net deferred tax assets.

<TABLE>
<CAPTION>
                                                                                         Successor Company
                                                                                         -----------------
                                                                                            December 31,
                                                                                         2003         2002
                                                                                         ----         ----
                                                                                           (in thousands)
<S>                                                                                         <C>          <C>
   Net Operating Loss Carryforwards                                                  $ 165,933     $ 148,699
   Deferred Taxes Related to Temporary Differences:
      Tangible asset bases, lives and depreciation methods                             (11,000)      (13,736)
      Other                                                                             (8,515)      (13,518)
                                                                                     ---------     ---------
        Total deferred tax asset, net                                                  146,418       121,445
   Less valuation allowance                                                           (146,418)     (121,445)
                                                                                     ---------     ---------
   Net deferred tax asset                                                            $      --     $      --
                                                                                     =========     =========
   </TABLE>

Potential tax benefits, related to net operating losses and temporary
differences, have been recorded as an asset, and a valuation allowance for the
same amount has been established. The Company has paid no income taxes since
inception.

As of December 31, 2003 and 2002, the Company had estimated net operating loss
carryforwards ("NOLs") of $412 million and $370 million, respectively. In April
2002, due to the debt restructuring and reorganization, the Company has
triggered a change of control, which has limited the availability and
utilization of the NOLs. The Company's NOL's expire between 2004 and 2024.

                                      F-42
<PAGE>

8.  DEBT & CAPITAL LEASES

Debt and capital leases consists of the following:
<TABLE>
<CAPTION>

                                                                  December 31,
                                                                  ------------
                                                                2003          2002
                                                                ----          ----
                                                                  (in thousands)
<S>                                                            <C>         <C>
   Rare Medium note payable, including accrued interest        $22,016     $20,148
   CSFB note payable, including accrued interest                   869         795
   Term Credit Facility                                          4,914          --
   Vendor financing, including accrued interest                  4,814       5,947
   Capital leases                                                3,096       6,250
                                                               -------     -------
                                                                35,709      33,140
   Less current maturities                                       3,867       4,051
                                                               -------     -------
   Long-term debt                                              $31,842     $29,089
                                                               =======     =======
</TABLE>

The following table reflects the maturity of our various obligations over the
next five years:
<TABLE>
<CAPTION>
                                                                                 Less then
                                                                  Total           1 year         1-4 years       After 5 years
                                                                  -----           ------         ---------       -------------
(in thousands)
<S>                                                               <C>              <C>             <C>               <C>
Operating leases (1)                                              $33,685          $12,170         $19,031           $2,484
Capital lease obligations, including interest thereon (1)           3,504            1,752           1,752              ---
Notes Payables (2)                                                 22,885              ---          22,885              ---
Term Credit Facility                                                4,914              ---           4,914              ---
Vendor financing commitment and note payable (1)                    4,814            2,413           2,401              ---
                                                                    -----            -----           -----              ---
  Total Contractual Cash Obligations                              $69,802          $16,335         $50,983           $2,484
                                                                  =======          =======         =======           ======
</TABLE>

(1) These commitments generally contain provisions that provide for an
acceleration of rent upon a default by us, except that certain long-term real
estate leases, categorized as Operating Leases, may not contain such provisions.

(2) In addition to being accelerable upon default, notes payable to Rare Medium
and CSFB, which comprise approximately $21 million of this amount, must be
prepaid with 25% of the proceeds due from any repayment of the $15 million
principal note issued to Motient by MSV.

Term Credit Facility

On January 27, 2003, the Company's wholly-owned subsidiary, Motient
Communications, closed a $12.5 million term credit agreement with a group of
lenders, including several of the Company's existing stockholders. The lenders
include the following entities or their affiliates: M&E Advisors, L.L.C., Bay
Harbour Partners, York Capital and Lampe Conway & Co. York Capital is affiliated
with JGD Management Corp. and James G. Dinan. JGD Management Corp., James G.
Dinan, James D. Dondero and Highland Capital Management each hold 5% or more of
Motient's common stock. The lenders also include Gary Singer, directly or
through one or more entities. Gary Singer is the brother of Steven G. Singer,
one of our directors.

The table below shows, as of June 24, 2004 the number of shares of Motient
common stock beneficially owned by the following parties to the term credit
agreement, based solely on filings made by such parties with the SEC:

                                      F-43
<PAGE>



         Name of Beneficial Owner           Number of Shares
         ------------------------           ----------------
         James G. Dinan*                        2,276,445
         JGD Management Corp.*                  2,276,445
         Highland Capital Management**          4,424,559
         James Dondero**                        4,424,559

         *JGD Management Corp and James G. Dinan share beneficial ownership with
         respect to the 2,276,445 shares of our common stock. Mr. Dinan is the
         president and sole stockholder of JGD Management Corp, which manages
         the other funds and accounts that hold our common stock over which Mr.
         Dinan has discretionary investment authority.
         ** James D. Dondero, a member of our board of directors, is the
         President of Highland Capital Management, L.P., which, pursuant to an
         arrangement with M&E Advisors, L.L.C., has indirectly made a
         commitment under the credit facility.

Under the credit agreement, the lenders have made commitments to lend Motient
Communications up to $12.5 million. The commitments are not revolving in nature
and amounts repaid or prepaid may not be reborrowed. Borrowing availability
under Motient's term credit facility terminated on December 31, 2003. On March
16, 2004, Motient Communications entered into an amendment to the credit
facility which extended the borrowing availability period until December 31,
2004. As part of this amendment, Motient Communications provided the lenders
with a pledge of all of the stock of a newly-formed special purpose subsidiary
of Motient Communications, Motient License, which holds all of Motient's FCC
licenses formerly held by Motient Communications.

Under this facility, the lenders have agreed to make loans to Motient
Communications through December 31, 2004 upon Motient Communications' request no
more often than once per month, in aggregate principal amounts not to exceed
$1.5 million for any single loan, and subject to satisfaction of other
conditions to borrowing, including certain financial and operating covenants,
contained in the credit agreement. As of April 1, 2004, the Company had borrowed
$6.0 million under this facility, all of which has since been repaid and may not
be re-borrowed.

Each loan borrowed under the credit agreement has a term of three years. Loans
carry interest at 12% per annum. Interest accrues, compounding annually, from
the first day of each loan term, and all accrued interest is payable at each
respective loan maturity, or, in the case of mandatory or voluntary prepayment,
at the point at which the respective loan principal is repaid. Loans may be
prepaid at any time without penalty.

The obligations of Motient Communications under the credit agreement are secured
by a pledge of all the assets owned by Motient Communications that can be
pledged as security (including, but not limited to Motient Communication's
shares in Motient License). Motient Communications owns, directly or indirectly,
all of the Company's assets relating to its terrestrial wireless communications
business. In addition, Motient and its wholly-owned subsidiary, Motient Holdings
Inc., have guaranteed Motient Communications' obligations under the credit
agreement, and the Company has delivered a pledge of the stock of Motient
Holdings Inc., Motient Communications, Motient Services and Motient License to
the lenders. In addition, upon the repayment in full of the outstanding
$19,750,000 in senior notes due 2005 issued by MVH Holdings Inc. to Rare Medium
and CSFB in connection with the Company's approved Plan of Reorganization, the


                                      F-44
<PAGE>

Company will pledge the stock of MVH Holdings Inc. to the lenders. On January
27, 2003, in connection with the signing of the credit agreement, Motient issued
warrants at closing to the lenders to purchase, in the aggregate, 3,125,000
shares of its common stock. The exercise price for these warrants is $1.06 per
share. The warrants were immediately exercisable upon issuance and have a term
of five years. The warrants were valued at $10 million using a Black-Scholes
pricing model and have been recorded as a debt discount and are being amortized
as additional interest expense over three years, the term of the related debt.
Upon closing of the credit agreement, the Company paid closing and commitment
fees to the lenders of $500,000. These fees have been recorded on the Company's
balance sheet and are being amortized as additional interest expense over three
years, the term of the related debt. Under the credit agreement, the Company
must pay an annual commitment fee of 1.25% of the daily average of undrawn
amounts of the aggregate commitments from the period from the closing date to
December 31, 2003. In December 2003, the Company paid the lenders a commitment
fee of approximately $113,000.


In each of April, June and August 2003 and March of 2004, the Company made draws
under the credit agreement in the amount of $1.5 million for an aggregate amount
of $6.0 million, each of which would have been due three years from the date of
the draw, if not earlier repaid. The Company used such funds to fund general
working capital requirements of operations.


For the monthly periods ended April 2003 through December 2003, the Company
reported events of default under the terms of the credit facility to the
lenders. These events of default related to non-compliance with covenants
requiring minimum monthly revenue, earnings before interest, taxes and
depreciation and amortization and free cash flow performance. In each period,
the lenders waived these events of default. There can be no assurance that
Motient will not have to report additional events of default or that the lenders
will continue to provide waivers in such event. Ultimately, there can be no
assurances that the liquidity provided by the credit facility will be sufficient
to fund Motient's ongoing operations.

For further information about amendments to and repayments of amounts due and
owing under this Credit Agreement, please see Note 16 ("Subsequent Events").

$335 Million Unit Offering

On March 31, 1998, Motient Holdings Inc., a wholly-owned subsidiary of Motient,
issued $335 million of Units (the "Units") consisting of 12 1/4% Senior Notes
due 2008 (the "Senior Notes"), and one warrant to purchase 3.75749 shares of
common stock of the Company for each $1,000 principal amount of Senior Notes
(the "Warrants") at an exercise price of $12.51 per share. The Warrants were
valued at $8.5 million and were recorded as a debt discount. A portion of the
net proceeds of the sale of the Units were used to finance the Motient
Communications acquisition in 1998. In connection with the Senior Notes, Motient
Holdings Inc. purchased approximately $112.3 million of restricted investments
that were restricted for the payment of the first six interest payments on the
Senior Notes. Interest payments are due semi-annually, in arrears, beginning
October 1, 1998. As a result of the automatic application of certain adjustment
provisions following the issuance of 7.0 million shares of common stock in a
public offering in 1999, the exercise price of the warrants associated with the
Senior Notes was reduced to $12.28 per share, the number of shares per warrant


                                      F-45
<PAGE>

was increased to 3.83 shares for each $1,000 principal amount of Senior Notes,
and the aggregate number of shares issuable upon exercise of such warrants was
increased by 24,294. The additional Senior Note warrants and re-pricing were
valued at $440,000. This was recorded as additional debt discount in the third
quarter of 1999. The Senior Notes were jointly and severally guaranteed on a
full and unconditional basis by Motient Corporation and all of its subsidiaries.

The Company failed to make a semi-annual interest payment due October 1, 2001,
which failure constituted an event of default under the Senior Notes. As a
result of the Company's failure to make the required semi-annual interest
payment, the missed interest payment accrued interest at the annual rate of
13.25%. As a result of this event of default, the Company classified the Senior
Notes as current liabilities in the Consolidated Balance Sheet as of December
31, 2001.
As discussed above (please see Note 2, "Significant Accounting Policies"), as
part of the Company's Plan of Reorganization, the Senior Notes, including
accrued interest thereon, and related warrants were exchanged in full for new
equity of the reorganized Company.

Rare Medium Notes

In 2001, Motient issued two notes to Rare Medium in the aggregate principal
amount of $50 million, at 12.5% annual interest. These notes were collateralized
by five million of the Company's XM Radio shares. On October 12, 2001, in
accordance with the terms of the notes, the Company exchanged $26.2 million of
the Rare Medium notes, representing $23.8 million in principal and $2.4 million
of accrued interest, for five million of its XM Radio shares. The $26.9 million
of principal and accrued interest remaining outstanding at December 31, 2001 was
unsecured.

As a result of the delivery of the shares of XM Radio common stock described
above (see Note 13, "Business Acquisitions and Dispositions"), the maturity of
the Rare Medium notes was accelerated to November 19, 2001. As of December 31,
2001, the Rare Medium notes were in default; and, therefore, the Company
classified the Rare Medium notes as current liabilities in the Consolidated
Balance Sheet as of December 31, 2001.

Under the Company's Plan of Reorganization, the Rare Medium notes were cancelled
and replaced by a new note in the principal amount of $19.0 million. The new
note was issued by a new subsidiary of Motient Corporation that owns 100% of
Motient Ventures Holding Inc., which owns all of the Company's interests in MSV.
The new note has a term of three years and carries interest at 9%. The note
allows the Company to elect to accrue interest and add it to the principal,
instead of paying interest in cash. The note requires that it be prepaid using
25% of the proceeds of any repayment of the $15 million note receivable from
MSV.

In April 2004, the Company made certain payments on the Rare Medium Note, please
see "Subsequent Events - Developments Relating to MSV".

CSFB Note

Under the Company's Plan of Reorganization, the Company issued a note to CSFB,
in satisfaction of certain claims by CSFB against Motient, in the principal
amount of $750,000. The new note was issued by a new subsidiary of Motient


                                      F-46
<PAGE>

Corporation that owns 100% of Motient Ventures Holding Inc., which owns all of
the Company's interests in MSV. The new note has a term of three years and
carries interest at 9%. The note allows the Company to elect to accrue interest
and add it to the principal, instead of paying interest in cash. The note
requires that it be prepaid using 25% of the proceeds of any repayment of the
$15 million note receivable from MSV.

In April 2004, the Company made certain payments on the CSFB Note, please see
"Subsequent Events - Development Relating to MSV".

Bank Financing

In March 1998, the Company entered into a $200 million bank financing (the "Bank
Financing") consisting of two facilities: (i) the revolving credit facility
("Revolving Credit Facility"), a $100 million unsecured five-year reducing
revolving credit facility maturing March 31, 2003, and (ii) the term loan
facility ("Term Loan Facility"), a $100 million five-year, term loan facility
with up to three additional one-year extensions subject to the lenders'
approval. In 1999, the Term Loan Facility was reduced to $41 million. In 2000,
the Term Loan Facility was reduced to $40 million, and the Revolving Credit
Facility was reduced to $71.3 million. During 2001, the Bank Financing was
completely extinguished.

The Term Loan Facility

The Term Loan Facility bore an interest rate, generally, of 100 basis points
above London Interbank Offered Rate ("LIBOR"). The Term Loan Agreement did not
include any scheduled amortization until maturity, but did contain certain
provisions for prepayment based on certain proceeds received by the Company,
unless otherwise waived by the banks and the Bank Facility Guarantors (as
defined below). During 2001, the Term Loan Facility was completely extinguished.

The Revolving Credit Facility

The Revolving Credit Facility bore an interest rate, generally, of 100 basis
points above LIBOR and was unsecured, with a negative pledge on the assets of
Motient Holdings and its subsidiaries and ranked pari passu with the Senior
Notes. Certain proceeds received by Motient Holdings were required to repay and
reduce the Revolving Credit Facility, unless otherwise waived by the banks and
the Bank Facility Guarantors (as defined below). During 2001, the Revolving
Credit Facility was completely extinguished.

The Guarantees

In connection with the Bank Financing, Hughes Electronics Corporation, Singapore
Telecommunications, Ltd. and Baron Capital Partners, L.P. (collectively, the
"Bank Facility Guarantors"), extended separate guarantees of the obligations of
each of Motient Holdings and the Company to the banks, which on a several basis
aggregated to $200 million. In their agreement with each of Motient Holdings and
the Company (the "Guarantee Issuance Agreement"), the Bank Facility Guarantors


                                      F-47
<PAGE>

agreed to make their guarantees available for the Bank Financing. In exchange
for the additional risks undertaken by the Bank Facility Guarantors in
connection with the Bank Financing, the Company agreed to compensate the Bank
Facility Guarantors, principally in the form of one million additional warrants
and re-pricing of 5.5 million warrants previously issued in connection with the
original Bank Facility (together, the "Guarantee Warrants"). The Guarantee
Warrants were issued with an exercise price of $12.51 and were valued at
approximately $17.7 million. The amounts initially assigned to the Guarantee
Warrants and subsequent repricings are recorded as Common Stock Purchase
Warrants and Unamortized Guarantee Warrants in the accompanying consolidated
balance sheets. The amount assigned to Unamortized Guarantee Warrants was
amortized to interest expense over the life of the related debt. On March 29,
1999, the Bank Facility Guarantors agreed to eliminate certain covenants
contained in the Guarantee Issuance Agreement relating to earnings before
interest, depreciation, amortization and taxes and service revenue. In exchange
for this elimination of covenants, the Company agreed to re-price their
Guarantee Warrants, effective April 1,1999, from $12.51 to $7.50. The value of
the re-pricing was approximately $1.5 million.

As a result of the automatic application of certain adjustment provisions
following the issuance of the 7.0 million shares in the August 1999 public
offering, the exercise price of the Guarantee Warrants was reduced to $7.3571
per share and the Guarantee Warrants became exercisable for an additional
126,250 shares. The additional Guarantee Warrants and re-pricing were valued at
$2.4 million. Additionally, in June 2000, the Bank Facility Guarantors agreed to
partially reduce the debt repayment requirements associated with the MSV
transaction. In exchange, the Company further reduced the price of the Guarantee
Warrants to $6.25, which was valued at $1.4 million. In 2001, the Bank Facility
Guarantors agreed to waive certain repayment obligations under the Bank
Financing. In exchange for these waivers, the Company re-priced the warrants
held by certain of the Bank Facility Guarantors from $6.25 to $1.31 per share,
and issued new warrants to one Bank Facility Guarantor with an exercise price of
$1.31 per share. The value of the re-pricing and warrant issuance was $2.3
million.

Further, in connection with the Guarantee Issuance Agreement, the Company had
agreed to reimburse the Bank Facility Guarantors in the event that the
Guarantors were required to make payment under the Bank Financing guarantees,
and, in connection with this reimbursement commitment it provided the Bank
Facility Guarantors a junior security interest with respect to the assets of the
Company, principally its stockholdings in XM Radio and Motient Holdings.

Debt Extinguishments

In 1999, the Company raised $116 million, net of underwriting discounts and
expenses, through the issuance of 7.0 million shares of common stock in a public
offering. Of the net proceeds, Motient used $59 million to pay down a portion of
the Term Loan Facility. In 2000, the Company paid down and permanently reduced
the Term Loan Facility by an additional $1 million with proceeds from stock and
warrant exercises, and the Revolving Credit Facility was permanently reduced by
$22.8 million with a portion of the proceeds of the MSV and Aether transactions.
In 2001, the Company sold 2.0 million shares of XM Radio stock and used $8.5
million of the proceeds to permanently reduce the Term Loan Facility.
Additionally, $12.25 million of proceeds from the Rare Medium note were used to
pay down and permanently reduce the Term Loan Facility.

                                      F-48
<PAGE>

On November 6, 2001, the agent for the bank lenders under the Bank Financing
declared all loans under the Bank Financing immediately due and payable, due to
the existence of several events of default under the Bank Financing. On the same
date, the bank lenders sought payment in full from the Bank Financing Guarantors
for the accelerated loan obligations. The Bank Facility Guarantors repaid all
such loans on November 14, 2001 in the amount of approximately $97.6 million. As
a result, the Company had a reimbursement obligation to the Bank Guarantors in
the amount of $97.6 million, which included accrued interest and fees. On
November 19, 2001, the Company sold 500,000 shares of its XM Radio common stock
through a broker for $9.50 per share, for aggregate proceeds of $4.75 million.
The net proceeds from this sale were paid to the Bank Facility Guarantors,
thereby reducing the amount of the Company's reimbursement obligation to the
Bank Facility Guarantors by such amount. Also on November 19, 2001, the Company
delivered all of its remaining 9,257,262 shares of XM Radio common stock to the
Bank Facility Guarantors in full satisfaction of the entire remaining amount of
its reimbursement obligations to the Bank Facility Guarantors. Upon delivery of
these shares, the Bank Facility Guarantors released the Company from all of its
remaining obligations to the Bank Facility Guarantors under the Bank Financing
and the related guarantees and reimbursement and security agreements. The
Company delivered 7,108,184 shares to Hughes Electronics Corporation, 964,640
shares to Singapore Telecommunications, Ltd., and 1,184,438 shares to Baron
Capital Partners, L.P.

As a result of the permanent reductions of the Term Facility and the Revolving
Credit Facility, the Company recorded a loss on extinguishment of debt of
approximately $1.2 million in 2001 and $3.0 million in 2000, which reflects the
write-down, on a pro-rata basis, of unamortized guarantee warrants and deferred
financing fees associated with the placement of the Bank Financing.

Interest Rate Swap Agreement

In connection with the Bank Financing in March 1998, the Company entered into an
interest rate swap agreement, with an implied annual rate of 6.51%. The swap
agreement reduced the impact of interest rate increases on the Term Loan
Facility. The Company paid a fixed fee of approximately $17.9 million for the
swap agreement. In return, the counter-party was obligated to pay a variable
rate equal to LIBOR plus 50 basis points, paid on a quarterly basis directly to
the respective banks on behalf of the Company, on a notional amount of $100
million until the termination date of March 31, 2001. In connection with the pay
down of a portion of the Term Loan Facility during 1999, the Company reduced the
notional amount of its swap agreement from $100 million to $41 million and
realized net proceeds of approximately $6 million due to early termination of a
portion of the swap agreement. The interest rate swap agreement expired in March
2001.

                                      F-49
<PAGE>

Motorola Vendor Financing

In June 1998, Motorola had entered into an agreement with the Company to provide
up to $15 million of vendor financing, to finance up to 75% of the purchase
price of network base stations. Loans under this facility bear interest at a
rate equal to LIBOR plus 7.0% and are guaranteed by the Company and each
subsidiary of Motient Holdings. The terms of the facility require that amounts
borrowed be secured by the equipment purchased therewith. Advances made during a
quarter constitute a loan, which is then amortized on a quarterly basis over
three years. As of December 31, 2003, $4.8 million was outstanding, including
accrued interest, under this facility at an interest rate of 5.4%. As of
December 31, 2002, $5.9 million was outstanding, including accrued interest,
under this facility at an interest rate of 9%. No additional amounts are
available for borrowing under this facility. In January 2003 and subsequently in
March 2004, the Company restructured this liability. In June 2004, the Company
negotiated a settlement of the entire amounts of these obligations. Please see
Note 16, ("Subsequent Events") for additional information.

Hewlett-Packard Capital Lease

The Company has a capital lease for network equipment with Hewlett-Packard, now
Compaq Corporation. The lease has an effective interest rate of 12.2%. This
capital lease was in default for non-payment at December 31, 2002, however, in
January 2003, this agreement was restructured to provide for a modified payment
schedule. In June 2004, the Company negotiated a settlement of the entire
amounts under this lease. Please see Note 16, ("Subsequent Events") for
additional information.

Assets Pledged and Secured

Prior to the Company's reorganization in May 2002, all wholly-owned subsidiaries
of the Company were subject to financing agreements that limited the amount of
cash dividends and loans that could be advanced to the Company. At December 31,
2001, all of the subsidiaries' net assets were restricted under these
agreements. At December 31, 2003 and 2002, the Company was subject to financing
agreements with Rare Medium, CSFB, Motorola and Hewlett-Packard that continued
to limit the amount of cash dividends and loans that could be advanced to the
Company. The Company's term credit facility that also restricts the Company's
ability to pay cash dividends and receive additional loans that could be
advanced to the Company. These restrictions will have an impact on Motient's
ability to pay dividends. Please see Note 16, "Subsequent Events" for additional
information on payment and settlement of certain of those obligations.

Restricted net assets of the Company's subsidiaries were approximately $35.7
million and $33.1 million at December 31, 2003 and December 31, 2002
respectively.

Covenants

The Company's historical and current debt agreements contain various
restrictions, covenants, defaults, and requirements customarily found in such
financing agreements. Among other restrictions, these provisions include
limitations on cash dividends, restrictions on transactions between Motient and
its subsidiaries, restrictions on capital acquisitions, material adverse change
clauses, and maintenance of specified insurance policies. Please see Note 16,
"Subsequent Events" for additional information on payment and settlement of
certain of these obligations.

                                      F-50
<PAGE>

9.  RELATED PARTIES

The following table represents a summary of all related party transactions.
<TABLE>
<CAPTION>
                                                     Successor            Successor             Predecessor         Predecessor
                                                      Company              Company                Company             Company
                                                     Year Ended          Eight Months           Four Months         (Restated)
                                                    December 31,            Ended                  Ended            Year Ended
                                                        2003           December 31, 2002       April 30, 2002          2001
                                                        ----           -----------------       --------------          ----
<S>                                                    <C>                 <C>                  <C>                 <C>
Payments made to (from) related parties:
    Proceeds from the sale of assets to MSV            $     --            $     --             $     --            $(42,500)
    Operating expenses                                      258                  --                   49                 125
    Additional investment in MSV                             --                 957                   --                  --
    Funding of future sub-lease
        obligations to MSV                                   --                  --                  361               4,000
                                                       --------            --------             --------            --------
Net payments to (from) related parties                 $    258            $    957             $    410            $(38,375)
                                                       --------            --------             --------            --------

 Due to (from) related parties:
    Operating expenses                                 $    322            $   (234)            $    618            $   (521)
    Note Receivable from MSV                            (18,781)            (18,732)             (12,345)            (15,000)
                                                       --------            --------             --------            --------
 Net amounts due (from) to related parties             $(18,459)           $(18,966)            $(11,727)           $(15,521)
                                                       --------            --------             --------            --------

</TABLE>

For the year ended December 31, 2003, the four months ended April 30, 2002,
eight months ended December 31, 2002, and for the year ended December 31, 2001,
the Company recorded revenue related to the MSV research and development
agreement in the amount of $0, $0, $0 and $2.6 million, respectively.

Communication Technology Advisors LLC

In May 2002, the Company entered into a consulting agreement with Communication
Technology Advisors LLC ("CTA") under which CTA provided consulting services to
the Company. CTA's chairman, Jared E. Abbruzzese, was a director of the Company
until June 20, 2003. Peter Aquino, elected to the Company's Board on June 20,
2003, is a senior managing director of CTA. Gerry S. Kittner, also a Motient
director, is an advisor and consultant for CTA.

CTA is a consulting and private advisory firm specializing in the technology and
telecommunications sectors. The Company's agreement with CTA had an initial term
of three months ending August 15, 2002, and was extended by mutual agreement for
several additional terms of two or three months each. For the first three months
of the agreement, CTA was paid a flat fee of $60,000 per month, and for the
period August 2002 to May 2003, the monthly fee was $55,000. Beginning in May
2003, the monthly fee was reduced to $39,000. The Company also agreed to
reimburse CTA for CTA's out-of-pocket expenses incurred in connection with
rendering services during the term of the agreement. This agreement was modified
on January 30, 2004.

                                      F-51
<PAGE>

CTA had previously acted as the spectrum and technology advisor to the official
committee of unsecured creditors in connection with the Company's Chapter 11
case. CTA received a total of $475,000 in fees for such advice and was
reimbursed a total of $4,896 for expenses in connection with the rendering of
such advice.

Except for the warrant offered to CTA described below and the warrants granted
to certain members of CTA in connection with the private placement of the
Company's common stock on April 7, 2004, neither CTA, nor any of its principals
or affiliates is a stockholder of Motient, nor does it hold any debt of Motient
(other than indebtedness as a result of consulting fees and expense
reimbursement owed to CTA in the ordinary course under the Company's existing
agreement with CTA). CTA has informed the Company that in connection with the
conduct of its business in the ordinary course, (i) it routinely advises clients
in and appears in restructuring cases involving telecommunications companies
throughout the country, and (ii) certain of the Company's stockholders and
bondholders and/or certain of their respective affiliates or principals, may be
considered to be (a) current clients of CTA in matters unrelated to Motient; (b)
former clients of CTA in matters unrelated to Motient; and (c) separate
affiliates of clients who are (or were) represented by CTA in matters unrelated
to Motient.

In July 2002, the Company's Board approved the offer and sale to CTA (or
affiliates thereof) of a warrant (or warrants) for 500,000 shares of the
Company's common stock, for an aggregate purchase price of $25,000. The warrant
has an exercise price of $3.00 per share and a term of five years. These
warrants were valued at $1.5 million and were recorded as a consultant
compensation expense in December of 2002. Certain affiliates of CTA purchased
the warrants in December 2002. Christopher W. Downie received a warrant for
100,000 of the 500,000 shares.

In November 2003, CTA was engaged to provide valuation of Motient's equity
interest in MSV as of December 31, 2002. CTA was paid $150,000 for this
valuation.

At December 31, 2003, CTA was owed $415,000.

On January 30, 2004, the Company engaged CTA to act as chief restructuring
entity. The term of CTA's engagement is currently scheduled to end on August 1,
2004. As consideration for this work, Motient agreed to pay to CTA a monthly fee
of $60,000, one-half of which will be paid monthly in cash and one-half of which
will deferred. The new agreement amends the consulting arrangement discussed
above. In April 2004, Motient paid CTA $440,000 for all past deferred fees.

In April 2004 and July 2004, certain members of CTA were granted warrants to
purchase 400,000 shares and 340,000 shares, respectively, of common stock in
conjunction with the private placements of the Company's common stock on April
7, 2004 and July 1, 2004. The warrants have an exercise price of $5.50 and $8.57
per share, respectively, and a term of five years.

                                      F-52
<PAGE>

Mr. Abbruzzese, Mr. Kittner and Mr. Aquino did not participate in the
deliberations or vote of the Board with respect to the foregoing matters while
serving as a member of the Board.

10.  LEASES

Capital Leases

The Company leases certain office equipment and switching equipment under
agreements accounted for as capital leases. Assets recorded as capital leases in
the accompanying balance sheets include the following:

                                                        Successor Company
                                                        -----------------

                                                            December 31,
                                                         2003        2002
                                                         ----        ----
                                                          (in thousands)
 Switch equipment                                       $ 9,795    $ 9,795
 Office equipment                                            --      2,501
 Less accumulated depreciation                           (5,280)    (5,669)
                                                        -------    -------
    Total                                               $ 4,515    $ 6,627
                                                        =======    =======

Subsequent to the end of the period covered by this report, the Company
restructured certain of its existing lease obligations. Please see Note 16
("Subsequent Events").

Operating Leases

The Company leases substantially all of its base station sites through operating
leases. The majority of these leases provide for renewal options for various
periods at their fair rental value at the time of renewal. In the normal course
of business, the operating leases are generally renewed or replaced by other
leases. Additionally, the Company leases certain facilities and equipment under
arrangements accounted for as operating leases. Certain of these arrangements
have renewal terms. Total rent expense, under all operating leases, approximated
$15.2 million for the year ended December 31, 2003, $10.5 million for the eight
months ended December 31, 2002, $5.6 million for the four months ended April 30,
2002, and $13.4 million in for the year ended December 31 2001.


                                      F-53
<PAGE>


At December 31, 2003, minimum future lease payments under noncancelable
operating and capital leases are as follows:

<TABLE>
<CAPTION>
                                                                      Operating          Capital
                                                                      ---------          -------
                                                                            (in thousands)
<S>      <C>                                                           <C>               <C>
         2004                                                          $12,170           $1,752
         2005                                                            9,238            1,752
         2006                                                            6,089               --
         2007                                                            2,090               --
         2008 and thereafter                                             4,098               --
                                                                       -------               --
         Total                                                         $33,685            3,504
                                                                       -------            -----
         Less: Interest                                                                    (408)
                                                                                          -----
         Present value of minimum lease payments                                         $3,096
            Less: Current maturities, including those amounts
                 deemed to be in default                                                 (1,454)
                                                                                         ------
         Non current capital lease obligation                                            $1,642
                                                                                         ------

</TABLE>

11.  COMMITMENTS AND CONTINGENCIES

As of December 31, 2003, the Company had no contractual inventory commitments.

UPS, the Company's largest customer as of December 31, 2002, has substantially
completed its migration to next generation network technology, and its monthly
airtime usage of the Company's network has declined significantly. UPS was our
second largest customer for the twelve months ended December 31, 2003 and our
eighth largest customer for the three months ended December 31, 2003. There are
no minimum purchase requirements under the Company's contract with UPS and the
contract may be terminated by UPS on 30 days' notice at which point any
remaining prepayment would be require to be repaid. While the Company expects
that UPS will remain a customer for the foreseeable future, the bulk of UPS'
units have migrated to another network. As of May 31, 2004, UPS had
approximately 3,800 active units on Motient's network.

Until June 2003, UPS had voluntarily maintained its historical level of payments
to mitigate the near-term revenue and cash flow impact of its recent and
anticipated continued reduced network usage. However, beginning in July 2003,
the revenues and cash flow from UPS declined significantly. Also, due to a
separate arrangement entered into in 2002 under which UPS prepaid for network
airtime to be used by it in 2004, the Company does not expect that UPS will be
required to make any cash payments to the Company in 2004 for service to be
provided in 2004. Pursuant to such agreement, and, as of April 30, 2004, UPS has
not been required to make any cash payments to the Company in 2004, and the
value of the Company's remaining airtime service obligations to UPS in respect
of the prepayment was approximately $4.3 million. If UPS terminates the
contract, we will be required to refund any unused portion of the prepayment to
UPS.




                                      F-54
<PAGE>


As of December 31, 2003, we had the following outstanding cash contractual
commitments:
<TABLE>
                                                                                                                         More than
                                                              Total      <1 year       1-3 years       3 - 5 years        5 years
                                                              -----      -------       ---------       -----------      ----------
<S>                                                          <C>         <C>          <C>               <C>              <C>
(in thousands)
Operating leases (1)                                         $33,685     $12,170      $17,417           $1,614           $2,484
Capital lease obligations, including interest thereon (1)      3,504       1,752        1,752              ---              ---
Notes Payable (2)                                             22,885         ---       22,885              ---              ---
Term Credit Facility                                           4,914         ---        4,914              ---              ---
Equipment financing commitment (1)                             4,814       2,413        2,401              ---              ---
                                                             -------     -------      -------           ------           ------
  Total Contractual Cash Obligations                         $69,802     $16,335      $49,369           $1,614           $2,484
                                                             =======     =======      =======           ======           ======
</TABLE>

(1) These commitments generally contain provisions that provide for an
acceleration of rent upon a default by us, except that certain long-term real
estate leases, categorized as Operating Leases, may not contain such provisions.

(2) In addition to being accelerable upon default, notes payable to Rare Medium
and CSFB, which comprise approximately $21 million of this amount, must be
prepaid with 25% of the proceeds due from any repayment of the $15 million
principal note issued to Motient by MSV.

In May 2002, the FCC filed a proof of claim with the United States Bankruptcy
Court, asserting a pre-petition claim in the approximate amount of $1.0 million
in fees incurred as a result of our withdrawal from certain auctions. Under our
court-approved Plan of Reorganization, subsequent to June 30, 2002 the FCC's
claim was classified as an "other unsecured" claim, and the FCC was issued a
pro-rata portion of 97,256 shares of common stock issued to creditors with
allowed claims in such class. We recorded a $1.0 million expense in April 2002
for this claim.

At April 30 2002, we had certain contingent and/or disputed obligations under
our satellite construction contract entered into in 1995, which contained flight
performance incentives payable by us to the contractor if the satellite
performed according to the contract. Upon the implementation of the Plan of
Reorganization, this contract was terminated, and in satisfaction of all amounts
alleged to be owed by us under this contract, the contractor received a pro-rata
portion of the 97,256 shares issued to creditors holding allowed unsecured
claims. The shares were issued upon closure of the bankruptcy claims process.

12.  EMPLOYEE BENEFITS

Prior to the Company's reorganization, the Company had several active stock
plans. All of these plans and the respective authorized and issued stock options
were cancelled as part of the Company's reorganization on May 1, 2002.

Defined Contribution Plan

The Company sponsored a 401(k) defined contribution plan ("401(k) Savings Plan")
in which all employees of Motient could participate. The 401(k) Savings Plan
provided for (i) a Company match of employee contributions, in the form of
common stock, at a rate of $1 for every $1 of an employee's contribution not to
exceed 4% of an employee's eligible compensation, (ii) a discretionary annual
employer non-elective contribution, (iii) the option to have plan benefits
distributed in the form of installment payments, and (iv) the reallocation of
forfeitures, if any, to active participants. In 2001, effective January 2002,
the Company amended its 401(k) Savings Plan to make the matching contributions
discretionary, as well as to allow the match to be made in either cash or shares
of common stock, at the Company's sole discretion. The Company's matching
expense was $0.36 million for 2003, $0 for 2002 and $1.1 million for 2001.


                                      F-55
<PAGE>

During 2001, the Company authorized an additional 5,025,000 shares for the
401(k) Savings Plan, and authorized an additional 268,000 shares in January
2002. As part of Company's plan of reorganization, all of the outstanding shares
of the Company's common stock were cancelled. During 2002, the Company
authorized 200,000 shares for the 401(K) Savings Plan.

Employee Stock Purchase Plan

The Company had an Employee Stock Purchase Plan ("Stock Purchase Plan") to allow
eligible employees to purchase shares of the Company's common stock at 85% of
the lower of market value on the first and last business day of the six-month
option period. An aggregate of 217,331 shares of common stock were issued under
the Stock Purchase Plan in 2001.

Effective January 2002, the Company discontinued the Stock Purchase Plan.

2002 Stock Option Plan

The Company's 2002 stock option plan was adopted by the Board on May 31, 2002
and received stockholder approval on July 11, 2002. A total of 2,993,024 shares
of common stock have been reserved for issuance under the 2002 stock option
plan. Under the 2002 stock option plan, the Company is authorized to grant
options to purchase shares of common stock intended to qualify as incentive
stock options, as defined under section 422 of the Internal Revenue Code of
1986, as amended, and non-qualified stock options to any employees, outside
directors, consultants, advisors and individual service providers whose
participation in the 2002 stock option plan is determined by the Company's
compensation and stock option committee to be in the Company's best interests.
The term of each stock option is fixed by the Board or the compensation and
stock option committee, and each stock option is exercisable within ten years of
the original grant date. Some change of control transactions involving the
Company, such as a sale of Motient, may cause awards granted under the 2002
stock option plan to vest. Generally, an option is not transferable by the
recipient except by will or the laws of descent and distribution. As of December
31, 2003, options to purchase 2,993,024 shares of common stock had been
authorized under the 2002 stock option plan at a price of $5.00 per share, of
which options to purchase 1,757,513 shares of the Company's common stock were
outstanding at December 31, 2003. In March 2003, the Board approved the
reduction in the exercise price of all of the outstanding stock options from
$5.00 per share to $3.00 per share.

A portion of the options granted under the plan will either vest or be rescinded
based on Motient's performance. These options are accounted for in accordance
with variable plan accounting, which requires that the value of these options be
measured at their intrinsic value and any change in that value be charged to the
income statement upon the determination that the fulfillment of the Company
performance criteria is probable. The other options are accounted for as a fixed
plan and in accordance with intrinsic value accounting, which requires that the
excess of the market price of stock over the exercise price of the options, if
any, at the time that both the exercise price and the number of options are
known be recorded as deferred compensation and amortized over the option vesting
period. As of the date of grant, the option price per share was in excess of the
market price; therefore, these options are not deemed to have any value and no
expense has been recorded to date.

                                      F-56
<PAGE>

The 2002 options are subject to vesting in two parts - 50% of the shares vest in
three equal parts on the first, second and third anniversary of the date of
grant, and the other 50% vest in three equal parts, or are rescinded, based on a
comparison of the Company's performance in 2002, 2003, and 2004 to certain
objectives established by the compensation and stock option committee of the
Board following the availability of the annual results. In May 2004, the
compensation committee of the Company's Board made a determination to vest a
portion of the 2003 performance options.

In July and September 2003, the compensation and stock option committee of the
Company's Board, acting pursuant to the Company's 2002 stock option plan,
granted 26 employees and officers options to purchase an aggregate of 470,000
shares of the Company's common stock at a price of $5.15 per share and 25,000
shares of the Company's common stock at a price of $5.65 per share. One-half of
each option grant vests with the passage of time and the continued employment of
the recipient, in three equal increments, on the first, second and third
anniversary of the date of grant. The other half of each grant will either vest
or be rescinded based on the performance of the Company in 2004. If vested and
not exercised, the options will expire on the 10th anniversary of the date of
grant.

13.  BUSINESS ACQUISITIONS AND DISPOSITIONS

Sale of Retail Transportation Business to Aether

In November 2000, Motient sold assets relating to its retail transportation
business to Aether Systems, Inc. ("Aether") and received approximately $45
million. This consisted of $30 million for the assets, of which $10 million was
held in an escrow account which was subsequently released in the fourth quarter
of 2001 upon the satisfaction of certain conditions, and $15 million for a
perpetual license to use and modify any intellectual property owned by or
licensed by Motient in connection with the retail transportation business.

Motient recognized an $8.3 million gain in the fourth quarter of 2001 when the
additional $10 million of proceeds were released from escrow. The $1.7 million
difference between the proceeds received and the gain recognized is a result of
pricing modifications that were made at the time of the release of the escrow
related to network capacity agreements. Motient amortized the $15 million
perpetual license payment, as restated, over a four year period through the
adoption of "fresh-start" accounting, which represented the life of the network
airtime agreement that Motient entered into with Aether at the time of the
closing of the asset sale.

Concurrent with the closing of the asset sale, the Company and Aether entered
into two long-term, prepaid network airtime agreements valued at $20 million, of
which $5 million was paid at closing, pursuant to which Aether agreed to
purchase airtime on the Company's satellite and terrestrial networks. Aether
also became an authorized reseller of the Company's eLink and BlackBerry TM by
Motient wireless email service offerings.

                                      F-57
<PAGE>

MSV

On June 29, 2000, the Company formed a joint venture subsidiary, MSV, in which
it owned until November 26, 2001, 80% of the membership interests in order to
conduct research and development activities. The remaining 20% interests in MSV
were owned by three investors unrelated to Motient. The other investors paid $50
million to MSV (in the aggregate), in exchange for their 20% interest. Motient
Services Inc. ("Motient Services") owned the Company's satellite and related
assets.

Of the $50 million payment received by MSV, $6.0 million was retained by MSV to
fund certain research and development activities, $24 million was paid to
Motient Services as a deposit on the purchase of the satellite assets, and $20
million was also paid to Motient Services for the use of the satellite and
frequency under a research and development agreement.

On November 26, 2001, Motient sold the assets comprising its satellite
communications business to MSV, as part of a transaction in which certain other
parties joined MSV, including TMI, a Canadian satellite services provider. In
consideration for its satellite business assets, Motient Services received the
following: (i) a $24 million cash payment in June 2000, (ii) a $41 million cash
payment paid at closing on November 26, 2001, net of $4 million retained by MSV
to fund the Company's future sublease obligations to MSV for rent and utilities
through August 2003 and (iii) a five-year $15 million note. In this transaction,
TMI also contributed its satellite communications business assets to MSV. In
addition, Motient purchased a $2.5 million convertible note issued by MSV, and
certain other investors, including a subsidiary of Rare Medium, purchased a
total of $52.5 million of convertible notes. The Company realized a gain of
approximately $29.8 million on the sale of its net assets; however, 48% of the
gain, or $14.3 million, was deferred and amortized over five years through the
adoption of "fresh-start" accounting.

MSV has also filed a separate application with the FCC with respect to MSV's
plans for a new generation satellite system utilizing ancillary terrestrial base
stations. For further information on the FCC approval process, see Note 2
("Significant Accounting Policies - Investment in MSV and Notes Receivable from
MSV").

In July 2002, MSV commenced a rights offering seeking total funding in the
amount of $3.0 million. While the Company was not obligated to participate in
the offering, the Company's board determined that it was in the Company's best
interests to participate so that its interest in MSV would not be diluted. On
August 12, 2002, the Company funded an additional $957,000 to MSV pursuant to
this offering, and received a new convertible note in such amount. This rights
offering did not impact the Company's ownership position in MSV.

As of December 31, 2002, the Company had an ownership percentage, on an
undiluted basis, of approximately 48% of the common and preferred units of MSV,
and approximately 55% of the common units. Assuming that all of MSV's
outstanding convertible notes are converted into limited partnership units of
MSV, as of December 31, 2002 Motient had a 33.3% partnership interest in MSV on
an "as converted" basis giving effect to the conversion of all outstanding
convertible notes of MSV, and 25.5% on a fully-diluted basis, assuming certain
other investors exercise their right to make additional investment in MSV as a
result of the FCC ancillary terrestrial components ("ATC") application process.

                                      F-58
<PAGE>

In February 2003, the FCC adopted the ATC Order, giving mobile satellite
operators broad authority to use their assigned spectrum to operate an ATC. The
ATC Order established a set of preconditions and technical limits for ATC
operations, as well as an application process for ATC approval of the specific
system incorporating the ATCs that the licensee intends to use. On November 18,
2003, MSV filed an application with the FCC to expand the use of its L-band
spectrum and construct its next-generation hybrid network with ATC. As part of
its next-generation system, MSV intends to use its L-band spectrum, which the
FCC had previously limited to satellite-only services, for terrestrial wireless
services in conjunction with mobile satellite services.

In addition, both proponents and opponents of ATC (including MSV) have filed for
reconsideration of the ATC Order, and the opponents of ATC have filed an appeal
with the U.S. Court of Appeals for the District of Columbia Circuit. Oppositions
to the petitions for reconsideration were filed August 20, 2003; replies were
filed September 2, 2003. The Court of Appeals has held the appeal in abeyance
pending resolution of the reconsideration requests. For information regarding
recent developments involving MSV, please see Note 16 ("Subsequent Events").

On August 21, 2003, two investors in MSV (excluding Motient) invested an
additional $3.7 million in MSV in exchange for Class A preferred units of
limited partnership interests in MSV. MSV used the proceeds from this investment
to repay other indebtedness that is senior in its right of repayment to
Motient's promissory note. Under the terms of the amended and restated
investment agreement, these investors also have the option of investing an
additional $17.6 million in MSV by December 31, 2003; however, if, prior to this
time, the FCC does not issue a decision addressing MSV's petition for
reconsideration with respect to the ATC Order (as hereinafter defined), the
option will be automatically extended to March 31, 2004.

On April 2, 2004, two exiting investors in MSV invested $17.6 million in MSV in
exchange for class A preferred units of limited partnership interests of MSV. In
connection with this investment, MSV's amended and restated investment agreement
was amended to provide that of the total $17.6 million in proceeds, $5.0 million
was used to repay certain outstanding indebtedness of MSV, including $2.0
million of accrued interest under the $15.0 million promissory note issued to
Motient by MSV. Motient was required to, and paid 25% of the $2.0 million it
received in this transaction, or $500,000, to prepay its existing notes owed to
Rare Medium Group and CSFB. The remainder of the proceeds from this investment
were used for general corporate purposes by MSV. As of the closing of the
additional investment on April 2, 2004, Motient's percentage ownership of MSV
was approximately 29.5% on an "as converted" basis giving effect to the
conversion of all outstanding convertible notes of MSV.

On May 17, 2004, MSV was awarded its first patent on a next generation satellite
system technology containing an ancillary terrestrial component (ATC)
innovation. MSV believes that patent will support its ability to deploy ATC in a
way that minimizes interference to other satellite systems, and addresses ways
to mitigate residual interference levels using interference-cancellation
techniques.

                                      F-59
<PAGE>

Please see note 2, "Significant Accounting Policies- Investment in MSV and Notes
Receivable from MSV" and note 16, "Subsequent Events-Developments Relating to
MSV."

Sale of SMR Licenses to Nextel Communications, Inc.

On July 29, 2003, our wholly-owned subsidiary, Motient Communications, entered
into an asset purchase agreement with Nextel, under which Motient Communications
sold to Nextel certain of its SMR licenses issued by the FCC for $3.4 million.
The closing of this transaction occurred on November 7, 2003. On December 9,
2003, Motient Communications entered into a second asset purchase agreement,
under which Motient Communications will sell additional licenses to Nextel for
$2.75 million resulting in a $1.5 million loss which was recorded in December,
2003. In February 2004, the Company closed the sale of licenses covering
approximately $2.2 million of the purchase price, and in April 2004, the Company
closed the sale of approximately one-half of the remaining licenses. The
transfer of the other half of the remaining licenses has been challenged at the
FCC by a third-party. While the Company believes, based on the advice of
counsel, that the FCC will ultimately rule in its favor, the Company cannot be
assured that it will prevail, and, in any event, the timing of any final
resolution is uncertain. None of these licenses are necessary for Motient's
future network requirements. Motient has and expects to continue to use the
proceeds of the sales to fund its working capital requirements and for general
corporate purposes. The lenders under Motient Communications' term Credit
Agreement have consented to the sale of these licenses.

XM Radio

In January 2001, pursuant to FCC approval for Motient to cease to control XM
Radio, the number of directors that the Company appointed to XM Radio's Board of
Directors was reduced to less than 50% of XM Radio's directors, and the Company
converted a portion of its super-voting Class B common stock of XM Radio to
Class A common stock. As a result, the Company ceased to control XM Radio, and
as of January 1, 2001, the Company accounted for its investment in XM Radio
pursuant to the equity method of accounting.

In January and February 2001, the Company sold, in two separate transactions,
two million shares of its XM Radio Class A common stock, at an average price of
$16.77 per share, for total proceeds of $33.5 million. In October 2001, as noted
above, the Company repaid $26.2 million of the Rare Medium notes in exchange for
five million of its XM Radio shares. On November 19, 2001, the Company sold
500,000 shares of its XM Radio common stock through a broker for $9.50 per
share, for aggregate proceeds of $4.75 million. Also on November 19, 2001, as a
result of a series of transaction to cure defaults under its Bank Financing and
to the Bank Facility Guarantors, the Company sold and/or delivered all of its of
its remaining 9,257,262 shares of XM Radio common stock to the Bank Facility
Guarantors in full satisfaction of the entire remaining amount of its
reimbursement obligations to the Bank Facility Guarantors. The agent for the
bank lenders under the Bank Financing declared all loans under the Bank
Financing immediately due and payable, due to the existence of several events of
default under the Bank Financing. On the same date, the bank lenders sought


                                      F-60
<PAGE>

payment in full from the Bank Financing Guarantors for the accelerated loan
obligations. For the year ended December 31, 2001, the Company recorded proceeds
of approximately $38.3 million from the sale in 2001 of two million shares of
its XM Radio stock. For the year ended December 31, 2001, the Company recorded
equity in losses of XM Radio of $48.5 million. As of November 19, 2001, the
Company ceased to have any interest in XM Radio.

In anticipation of the exchange of the XM Radio shares for debt, the Company
recorded an impairment loss of $81.5 million in 2001. This loss represents the
write down of the Company's investment in XM Radio to the fair value on the date
of the exchange. Upon the actual exchange of shares, the Company recognized a
net extraordinary gain of $10.0 million, which represented the difference
between the fair market value of the XM Radio stock as compared to the value of
the debt cancelled in exchange for the shares. For the twelve months ended
December 31, 2001, the Company recorded equity in losses of XM Radio of $48.5
million.

Merger Agreement with Rare Medium Group, Inc.

On May 14, 2001, the Company signed a definitive merger agreement with Rare
Medium pursuant to which the Company would acquire Rare Medium. On October 1,
2001, the Company and Rare Medium announced their mutual termination of the
merger. The Company recorded a charge of $4.1 million in 2001 representing costs
incurred by the Company to pursue this transaction.

14.  LEGAL AND REGULATORY MATTERS

Legal

Motient filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code on January 10, 2002. The Bankruptcy Court confirmed Motient's Plan of
Reorganization on April 26, 2002, and Motient emerged from bankruptcy on May 1,
2002. For further details regarding this proceeding, please see Note 2
("Significant Accounting Policies -- Motient's Chapter 11 Filing and Plan of
Reorganization and "Fresh-Start" Accounting").

A former employee who was discharged as part of a reduction in force in July
2002 asserted a claim for a year's pay and attorney's fees under a Change of
Control Agreement that the employee had with the Company. This claim was subject
to binding arbitration. Although the Company believed that it had substantial
defenses on the merits, on July 11, 2003, the Company was informed that the
arbitrator ruled in the employee's favor. In August 2003, the Company made a
$200,000 payment to this employee for the disputed pay and related benefits
costs and legal fee reimbursement.

Motient's rights to use and sell the BlackBerryTM software and RIM's handheld
devices may be limited or made prohibitively expensive as a result of a patent
infringement lawsuit brought against RIM by NTP Inc. (NTP v. Research In Motion,
Civ. Action No. 3:01CV767 (E.D. Va.)). In that action, a jury concluded that
certain of RIM's BlackBerryTM products infringe on patents held by NTP covering
the use of wireless radio frequency information in email communications. On
August 5, 2003, the judge in the case ruled against RIM, awarding NTP $53.7
million in damages and enjoining RIM from making, using, or selling the
products, but stayed the injunction pending appeal by RIM. The appeal has not
yet been resolved. As a purchaser of those products, Motient could be adversely
affected by the outcome of that litigation.

                                      F-61
<PAGE>

For further details regarding legal matters related to periods after this
report, please see Note 16 ("Subsequent Events").

Regulatory

The terrestrial two-way wireless data network used in Motient's wireless
business is regulated to varying degrees at the federal, state, and local
levels. Various legislative and regulatory proposals under consideration from
time to time by Congress and the FCC have in the past materially affected and
may in the future materially affect the telecommunications industry in general,
and Motient's wireless business in particular. The following is a summary of
significant laws, regulations and policies affecting the operation of Motient's
wireless business. In addition, many aspects of regulation at the federal, state
and local level currently are subject to judicial review or are the subject of
administrative or legislative proposals to modify, repeal, or adopt new laws and
administrative regulations and policies. Neither the outcome of these
proceedings nor their impact on Motient's operations can be predicted at this
time.

The ownership and operation of Motient's terrestrial network is subject to the
rules and regulations of the FCC, which acts under authority established by the
Communications Act of 1934, as amended, and related federal laws. Among other
things, the FCC allocates portions of the radio frequency spectrum to certain
services and grants licenses to and regulates individual entities using that
spectrum. Motient operates pursuant to various licenses granted by the FCC.

Motient is a commercial mobile radio service provider and therefore is regulated
as a common carrier. Motient must offer service at just and reasonable rates on
a first-come, first-served basis, without any unjust or unreasonable
discrimination, and Motient is subject to the FCC's complaint processes. The FCC
has forborne from applying numerous common carrier provisions of the
Communications Act to commercial mobile radio service providers. In particular,
Motient is not subject to traditional public utility rate-of-return regulation,
and is not required to file tariffs with the FCC.

The FCC's universal service fund supports the provision of affordable
telecommunications to high-cost areas, and the provision of advanced
telecommunications services to schools, libraries, and rural health care
providers. Under the FCC's current rules, end-user revenues derived from the
sale of information and other non-telecommunication services and certain
wholesale revenues derived from the sale of telecommunications services are not
subject to universal service fund obligations. Based on the nature of its
business, Motient is currently not required to contribute to the universal
service fund. Current rules also do not require that Motient impute to its
contribution base retail revenues derived when it uses its own transmission
facilities to provide a service that includes both information service and
telecommunications components. There can be no assurances that the FCC will
retain the exclusions described herein or its current policy regarding the scope
of a carrier's contribution base. Motient may also be required to contribute to
state universal service programs. The requirement to make these state universal
service payments, the amount of which in some cases may be subject to change and
is not yet determined, may have a material adverse effect on the conduct of
Motient's business.

                                      F-62
<PAGE>

Motient is subject to the Communications Assistance for Law Enforcement Act, or
CALEA. Under CALEA, Motient must ensure that law enforcement agencies can
intercept certain communications transmitted over its networks. Motient must
also ensure that law enforcement agencies are able to access certain
call-identifying information relating to communications over Motient's networks.
The deadline for complying with the CALEA requirements and any rules
subsequently promulgated was June 30, 2002. Based on discussions with Federal
law enforcement agencies regarding the applicability of CALEA's provisions to
the Company, the Company does not believe that its network, which uses packet
data technology, is subject to the requirements of CALEA. At the suggestion of
Federal law enforcement agencies, the Company has developed an alternative
methodology for intercepting certain communications over its network for the
purposes of law enforcement surveillance. The Company believes this alternative
methodology has substantially the same functionality as the standards provided
in CALEA. It is possible that the Company's alternative methodology may
ultimately be found not to comply with CALEA's requirements, or the Company's
interpretation that CALEA does not apply to its network may ultimately be found
to be incorrect. Should these events occur, the requirement to comply with CALEA
could have a material adverse effect on the conduct of the Company's business.

In addition, CALEA establishes a federal fund to compensate telecommunications
carriers for all reasonable costs directly associated with modifications
performed by carriers in connection with equipment, facilities, and services
installed or deployed on or before January 1, 1995. For equipment, facilities,
and services deployed after January 1, 1995, the CALEA fund is intended to
compensate carriers for any reasonable costs associated with modifications
required to make compliance "reasonably achievable." It is possible that all
necessary modifications will not qualify for this compensation and that the
available funds will not be sufficient to reimburse Motient. Therefore, the
requirement to comply with CALEA could have a material adverse effect on the
conduct of Motient's business.

Motient's FCC licenses are granted for a term of 10 years, subject to renewal.
For Motient's non-market-based licenses, or non-auction licenses, renewal is
granted in the ordinary course. Motient no longer holds any auction licenses.
All such licenses were sold in November 2003 to Nextel Communications and its
affiliates.

As a matter of general regulation by the FCC, Motient is subject to, among other
things, payment of regulatory fees and restrictions on the level of radio
frequency emissions of Motient's systems' mobile terminals and base stations.
Any of these regulations may have an adverse impact on the conduct of Motient's
business.

Motient's FCC licenses are subject to restrictions in the Communications Act
that (i) certain FCC licenses may not be held by a corporation of which more
than 20% of its capital stock is directly owned of record or voted by non-U.S.
citizens or entities or their representatives and (ii) that no such FCC license
may be held by a corporation controlled by another corporation, referred to as
indirect ownership, if more than 25% of the controlling corporation's capital
stock is owned of record or voted by non-U.S. citizens or entities or their


                                      F-63
<PAGE>

representatives, if the FCC finds that the public interest is served by the
refusal or revocation of such license. However, with the implementation of the
Basic Telecommunications Agreement, negotiated under the auspices of the World
Trade Organization and to which the United States is a party, the FCC will
presume that indirect ownership interests in the Company's FCC licenses in
excess of 25% by non-U.S. citizens or entities will be permissible to the extent
that the ownership interests are from World Trade Organization-member countries.
If the 25% foreign ownership limit is exceeded, the FCC could take a range of
potential actions, which could harm Motient's business.

Motient's terrestrial network consists of base stations licensed in the 800 MHz
business radio and specialized mobile radio services. The terrestrial network is
interconnected with the public switched telephone network.

The FCC's licensing regime in effect when the majority of authorizations used in
the terrestrial network were issued provided for individual, site-specific
licenses. The FCC has since modified the licensing process applicable to
specialized mobile radio licenses in the band. Specialized mobile radio licenses
are now issued by auction in wide-area, multi-channel blocks. The geographic
area and number of channels within a block vary depending on whether the
frequencies are in the so-called "Upper 200" specialized mobile radio channels,
the "General Category," or the "Lower 80." In addition, wide-area auction
winners in the Upper 200 have the right to relocate incumbent licensees to other
"comparable" spectrum. Auction winners in the General Category and Lower 80 do
not have these same relocation rights and must afford protection to incumbent
stations. Incumbent stations may not, however, expand their service areas.

Wide-area auction winners have substantial flexibility to install any number of
base stations including, in the case of the General Category and Lower 80
channels, base stations that operate on the same channels as incumbent
licensees. Motient was an incumbent in the Upper 200 and remains an incumbent on
certain General Category channels. Although the FCC requires General Category
and Lower 80 geographic licensees to protect incumbents from interference, there
is some concern that such interference may occur and that practical application
of the interference-protection rules may be uncertain.

Motient believes that it has licenses for a sufficient number of channels to
meet its current capacity needs on the terrestrial network.

Motient operates the terrestrial network under a number of waivers involving the
FCC's technical rules, including rules on station identification, for-profit use
of excess capacity, system loading, and multiple station ownership. Several of
these waivers were first obtained individually by IBM and Motorola, which
operated separate wireless data systems until forming the ARDIS joint venture in
1990. The FCC incorporated a number of these waivers into its regulations when
it implemented Congress's statutory provision creating the commercial mobile
radio service classification. As of March 3, 1999, Motient completed its planned
construction of base stations for which extended implementation was granted by
the FCC in 1996.

                                      F-64
<PAGE>

On March 14, 2002, the FCC adopted a notice of proposed rulemaking exploring
options and alternatives for improving the spectrum environment for public
safety operations in the 800 MHz band. This notice of proposed rulemaking was
issued by the FCC after a "white paper" proposal was submitted to the FCC by
Nextel Communications Inc. in November 2001 addressing largely the same issues.
In its white paper, Nextel proposed that certain of its wireless spectrum in the
700 MHz band, lower 800 MHz band, and 900 MHz band be exchanged for spectrum in
the upper 800 MHz band and in the 2.1 GHz band. Nextel's proposal addressed the
problem of interference to public safety agencies by creating blocks of
contiguous spectrum to be shared by public safety agencies. Since the notice of
proposed rulemaking was issued, Motient has been actively participating with
other affected licensees, including Nextel, to reach agreement on a voluntary
plan to re-allocate spectrum to alleviate interference to public safety
agencies. On December 24, 2002, a group of affected licensees, including
Motient, Nextel, and several other licensees, submitted a detailed proposal to
the FCC for accomplishing the re-allocation of spectrum over a period of several
years. These parties have also been negotiating a mechanism by which Nextel
would agree to reimburse costs, up to $850 million, incurred by affected
licensees in relocating to different parts of the spectrum band pursuant to the
rebanding plan.

In mid-April 2003, the FCC's Office of Engineering and Technology ("OET") sent a
letter to several manufacturers requesting additional practical, technical and
procedural solutions or information that may have yet to be considered. Upon
reviewing the filed comments, OET has indicated that other technical solutions
were possible and were being reviewed by the FCC. To date, no action has been
taken by the FCC. We cannot assure you that our operations will not be affected
by this proceeding.

For further details regarding regulatory matters related to periods after this
report, please see Note 16 ("Subsequent Events").


                                      F-65
<PAGE>


15.  SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                            Successor Company                     Predecessor Company
                                                            -----------------                     -------------------

                                                                                                               Year Ended
                                                    Year Ended        Eight Months Ended     Four Months      December 31,
                                                   December 31,          December 31,      Ended April 30,     (Restated)
                                                       2003                  2002               2002              2001
                                                       ----                  ----               ----              ----
                                                                           (in thousands)
<S>                                                <C>                   <C>                 <C>                <C>
 Cash payments for interest                        $   572               $  396              $ 427              $ 26,240
 Cash payment for income taxes                          --                   --                 --                    --
 Noncash investing and financing activities:
 Leased asset and related obligations                   --                   --                 --                   632
 Issuance of restricted stock                           --                   --                 --                   419
 Cancellation of restricted stock                       --                   --                 --                  (264)
 Additional deferred compensation on non-cash
 compensation                                           --                   --                 97                 1,587
 Issuance and repricing of common stock
 purchase warrants                                  10,024                1,464                 --                 2,326
 Capital (loss) gain in connection with the
 sale of stock by XM Radio                              --                   --                 --               (12,180)
 Capital gain in connection with the sale of
 stock by MSV                                           --                   --                 --                12,883
 Vendor financing for property in service               --                   --                 --                    --
 Vendor financing under maintenance agreement
                                                        --                2,631                 --                    --
 Issuance of Common Stock under the Defined
 Contribution Plan                                 $   280                $  --              $(203)             $  1,151

</TABLE>

16.  SUBSEQUENT EVENTS

Private Placement

On April 7, 2004, Motient sold 4,215,910 shares of its common stock at $5.50 per
share for an aggregate purchase price of $23,187,505 to The Raptor Global
Portfolio Ltd., The Tudor BVI Global Portfolio, Ltd., The Altar Rock Fund L.P.,
Tudor Proprietary Trading, L.L.C., Highland Crusader Offshore Partners, L.P.,
York Distressed Opportunities Fund, L.P., York Select, L.P., York Select Unit
Trust, M&E Advisors L.L.C., Catalyst Credit Opportunity Fund, Catalyst Credit
Opportunity Fund Offshore, DCM, Ltd., Greywolf Capital II LP and Greywolf
Capital Overseas Fund and LC Capital Master Fund. The sale of these shares was
not registered under the Securities Act of 1933 and the shares may not be sold
in the United States absent registration or an applicable exemption from
registration requirements. The shares were offered and sold pursuant to the
exemption from registration afforded by Rule 506 under the Securities Act and/or
Section 4(2) of the Securities Act. In connection with this sale, Motient signed
a registration rights agreement with the holders of these shares. Among other
things, this registration rights agreement requires Motient to file and cause to
make effective a registration statement permitting the resale of the shares by
the holders thereof. Motient also issued warrants to purchase an aggregate of
1,053,978 shares of our common stock to the investors listed, at an exercise
price of $5.50 per share. These warrants will vest if and only if Motient does
not meet certain deadlines between July and November, 2004, with respect to
certain requirements under the registration rights agreement. If the warrants
vest, they may be exercised by the holders thereof at any time through June 30,
2009.

                                      F-66
<PAGE>

In connection with this sale, Motient issued to Tejas Securities Group, Inc.,
its placement agent for the private placement, and certain members of CTA,
warrants to purchase 600,000 shares and 400,000 shares, respectively, of our
common stock. The exercise price of these warrants is $5.50 per share. The
warrants are immediately exercisable upon issuance and have a term of five
years. Motient also paid Tejas Securities Group, Inc. a placement fee of
$350,000 at closing. The warrants were issued in reliance upon the exemption
afforded by Section 4(2) of the Securities Act.

Additional Private Placement

On July 1, 2004, Motient sold 3,500,000 shares of our common stock at a per
share price of $8.57 for an aggregate purchase price of $30.0 million to The
Raptor Global Portfolio Ltd., The Tudor BVI Global Portfolio, Ltd., The Altar
Rock Fund L.P., Tudor Proprietary Trading, L.L.C., York Distressed Opportunities
Fund, L.P., York Select, L.P., York Select Unit Trust, York Global Value
Partner, L.P., Catalyst Credit Opportunity Fund, Catalyst Credit Opportunity
Fund Offshore, DCM, Ltd., Rockbay Capital Fund, LLC, Rockbay Capital Investment
Fund, LLC, Rockbay Capital Offshore Fund, Ltd., Glenview Capital Partner, L.P.,
Glenview Institutional Partners, L.P., Glenview Capital Master Fund, Ltd., GCM
Little Arbor Master Fund, Ltd., OZ Master Fund, Ltd., OZ Mac 13 Ltd., Fleet
Maritime, Inc., John Waterfall, Edwin Morgens, Greywolf Capital II, L.P.,
Greywolf Capital Overseas Fund, Highland Equity Focus Fund, L.P., Singer
Children's Management Trust, and Strome Hedgecap Limited. The sale of these
shares was not registered under the Securities Act and the shares may not be
sold in the United States absent registration or an applicable exemption from
registration requirements. The shares were offered and sold pursuant to the
exemption from registration afforded by Rule 506 under the Securities Act and/or
Section 4(2) of the Securities Act. In connection with this sale, Motient signed
a registration rights agreement with the holders of these shares. Among other
things, this registration rights agreement requires us to file and cause to make
effective a registration statement permitting the resale of the shares by the
holders thereof. Motient also issued warrants to purchase an aggregate of
525,000 shares of our common stock to the investors listed above, at an exercise
price of $8.57 per share. These warrants will vest if and only if Motient does
not meet certain registration deadlines beginning in November, 2004, with
respect to certain requirements under the registration rights agreement. If the
warrants vest, they may be exercised by the holders thereof at any time through
June 30, 2009.

In connection with this sale, Motient issued to certain CTA affiliates, and
certain affiliates of Tejas Securities Group, Inc., our placement agent for the
private placement, warrants to purchase 340,000 and 510,000, respectively,
shares of our common stock. The exercise price of these warrants is $8.57 per
share. The warrants are immediately exercisable upon issuance and have a term of
five years. Motient also paid Tejas Securities Group, Inc. a placement fee of
approximately $850,000 at closing. The shares were offered and sold pursuant to
the exemption from registration afforded by Rule 506 under the Securities Act
and/or Section 4(2) of the Securities Act.


                                      F-67
<PAGE>

Term Credit Facility

On March 16, 2004, Motient entered into an amendment to its credit facility
which extended the borrowing availability period until December 31, 2004. As
part of this amendment, Motient provided the lenders with a pledge of all of the
stock of a newly-formed special purpose subsidiary of Motient Communications,
Inc., Motient License Inc. ("Motient License") which holds all of Motient's FCC
licenses formerly held by Motient Communications. On March 16, 2004, in
connection with the execution of the amendment to the credit agreement, the
Company issued warrants to the lenders to purchase, in the aggregate, 2,000,000
shares of Motient's common stock. The number of warrants was reduced to an
aggregate of 1,000,000 shares of common stock since, within 60 days after March
16, 2004, the Company obtained at least $7.5 million of additional debt or
equity financing. The exercise price of the warrants is $4.88 per share. The
warrants were immediately exercisable upon issuance and have a term of five
years. The warrants were valued at $6.7 million using a Black-Scholes pricing
model and are being recorded as a debt discount and will be amortized as
additional interest expense over three years, the term of the related debt. The
warrants are also subject to a registration rights agreement. Under such
agreement, Motient agreed to register the shares underlying the warrants upon
the request of a majority of the warrantholders, or in conjunction with the
registration of other common stock of the company. Motient will bear all the
expenses of such registration. The Company also paid a commitment fees to the
lenders of $320,000 which accrued into the principal balance at closing. These
fees will be recorded on Motient's balance sheet and will be amortized as
additional interest expense over three years, the term of the related debt.

On April 13, 2004, Motient repaid all principal amounts then owing under its
term credit facility, including accrued interest thereon, in an amount of $6.7
million. The remaining availability under the credit facility of $5.8 million
will be available for borrowing to the Company until December 31, 2004, subject
to the lending conditions in the credit agreement.

Developments Relating to MSV

On April 2, 2004, two exiting investors in MSV invested $17.6 million in MSV in
exchange for class A preferred units of limited partnership interests of MSV. In
connection with this investment, MSV's amended and restated investment agreement
was amended to provide that of the total $17.6 million in proceeds, $5.0 million
was used to repay certain outstanding indebtedness of MSV, including $2.0
million of accrued interest under the $15.0 million promissory note issued to
Motient by MSV. Motient was required to use 25% of the $2.0 million it received
in this transaction, or $500,000, to prepay its existing notes owed to Rare
Medium Group and CSFB. The remainder of the proceeds from this investment were
used for general corporate purposes by MSV. As of the closing of the additional
investment on April 2, 2004, Motient's percentage ownership of MSV was
approximately 29.5% on an "as converted" basis giving effect to the conversion
of all outstanding convertible notes of MSV.

In June 2004, MSV obtained certain rights to receive 8-10 MHz of nationwide
spectrum in the S-band (2.1 GHz range) from its affiliate, TMI Communications
and Company, Limited Partnership, or TMI, as a result of the FCC's reinstatement
of TMI's S-band authorization on June 29, 2004. This reinstatement of TMI's
S-band authorization is subject to certain conditions. In addition, the S-band
authorization requires the satisfaction of certain satellite construction and
other milestones. There can be no assurances that such conditions and milestones
will be satisfied.

                                      F-68
<PAGE>

Further Cost Reduction Actions

Please see Note 1, "Organization and Going Concern - - Cost Reduction Actions".

UPS Revenue

Please see Note 1, "Organization and Going Concern - - UPS Revenue".

Motorola Debt Obligation Renegotiation

In March 2004, Motient further restructured both the vendor financing facility
and the promissory note to Motorola, primarily to extend the amortization
periods for both the vendor financing facility and the promissory note. Motient
will amortize the combined balances in the amount of $100,000 per month
beginning in March 2004. Motient also agreed that interest would accrue on the
vendor financing facility at LIBOR plus 4%. As part of this restructuring,
Motient agreed to grant Motorola a second lien (junior to the lien held by the
lenders under our term credit facility) on the stock of Motient License. This
pledge secures Motient's obligations under both the vendor financing facility
and the promissory note.

Management and Board Changes

On February 10, 2004, the Company and Walter V. Purnell, Jr. mutually agreed to
end his employment as President and Chief Executive Officer of Motient and all
of its wholly owned subsidiaries. Concurrently, Mr. Purnell resigned as a
director of such entities and of MSV and all of its subsidiaries.

On February 18, 2004, Daniel Croft, Senior Vice President, Marketing and
Business Development, and Michael Fabbri, Senior Vice President, Sales, were
relieved of their duties as part of a reduction in force.

On March 18, 2004 the board of directors elected Christopher W. Downie to the
position of executive vice president, chief financial officer and treasurer, and
designated Mr. Downie as the Company's principal executive officer.

On May 6, 2004, the board of directors elected Raymond L. Steel to serve as a
member of the board. Mr. Steele was also elected to the Company's audit
committee.

On May 6, 2004 the board of directors elected Robert L. Macklin to the position
of General Counsel and Secretary.

On May 24, 2004 the board of directors designated Myrna J. Newman, the Company's
controller and chief accounting officer, as the principal financial officer of
the Company.

                                      F-69
<PAGE>

Also on May 24, 2004, the board of directors elected Christopher W. Downie to
the position of executive vice president, chief operating officer and treasurer.
Mr. Downie remains the principal executive officer.

On June 15, 2004, the board of directors designated Jonelle St. John and Raymond
J. Steele as the board's financial experts.

Change in Accountants

On March 2, 2004, Motient dismissed PricewaterhouseCoopers as its independent
auditors effective immediately. The audit committee of the Company's Board
approved the dismissal of PricewaterhouseCoopers. PricewaterhouseCoopers was
previously appointed to audit Motient's consolidated financial statements for
the period May 1, 2002 to December 31, 2002, and, by its terms, such engagement
was to terminate upon the completion of services related to such audit.
PricewaterhouseCoopers has not reported on Motient's consolidated financial
statements for such period or for any other fiscal period. On March 2, 2004, the
audit committee engaged Ehrenkrantz Sterling & Co. LLC as Motient's independent
auditors to replace PricewaterhouseCoopers to audit Motient's consolidated
financial statements for the period May 1, 2002 to December 31, 2002.

On June 1, 2004, Ehrenkrantz Sterling & Co. LLC, merged with the firm of
Friedman Alpren & Green LLP. The new entity, Friedman LLP has been retained by
Motient and the Audit Committee of Motient's Board of Directors approved this
decision on June 4, 2004.

For further details regarding the change in accountants, please see the
Company's current report on Form 8K filed with the SEC on April 23, 2003 and the
Company's amendment to its current report on Form 8-K/A filed with the SEC on
April 23, 2003 and March 9, 2004.

CTA Arrangements

On January 30, 2004, the Company engaged CTA to act as chief restructuring
entity. The term of CTA's engagement is currently scheduled to end on August 1,
2004. As consideration for this work, Motient agreed to pay to CTA a monthly fee
of $60,000. The new agreement amends our existing consulting arrangement with
CTA. In addition, since the initial engagement of CTA, the payment of certain
monthly fees to CTA has been deferred. In April 2004, Motient paid CTA $440,000
for all past deferred fees.

Termination of Motorola and Hewlett-Packard Agreements

In June 2004, the Company negotiated settlements terminating its outstanding
financing facilities with Motorola and its lease with Hewlett-Packard for
certain network equipment. The full amount due and owing under these agreements
was a combined $6.8 million. We paid or will pay a combined $3.9 million in cash
and will issue a warrant to Motorola to purchase 200,000 shares of the Company's
common stock at a price of $8.68, in full satisfaction of the outstanding
balances. In the case of Hewlett-Packard, the Company took title to all of the
leased equipment and software, and in the case of Motorola, there was no
equipment or service that Motorola was obligated to provide. Additionally,
Hewlett-Packard released to the Company its $1.1 million letter of credit.

                                      F-70
<PAGE>

Regulatory

It was reported that in March of 2004, the staff of the FCC circulated a draft
order to the five FCC Commissioners recommending adoption of the plan for the
reallocation of the 800 MHz spectrum commonly known as the "Consensus Plan".
However, the staff apparently also recommended the rejection of Nextel's offer
to pay $850 million to recover the costs of the re-allocation of the spectrum,
as the staff apparently felt this amount to be insufficient to cover the costs
of such re-allocation. On April 8, 2004, Motient filed a request with the FCC
asking that the FCC relocate Motient into the so called "upper-800 MHz band" as
part of the Consensus Plan. The FCC did not adopt the order in April, and one
month later, the Cellular Telecommunications & Internet Association, or CTIA,
proposed a plan that would grant Nextel alternative spectrum in the less
valuable 2.1 GHz band. Verizon Wireless has advanced CTIA's and a similar plan,
and has pledged to bid $5 billion for the 1.9 GHz spectrum if those airwaves are
auctioned. Nextel has vigorously opposed the CTIA and Verizon Wireless plans,
insisting that it be allowed to relocate to the 1.9 GHz spectrum. News accounts
have stated that some senior officials at the FCC would prefer to grant Nextel
the 2.1 GHz spectrum because such a grant is less subject to a court challenge
as an impermissible sale of spectrum outside of an auction. Some members of
Congress have also expressed interest in the proceeding. Given the uncertain
outcome of this proceeding, we cannot assure you that our operations will not be
affected by it.

Legal

On April 15, 2004, Motient filed a claim under the rules of the American
Arbitration Association in Fairfax County, VA, against Wireless Matrix
Corporation, a reseller of Motient's services, for the non-payment of certain
amounts due and owing under the "take-or-pay" agreement between Motient and
Wireless Matrix. Under this agreement, Wireless Matrix agreed to purchase
certain minimum amounts of air-time on the Motient network. In February 2004
Wireless Matrix informed Motient that it was terminating its agreement with
Motient. Motient does not believe that Wireless Matrix has any valid basis to do
so, and consequently filed the above mentioned claim seeking over $2.6 million
in damages, which amount represents Wireless Matrix's total prospective
commitment under the agreement. On May 10, 2004, Motient received notice of a
counter-claim by Wireless Matrix of approximately $1 million, representing such
amounts as Wireless Matrix claims to have paid in excess of services rendered
under the agreement. In June 2004, Motient reached a favorable out of court
agreement with Wireless Matrix in which Wireless Matrix will pay Motient $1.1
million.


                                      F-71
<PAGE>

                            QUARTERLY FINANCIAL DATA
                (dollars in thousands, except for per share data)
                                   (unaudited)
<TABLE>
<CAPTION>
                                             Successor Company
                                             -----------------
                                               2003-Quarters
                                               -------------
                                 3/31/03     6/30/03    9/30/03    12/31/03
                                 -------     -------    -------    --------
<S>                              <C>         <C>        <C>         <C>
Revenues                         $14,370     $14,992    $12,051     $13,072
Operating expenses (1)            24,424      25,358     29,795      23,647
                                  ------      ------     ------      ------
Loss from operations             (10,054)    (10,366)   (17,744)    (10,575)
Net Income (loss)               $(12,394)   $(13,010)  $(22,345)   $(14,373)
Basic and Diluted Loss Per
Share of common stock             $(0.49)     $(0.52)    $(0.89)     $(0.57)
Weighted-average common
shares outstanding
during the period                 25,097      25,116     25,170      25,145
Market price per share (3)
   High                            $4.00       $2.00      $5.00       $5.45
   Low                             $2.75       $5.75      $6.35       $3.95
</TABLE>
<TABLE>
<CAPTION>
                                    Predecessor Company through April 30, 2002 and
                                Successor Company from May 1, 2002 to December 31, 2002                 Predecessor Company
                                -------------------------------------------------------                 -------------------
                                                     2002-Quarters                                    2001-Quarters (restated)
                                                     -------------                                    ------------------------

                                           (Predecessor (Successor
                                              Company)   Company)
                                              1 Month    2 Months
                               (Predecessor    Ended      Ended    (Successor  (Successor
                                 Company)     April 30,  June 30    Company)   Company)
                                 3/31/02        2002      2002      9/30/02    12/31/02    3/31/01   6/30/01    9/30/01    12/31/01
                                 -------        ----      ----      -------    --------    -------   -------    -------    --------

<S>                             <C>         <C>         <C>        <C>         <C>        <C>       <C>        <C>         <C>
 Revenues                       $ 16,683    $   5,690   $  8,719   $ 13,297    $ 14,601   $ 22,565  $ 22,641   $ 23,547    $ 21,513
 Operating expenses (1)           32,445       11,358     19,796     25,426      25,195     48,225    47,832     50,342      41,092
                                --------    ---------   --------   --------    --------   --------  --------   --------    --------
 Loss from operations            (15,762)      (5,668)   (11,077)   (12,129)    (10,594)   (25,660)  (25,191)   (26,795)    (19,579)
 Net Income (loss)              $(35,429)   $ 267,408   $(13,010)  $(16,644)   $(29,904)   (54,948)  (65,317)   (49,636)    (99,597)
 Basic and Diluted Loss Per
 Share of common stock          $  (0.61)   $    4.58   $  (0.52)  $  (0.66)   $  (1.19)  $  (1.11) $  (1.32)  $  (0.99)   $  (1.81)
 Weighted-average common
 shares outstanding
 during the period                58,256       58,366     25,097     25,097      25,097     49,639    49,654     50,175      55,027
 Market price per share (3)
    High                        $   0.45    $   0.040   $   5.90   $   4.45    $   3.40   $   6.59  $   2.05   $   1.10    $   0.60

    Low                         $  0.055    $   0.080   $   3.60   $   0.40    $   0.65   $   1.25  $   0.38   $   0.09    $   0.05

</TABLE>

(1)  Operating expenses include restructuring charges of approximately $25,000
     in the second quarter of 2002, $4.7 million in the third quarter of 2001.
     Of the $4.7 million restructuring expense in 2001, $3.8 million was paid in
     2001. Of the $0.6 million restructuring expense in 2002, $0.5 million was
     paid in 2002.
(2)  Loss per share calculations for each of the quarters are based on the
     weighted average number of shares outstanding for each of the periods, and
     the sum of the quarters is not equal to the full year loss per share amount
     due to rounding.
(3)  Until January 14, 2002, the Company's common stock was listed under the
     symbol MTNT on the Nasdaq Stock Market. The Company voluntarily delisted
     from the Nasdaq Stock Market on January 14, 2002 as a result of its Chapter
     11 bankruptcy filing. The Company's common stock is currently traded under
     the symbol MNCP on the Pink Sheets. The quarterly high and low sales price
     represents the intra-day prices in the Nasdaq Stock Market for the
     Company's pre-reorganization common stock for the periods indicated for
     2001 and the high and low bid prices for Motient pre- and
     post-reorganization common stock for the periods indicated. The quotations
     represent inter-dealer quotations, without retail markups, markdowns or
     commissions, and may not necessarily represent actual transactions. As of
     December 31, 2003, there were 11 stockholders of record of the Company's
     common stock.

                                      F-72
<PAGE>

Summary of Impact of the Restatement of Financial Statements

The revised accounting treatment described in Note 2 ("Significant Accounting
Policies -- Restatement of Financial Statements") requires that certain
adjustments be made to the income statements and balance sheets for the
respective quarters of 2001 and the quarter ended March 31, 2002. The effect of
these adjustments is illustrated in the table below. The adjustments reflected
in the table below were reviewed by Motient's independent auditor, Ehrenkrantz
Sterling & Co. LLC. Certain of the adjustments are based on assumptions that
Motient has made about the fair value of certain assets.

<TABLE>
<CAPTION>
                            Quarter Ended March 31,         Quarter Ended June 30,    Quarter Ended September 30,
                                     2001                            2001                       2001
                                     ----                            ----                       ----
                                 (Unaudited)                      (Unaudited)                (Unaudited)
                          As reported    As restated      As reported   As restated  As reported     As restated
                          -----------    -----------      -----------   -----------  -----------     -----------
<S>                         <C>             <C>             <C>          <C>           <C>             <C>
(in thousands)

Net Revenue                 $23,407         $22,565         $23,657      $22,641       $24,447         $23,547
Loss from Operations        (25,217)        (25,660)        (25,224)     (25,191)      (25,933)        (26,795)
Net Loss                    (54,006)        (54,948)        (65,324)     (65,317)      (48,707)        (49,636)
Basic and Fully
Diluted EPS                  $(1.09)         $(1.11)         $(1.32)      $(1.32)       $(0.97)        $(0.99)
Total Assets                536,608         536,772         485,682      486,694       448,542         449,474
Total Liabilities           588,579         580,840         599,931      593,032       610,106         604,055
Stockholders' Deficit       (51,971)        (44,068)       (114,249)    (106,338)     (161,564)       (154,582)
Total Liabilities &
Stockholders' Deficit      $536,608        $536,772        $485,682     $486,694      $448,542        $449,474
</TABLE>
<TABLE>
<CAPTION>

                          Quarter Ended December 31,       Year Ended December 31,     Quarter Ended March 31,
                                     2001                           2001                         2002
                                     ----                           ----                         ----
                                 (Unaudited)                     (Unaudited)                 (Unaudited)
                          As reported    As restated      As reported   As restated  As reported     As restated
                          -----------    -----------      -----------   -----------  -----------     -----------
<S>                         <C>            <C>              <C>         <C>            <C>            <C>
(in thousands)

Net Revenue                 $21,782        $21,513          $93,293     $90,265        $16,495        $16,683
Loss from Operations        (18,622)       (19,579)         (94,996)    (97,223)       (15,970)       (15,763)
Net Loss                   (124,052)       (99,597)        (292,089)   (269,497)       (32,885)       (35,430)
Basic and Fully
Diluted EPS                  $(2.25)       $(1.81)           $(5.71)     $(5.27)        $(0.56)        $(0.61)
Total Assets                209,617        240,465          209,617     240,465        177,628        205,283
Total Liabilities           485,086        471,614          485,086     471,614        485,681        471,559
Stockholders' Deficit      (275,469)      (231,149)        (275,469)   (231,149)      (308,053)      (266,277)
Total Liabilities &
Stockholders' Deficit      $209,617       $240,465         $209,617    $240,465       $177,628       $205,283
</TABLE>



                                      F-73
<PAGE>

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
          YEARS ENDED 2001(restated), FOUR MONTHS ENDED APRIL 30, 2002,
                    EIGHT MONTHS ENDED DECEMBER 31, 2002, and
                          YEAR ENDED DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                                              Charged
                                                 Balance at   to Costs
                                                 Beginning      and                                 Balance at End of
Description                                      of Period    Expenses           Deductions               Period
-----------                                      ---------    --------           ----------               ------
<S>                                                  <C>         <C>               <C>                      <C>
Predecessor Company
-------------------
Year Ended December 31, 2001
       Allowance for doubtful accounts               $1,317      $1,375            $(1,728)                 $964
Four Months Ended April 30, 2002
       Allowance for doubtful accounts                 $964        $(52)             $(139)                 $773
-----------------------------------------------------------------------------------------------------------------
Successor Company
-----------------
Eight Months Ended December 31, 2002
       Allowance for doubtful accounts                 $773        $994              $(764)               $1,003
Year Ended December 31, 2003
       Allowance for doubtful accounts               $1,003        $194              $(438)                 $759

                                                              Charged
                                                 Balance at   to Costs
                                                 Beginning      and                                 Balance at End of
Description                                      of Period    Expenses           Deductions               Period
-----------                                      ---------    --------           ----------               ------
Predecessor Company
-------------------
Year Ended December 31, 2001
       Allowance for Obsolescence                    $1,633      $7,891            $(2,451)               $7,073
Four Months Ended April 30, 2002
       Allowance for Obsolescence                    $7,073      $4,687              $(797)              $10,963
-----------------------------------------------------------------------------------------------------------------
Successor Company
-----------------
Eight Months Ended December 31, 2002
       Allowance for Obsolescence                   $10,963        $287            $(1,699)               $9,551
Year Ended December 31, 2003
       Allowance for Obsolescence                    $9,551        $199            $(2,000)               $7,750

</TABLE>


                                      F-74

<PAGE>




         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

<TABLE>
<S>                                                                               <C>
Independent Auditors' Report ...................................................  X-2

Consolidated Balance Sheets ....................................................  X-3

Consolidated Statements of Operations ..........................................  X-4

Consolidated Statements of Stockholders' Equity (Deficit) ......................  X-5

Consolidated Statements of Cash Flows ..........................................  X-6

Notes to Consolidated Financial Statements .....................................  X-7

Independent Auditors' Report on Consolidated Financial Statement Schedule ......  X-28

Schedule I--Valuation and Qualifying Accounts ..................................  X-29


                    XM SATELLITE RADIO INC. AND SUBSIDIARIES

Independent Auditors' Report ...................................................  X-30

Consolidated Balance Sheets ....................................................  X-31

Consolidated Statements of Operations ..........................................  X-32

Consolidated Statements of Stockholder's Equity ................................  X-33

Consolidated Statements of Cash Flows ..........................................  X-34

Notes to Consolidated Financial Statements .....................................  X-35

Independent Auditors' Report on Consolidated Financial Statement Schedule ......  X-53

Schedule I--Valuation and Qualifying Accounts ..................................  X-54
</TABLE>

                                      X-1

<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
XM Satellite Radio Holdings Inc.:

We have audited the accompanying consolidated balance sheets of XM Satellite
Radio Holdings Inc. and subsidiaries as of December 31, 2000 and 2001, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of XM Satellite Radio
Holdings Inc. and subsidiaries as of December 31, 2000 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company is dependent upon additional debt
or equity financing, which raises substantial doubt about its ability to
continue as a going concern. Management's plan in regard to these matters is
also described in note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                                  /s/ KPMG LLP

McLean, VA
January 23, 2002

                                      X-2

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                                                              2000         2001
                                                                                                           -----------  -----------
                                                               ASSETS                                        (in thousands, except
                                                                                                                   share data)
<S>                                                                                                        <C>          <C>
Current assets:
     Cash and cash equivalents .........................................................................   $   224,903  $   182,497
     Short-term investments ............................................................................            --       28,355
     Restricted investments ............................................................................        45,585       44,861
     Accounts receivable, net of allowance for doubtful accounts of $0 and $10 .........................            --          478
     Prepaid and other current assets ..................................................................         8,815       15,720
                                                                                                           -----------  -----------
          Total current assets .........................................................................       279,303      271,911
Other assets:
     Restricted investments, net of current portion ....................................................       115,581       27,898
     System under construction .........................................................................       815,016       55,056
     Property and equipment, net of accumulated depreciation and amortization of $2,337 and $43,384 ....        50,052    1,066,191
     Goodwill and intangibles, net of accumulated amortization of $2,599 and $3,974 ....................        24,001       22,626
     Other assets, net of accumulated amortization of $672 and $2,167 ..................................         9,265       12,521
                                                                                                           -----------  -----------
          Total assets .................................................................................   $ 1,293,218  $ 1,456,203
                                                                                                           ===========  ===========

                                                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable ..................................................................................   $    31,793  $    36,559
     Accrued expenses ..................................................................................         6,039       26,098
     Accrued network optimization expenses (note 15) ...................................................            --        8,595
     Current portion of long-term debt .................................................................           556        1,910
     Due to related parties ............................................................................        15,429       26,052
     Accrued interest ..................................................................................        13,397       15,664
                                                                                                           -----------  -----------
          Total current liabilities ....................................................................        67,214      114,878
Long-term debt, net of current portion .................................................................       262,665      411,520
Royalty payable, net of current portion ................................................................         2,600        1,800
Other non-current liabilities ..........................................................................         4,787        1,354
                                                                                                           -----------  -----------
          Total liabilities ............................................................................       337,266      529,552
                                                                                                           -----------  -----------
Stockholders' equity:
   Series A convertible preferred stock, par value $0.01 (liquidation preference of $102,688);
     15,000,000 shares authorized, 10,786,504 shares issued and outstanding at December 31, 2000
     and 2001 ..........................................................................................           108          108
   Series B convertible redeemable preferred stock, par value $0.01 (liquidation
     preference of $43,364); 3,000,000 shares authorized, 867,289 shares issued
     and outstanding at December 31, 2000 and 2001 .....................................................             9            9
   Series C convertible redeemable preferred stock, par value $0.01 (liquidation preference of
     $244,277 and $263,664 at December 31, 2000 and 2001, respectively); 250,000 shares authorized,
     235,000 shares issued and outstanding at December 31, 2000 and 2001 ...............................             2            2
   Class A common stock, par value $0.01; 180,000,000 shares authorized, 34,073,994 and
     74,482,168 shares issued and outstanding at December 31, 2000 and 2001, respectively ..............           341          745
   Class B common stock, par value $0.01; 30,000,000 shares authorized, 16,557,262
     and no shares issued and outstanding at December 31, 2000 and 2001, respectively ..................           166           --
   Class C common stock, par value $0.01; 30,000,000 shares authorized, no shares issued and
     outstanding at December 31, 2000 and 2001 .........................................................            --           --
   Additional paid-in capital ..........................................................................     1,061,921    1,316,761
   Accumulated deficit .................................................................................      (106,595)    (390,974)
                                                                                                           -----------  -----------
          Total stockholders' equity ...................................................................       955,952      926,651
                                                                                                           -----------  -----------
Commitments and contingencies (notes 1, 2, 3, 5, 10 and 15)
          Total liabilities and stockholders' equity ...................................................   $ 1,293,218  $ 1,456,203
                                                                                                           ===========  ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       X-3

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                          1999           2000            2001
                                                                     -----------     -----------     -----------
                                                                        (in thousands, except share data)
<S>                                                                  <C>             <C>             <C>
Revenue:
     Subscriber revenue ..........................................   $        --     $        --     $       246
     Ad sales revenue ............................................            --              --             294
        Less:  Agency commissions ................................            --              --             (43)
     Other revenue ...............................................            --              --              36
                                                                     -----------     -----------     -----------
          Total revenue ..........................................            --              --             533
                                                                     -----------     -----------     -----------

Operating expenses:
     Broadcasting operations:
        Content/programming ......................................        (1,014)         (6,878)        (27,924)
        System operations ........................................        (2,877)        (23,227)        (67,571)
        Customer care and billing operations .....................            --            (856)         (6,034)
     Sales and marketing .........................................        (3,351)        (16,078)        (99,789)
     General and administrative ..................................       (14,496)        (16,624)        (24,595)
     Research and development ....................................        (7,440)        (12,701)        (14,255)
     Depreciation and amortization ...............................        (1,513)         (3,115)        (41,971)
                                                                     -----------     -----------     -----------
          Total operating expenses ...............................       (30,691)        (79,479)       (282,139)
                                                                     -----------     -----------     -----------
Operating loss ...................................................       (30,691)        (79,479)       (281,606)

Other income (expense):
     Interest income .............................................         2,916          27,606          15,198
     Interest expense ............................................        (9,121)             --         (18,131)
     Other income, net ...........................................            --              --             160
                                                                     -----------     -----------     -----------
             Net loss ............................................       (36,896)        (51,873)       (284,379)
                                                                     -----------     -----------     -----------

8.25% Series B preferred stock dividend requirement ..............            --          (5,935)         (3,766)
8.25% Series C preferred stock dividend requirement ..............            --          (9,277)        (19,387)
Series B preferred stock deemed dividend .........................            --         (11,211)             --
Series C preferred stock beneficial conversion feature ...........            --        (123,042)             --
                                                                     -----------     -----------     -----------
             Net loss attributable to common stockholders ........   $   (36,896)    $  (201,338)    $  (307,532)
                                                                     ===========     ===========     ===========
Net loss per share:
     Basic and diluted ...........................................   $     (2.40)    $     (4.15)    $     (5.13)
                                                                     ===========     ===========     ===========
Weighted average shares used in computing net
   loss per share-basic and diluted ..............................    15,344,102      48,508,042      59,920,196
                                                                     ===========     ===========     ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      X-4

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                  YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                            Series B           Series C
                                                        Series A           Convertible       Convertible
                                                       Convertible         Redeemable         Redeemable             Class A
                                                    Preferred Stock     Preferred Stock       Preferred            Common Stock
                                                    ----------------    ----------------      ----------           -------------

                                                  Shares      Amount    Shares     Amount    Shares    Amount     Shares     Amount
                                                  ------      ------    ------     ------    ------    ------     ------     ------
<S>                                           <C>            <C>        <C>        <C>      <C>        <C>       <C>         <C>
                                                                                                   (in thousands, except share data)
Balance at January 1, 1999 ................           --     $   --          --    $   --         --   $    --           --  $   --
53,514-for-one stock split ................           --         --          --        --         --        --           --      --
Initial public offering ...................           --         --          --        --         --        --   10,241,000     102
Conversion of Series A convertible
  debt ....................................   10,786,504        108          --        --         --        --   16,179,755     162
Conversion of subordinated
  convertible notes payable to
  related party ...........................           --         --          --        --         --        --           --      --
Increase in DARS license, goodwill
  and intangibles .........................           --         --          --        --         --        --           --      --
Charge for beneficial conversion
  feature of note issued to Parent ........           --         --          --        --         --        --           --      --
Issuance of shares to employees
  through stock option and
  purchase plans ..........................           --         --          --        --         --        --       29,862       1
Non-cash stock compensation ...............           --         --          --        --         --        --       14,716      --
Net loss ..................................           --         --          --        --         --        --           --      --
                                              ----------     ------- ----------    ------    -------   -------   ----------  ------
Balance at December 31, 1999 ..............   10,786,504     $   108         --    $   --         --   $    --   26,465,333  $  265
Secondary public offering .................           --          --         --        --         --        --    4,370,000      44
Sale of Series B convertible
  redeemable preferred stock ..............           --          --  2,000,000        20         --        --           --      --
Sale of Series C convertible
  redeemable preferred stock ..............           --          --         --        --    235,000         2           --      --
Incentivized conversion of Series B
  convertible redeemable preferred
  stock ...................................           --          -- (1,132,711)      (11)        --        --    1,700,016      17
Sale of warrants to purchase Class A
  common stock ............................           --          --         --        --         --        --           --      --
Conversion of Class B common stock ........           --          --         --        --         --        --    1,314,914      13
Series B convertible redeemable
  preferred stock dividends ...............           --          --         --        --         --        --      145,166       1
Issuance of shares to employees
  through stock option and
  purchase plans ..........................           --          --         --        --         --        --       73,565       1
Non-cash stock compensation ...............           --          --         --        --         --        --        5,000      --
Net loss ..................................           --          --         --        --         --        --           --      --
                                              ----------     ------- ----------    ------    -------   -------   ----------  ------
Balance at December 31, 2000 ..............   10,786,504     $   108    867,289    $    9    235,000   $     2   34,073,994     341
Conversion of Class B common stock ........           --          --         --        --         --        --   16,557,262     166
Incentivized conversion of
  convertible subordinated notes to
  Class A common stock ....................           --          --         --        --         --        --    4,194,272      42
Secondary public offerings ................           --          --         --        --         --        --   19,000,000     190
Series B convertible redeemable
  preferred stock dividends ...............           --          --         --        --         --        --      466,180       5
Issuance of shares to employees
  through stock option and
  purchase plans ..........................           --          --         --        --         --        --      190,460       1
Non-cash stock compensation ...............           --          --         --        --         --        --           --      --
Net loss ..................................           --          --         --        --         --        --           --      --
                                              ----------     ------- ----------    ------    -------   -------   ----------  ------
Balance at December 31, 2001 ..............   10,786,504     $   108    867,289    $    9    235,000   $     2   74,482,168  $  745
                                              ----------     ======= ==========    ======    =======   =======   ==========  ======
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                                                                           Total
                                                                                          Additional                   Stockholders'
                                                       Class B              Class C          Paid-in      Accumulated     Equity
                                                    Common Stock          Common Stock      Capital        Deficit       Deficit
                                                    -------------         ------------      -------        --------      -------

                                                  Shares    Amount      Shares    Amount
                                                  ------    ------      ------    ------
<S>                                          <C>             <C>      <C>       <C>       <C>             <C>          <C>
Balance at January 1, 1999 ................          125     $    --      --    $   --    $    10,643     $   (17,826)      (7,183)
53,514-for-one stock split ................    6,689,125          67      --        --            (67)             --           --
Initial public offering ...................           --          --      --        --        114,032              --      114,134
Conversion of Series A convertible
  debt ....................................           --          --      --        --        246,079              --      246,349
Conversion of subordinated
  convertible notes payable to
  related party ...........................   11,182,926         112      --        --        106,843              --      106,955
Increase in DARS license, goodwill
  and intangibles .........................           --          --      --        --         51,624              --       51,624
Charge for beneficial conversion
  feature of note issued to Parent ........           --          --      --        --          5,520              --        5,520
Issuance of shares to employees
  through stock option and
  purchase plans ..........................           --          --      --        --            303              --          304
Non-cash stock compensation ...............           --          --      --        --          4,210              --        4,210
Net loss ..................................           --          --      --        --             --         (36,896)     (36,896)
                                             -----------     -------  ------    ------    -----------     -----------    ---------
Balance at December 31, 1999 ..............   17,872,176     $   179      --    $   --    $   539,187     $   (54,722)   $ 485,017
Secondary public offering .................           --          --      --        --        132,026              --    $ 132,070
Sale of Series B convertible
  redeemable preferred stock ..............           --          --      --        --         96,452              --       96,472
Sale of Series C convertible
  redeemable preferred stock ..............           --          --      --        --        226,820              --      226,822
Incentivized conversion of Series B
  convertible redeemable preferred
  stock ...................................           --          --      --        --             (6)             --           --
Sale of warrants to purchase Class A
  common stock ............................           --          --      --        --         63,536              --       63,536
Conversion of Class B common stock ........   (1,314,914)        (13)     --        --             --              --           --
Series B convertible redeemable
  preferred stock dividends ...............           --          --      --        --             (1)             --           --
Issuance of shares to employees
  through stock option and
  purchase plans ..........................           --          --      --        --          1,164              --        1,165
Non-cash stock compensation ...............           --          --      --        --          2,743              --        2,743
Net loss ..................................           --          --      --        --             --         (51,873)     (51,873)
                                             -----------     -------  ------    ------    -----------     -----------    ---------
Balance at December 31, 2000 ..............   16,557,262     $   166      --    $   --    $ 1,061,921     $  (106,585)   $ 955,952
Conversion of Class B common stock ........  (16,557,262)       (166)     --        --             --              --           --
Incentivized conversion of
  convertible subordinated
  notes to Class A common stock ...........           --          --      --        --         50,950              --       50,992
Secondary public offerings ................           --          --      --        --        197,896              --      198,086
Series B convertible redeemable
  preferred stock dividends ...............           --          --      --        --             (5)             --           --
Issuance of shares to employees
  through stock option and
  purchase plans ..........................           --          --      --        --          1,132              --        1,133
Non-cash stock compensation ...............           --          --      --        --          4,867              --        4,867
Net loss ..................................           --          --      --        --             --        (284,379)    (284,379)
                                             -----------     -------  ------    ------    -----------     -----------    ---------
Balance at December 31, 2001 ..............  $        --     $    --      --    $   --    $ 1,316,761     $  (390,974)   $ 926,651
                                             ===========     =======  ======    ======    ===========     ===========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      X-5

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                                         1999         2000         2001
                                                                                      ---------     ---------    --------
                                                                                                 (in thousands)
<S>                                                                                   <C>        <C>             <C>
Cash flows from operating activities:
  Net loss ........................................................................   $ (36,896)    $ (51,873)   $(284,379)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Bad debt expense ..............................................................          --            --           10
    Depreciation and amortization .................................................       1,478         3,369       42,422
    Loss on disposal computer equipment ...........................................          --            --          435
    Amortization of deferred financing fees .......................................         509            --           --
    Non-cash stock-based compensation .............................................       4,210         2,743        4,867
    Non-cash charge for beneficial conversion feature of note .....................
      issued to investor ..........................................................       5,520            --           --
    Changes in operating assets and liabilities:
      Increase in accounts receivable .............................................          --            --         (488)
      Increase in prepaid and other current assets ................................        (905)       (7,738)      (6,905)
      Decrease in other assets ....................................................          43            --           --
      Increase in accounts payable and accrued expenses ...........................       7,519        16,026       29,531
      Increase (decrease) in amounts due to related parties .......................      (1,316)           26        2,696
      Increase in accrued interest ................................................       3,053            --        8,763
                                                                                      ---------     ---------    ---------
        Net cash used in operating activities .....................................     (16,785)      (37,447)    (203,048)
                                                                                      ---------     ---------    ---------
Cash flows from investing activities:
  Purchase of property and equipment ..............................................      (2,008)      (41,925)     (58,520)
  Additions to system under construction ..........................................    (159,510)     (424,342)    (142,321)
  Net purchase/maturity of short-term investments .................................     (69,472)       69,472      (28,355)
  Net purchase/maturity of restricted investments .................................          --      (106,338)      40,317
  Other investing activities ......................................................      (3,422)      (56,268)     (32,482)
                                                                                      ---------     ---------    ---------
        Net cash used in investing activities .....................................    (234,412)     (559,401)    (221,361)
                                                                                      ---------     ---------    ---------
Cash flows from financing activities:
  Proceeds from sale of common stock and capital contribution .....................     114,428       133,235      199,219
  Proceeds from issuance of Series B convertible redeemable preferred stock........          --        96,472           --
  Proceeds from issuance of 14% senior secured notes and warrants .................          --       322,889           --
  Proceeds from issuance of Series C convertible redeemable preferred stock........          --       226,822           --
  Proceeds from issuance of subordinated convertible notes to related parties......      22,966            --           --
  Proceeds from issuance of 7.75% convertible subordinated notes ..................          --            --      125,000
  Proceeds from mortgage on corporate facility ....................................          --            --       29,000
  Proceeds from loan payable ......................................................          --            --       35,000
  Proceeds from issuance of convertible notes .....................................     250,000            --           --
  Repayment of loan payable to related party ......................................     (75,000)           --           --
  Payments for deferred financing costs ...........................................     (10,725)       (8,365)      (6,124)
  Other net financing activities ..................................................         (84)           --          (92)
                                                                                      ---------     ---------    ---------
        Net cash provided by financing activities .................................     301,585       771,053      382,003
                                                                                      ---------     ---------    ---------
Net increase (decrease) in cash and cash equivalents ..............................      50,388       174,205      (42,406)
Cash and cash equivalents at beginning of period ..................................         310        50,698      224,903
                                                                                      ---------     ---------    ---------
Cash and cash equivalents at end of period ........................................   $  50,698     $ 224,903    $ 182,497
                                                                                      =========     =========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      X-6

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

(1) Summary of Significant Accounting Policies and Practices

(a) Nature of Business

     XM Satellite Radio Inc. ("XMSR"), was incorporated on December 15, 1992 in
the State of Delaware as a wholly owned subsidiary of Motient Corporation
("Motient"), for the purpose of operating a digital audio radio service ("DARS")
under a license from the Federal Communications Commission ("FCC"). XM Satellite
Radio Holdings Inc. (the "Company") was formed as a holding company for XMSR on
May 16, 1997.

     The Company became the first digital satellite radio service in the United
States of America on September 25, 2001 when it commenced commercial operations
in the lead markets of Dallas, Texas and San Diego, California as part of its
national rollout. On October 18, 2001, the Company continued its national
rollout as it launched service in the southern half of the country and completed
its national rollout on November 12, 2001. In 2001, the Company's satellites,
"Rock" and "Roll", were successfully launched on March 18, 2001 and May 8, 2001,
respectively.

(b) Principles of Consolidation and Basis of Presentation

     The consolidated financial statements include the accounts of XM Satellite
Radio Holdings Inc. and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated. The Company emerged from the
development stage in the fourth quarter of 2001 as its principal operations had
commenced and its national rollout had been completed. Accordingly, the Company
revised the presentation of its Consolidated Statements of Operations to reflect
that of a commercial enterprise.

     As discussed in Note 5, on September 9, 1999, the Company effected a
53,514-for-1 stock split. The effect of the stock split has been reflected as of
December 31, 1999 in the consolidated statements of stockholders' equity
(deficit); however, the activity in prior periods was not restated. All
references to the number of common shares and per share amounts in the
consolidated financial statements and notes thereto have been restated to
reflect the effect of the split for all periods presented.

(c) Cash and Cash Equivalents

     The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. The Company
had the following cash and cash equivalents balances (in thousands):

<TABLE>
                                                         December 31,
                                                     --------------------
                                                       2000        2001
                                                     --------    --------
                <S>                                  <C>         <C>
                Cash on deposit ...................  $     97     ($4,216)
                Overnight investments .............        --     140,250
                Money market funds ................   224,806       2,794
                Commercial paper ..................        --      43,669
                                                     --------    --------
                                                     $224,903    $182,497
                                                     ========    ========
</TABLE>
(d) Short-term Investments

     At December 31, 2001, the Company held commercial paper with maturity dates
of less than one year that were stated at amortized cost, which approximated
fair value.

(e) Restricted Investments

     Restricted investments consist of fixed income securities and are stated at
amortized cost plus accrued interest income. At December 31, 2000 and 2001,
restricted investments represent securities held in escrow to secure the
Company's future performance with regard to certain contracts and obligations,
which include the interest payments required on the Company's 14% senior secured
notes through March 2003, payments under the Hughes Electronics Corporation
("Hughes") terrestrial repeater contract, and certain facility leases and other
secured credits. The interest reserve consists of US Treasury securities and are
classified as held-to-maturity investments. The remaining investments are
principally money market funds and certificates of deposit. The amortized cost,
gross unrealized

                                      X-7
<PAGE>
                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

holding gains, gross unrealized holding losses and fair value of the restricted
investments at December 31, 2000 and 2001, were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         Gross      Gross
                                                                      Unrealized Unrealized
                                                           Amortized    Holding    Holding
                                                              Cost       Gains     Losses   Fair Value
                                                              ----       -----     ------   ----------
<S>                                                         <C>        <C>       <C>        <C>
At December 31, 2000:
-----------------------
Interest reserve ........................................   $106,338   $  1,060   $     --   $107,398
Contract escrow .........................................     49,692         --         --     49,692
Collateral for letters of credit and other
  secured credit ........................................      5,136         --         --      5,136
                                                            --------   --------   --------   --------
                                                            $161,166   $  1,060   $     --   $162,226
                                                            ========   ========   ========   ========
At December 31, 2001:
------------------------
Interest reserve ........................................   $ 66,020   $  1,354   $     --   $ 67,374
Contract escrow .........................................      2,930         --         --      2,930
Collateral for letters of credit and other
  secured credit ........................................      3,809         --         --      3,809
                                                            --------   --------   --------   --------
                                                            $ 72,759   $  1,354   $     --   $ 74,113
                                                            ========   ========   ========   ========
</TABLE>
(f) Property and Equipment

     Property and equipment are carried at cost less accumulated depreciation
and amortization. Equipment under capital leases is stated at the present value
of minimum lease payments. Depreciation and amortization is calculated using the
straight-line method over the following estimated useful lives:

<TABLE>
  <S>                                                                     <C>
  Satellite system, DARS license, and space craft control facilities....  17.5 years
  Terrestrial repeater network..........................................  5-10 years
  Broadcast facilities..................................................  3-7 years
  Computer systems......................................................  3-7 years
  Building and improvements.............................................  20 years
  Furniture and fixtures................................................  3-7 years
  Equipment under capital leases and leasehold improvements.............  Lesser of useful life or
                                                                          remaining lease term
</TABLE>

     Depreciation of the Company's in-orbit satellites commenced in May and June
2001 upon their acceptance from Boeing Satellite Systems International, Inc.
("BSS"). Amortization of the DARS license and depreciation of the ground
systems/spacecraft control facilities and related computer systems commenced on
September 25, 2001, which was the date the service was launched in the Company's
lead markets. Depreciation of the broadcast facilities and the terrestrial
repeaters commenced when they were placed in service.

     The Company accounts for long-lived assets in accordance with the newly
adopted provisions of Statement of Financial Accounting Standards ("SFAS") No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
Statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

(g) Goodwill and Other Intangible Assets

     Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 15 years. Other intangible assets are
amortized over 10 years. The Company assesses the recoverability of its
intangible assets by determining whether the amortization of the goodwill and
intangible assets balance over its remaining life can be recovered through
undiscounted future operating cash flows. The amount of goodwill and intangible
assets impairment, if any, is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. The

                                      X-8
<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, Business Combinations, ("SFAS No. 141") and SFAS No. 142, Goodwill and
Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations. SFAS No.
141 specifies criteria that intangible assets acquired in a business combination
must meet to be recognized and reported separately from goodwill. SFAS No. 142
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144 after its adoption.

     Upon adoption of SFAS No. 142 in the first quarter of 2002, the Company is
required to evaluate its existing acquired intangible assets and goodwill, and
to make any necessary reclassifications in order to conform with the new
classification criteria in SFAS No. 141 for recognition separate from goodwill.
The Company will be required to reassess the useful lives and residual values of
all intangible assets acquired, and make any necessary amortization period
adjustments by the end of the first quarter of 2002. If an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS No. 142 within the first interim period. Impairment is measured as the
excess of carrying value over the fair value of an intangible asset with an
indefinite life. Any impairment loss will be measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle.

     In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. The Company will then have up to six
months from January 1, 2002 to determine the fair value of each reporting unit
and compare it to the carrying amount of the reporting unit. To the extent the
carrying amount of a reporting unit exceeds the fair value of the reporting
unit, an indication exists that the reporting unit goodwill may be impaired and
the Company must perform the second step of the transitional impairment test.
The Company has determined that it only has one reporting unit as defined by the
Standard.

     The second step is required to be completed as soon as possible, but no
later than the end of the year of adoption. In the second step, the Company must
compare the implied fair value of the reporting unit goodwill with the carrying
amount of the reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation, in accordance with SFAS No. 141. The residual fair
value after this allocation is the implied fair value of the reporting unit
goodwill. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of income.

     As of the date of adoption of SFAS No. 142, the Company expects to have
unamortized goodwill in the amount of $11,461,000 and unamortized identifiable
intangible assets in the amount of $155,207,000, all of which will be subject to
the transition provisions of SFAS No. 142. Amortization expense related to
goodwill and other intangible assets was $1,220,000, $1,379,000 and $3,604,000
for the years ended December 31, 1999, 2000, and 2001, respectively. Although
the Company has not yet finalized its analysis of the adoption of SFAS No. 141
and No. 142, the Company does not expect to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.

(h) Revenue Recognition

     The Company derives revenue from subscriber subscription and activation
fees as well as advertising.

                                      X-9

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

     Subscriber revenue, which is generally billed in advance, consists of fixed
charges for service, which are recognized as the service is provided and through
non-refundable activation fees that are recognized ratably over the expected
life of the customer relationship. Direct activation costs are expensed as
incurred.

     The Company recognizes advertising revenue from sales of spot announcements
to national advertisers that are recognized in the period in which the spot
announcement is broadcast. Agency commissions are presented as a reduction to
revenue in the Consolidated Statement of Operations.

(i) Stock-Based Compensation

     The Company accounts for stock-based compensation arrangements in
accordance with the provisions of Accounting Principle Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations including FASB Interpretation ("FIN") No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of APB
opinion No. 25 issued in March 2000, and complies with the disclosure provisions
of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB 25,
compensation expense is based upon the difference, if any, on the date of grant,
between the fair value of the Company's stock and the exercise price. All
stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.

     The Company adopted FIN No. 44 in July 2000 to account for stock options
that had been repriced during the period covered by FIN No. 44. The application
resulted in additional compensation of $1,213,000 and $1,232,000 during the year
ended December 31, 2000 and 2001, respectively. Additional compensation charges
may result depending upon the market value of the common stock at each balance
sheet date.

(j) Research and Development and Advertising

     Research and development costs and advertising costs are expensed as
incurred.

(k) Net Income (Loss) Per Share

     The Company computes net income (loss) per share in accordance with SFAS
No. 128, Earnings Per Share and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
stockholders (after deducting preferred dividend requirements) for the period by
the weighted average number of common shares outstanding during the period.
Diluted net income (loss) available per share is computed by dividing the net
income (loss) available to common stockholders for the period by the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. The Company has presented historical basic and diluted net
income (loss) per share in accordance with SFAS No. 128. As the Company had a
net loss in each of the periods presented, basic and diluted net income (loss)
per share is the same.

(l) Income Taxes

     The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and the financial reporting amounts at each year-end and operating
loss and tax credit carryforwards, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the sum of taxes payable for the period and the change during the period in
deferred tax assets and liabilities.

(m) Comprehensive Income

     The Company has engaged in no transactions during the years ended December
31, 1999, 2000 and 2001 that would be classified as other comprehensive income.

(n) Accounting Estimates

                                      X-10

<PAGE>
                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

     The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reporting period. The estimates involve judgments with respect to, among
other things, various future factors which are difficult to predict and are
beyond the control of the Company. Significant estimates include valuation of
the Company's investment in the DARS license, the allowance for doubtful
accounts, the valuation of goodwill and intangible assets, the recoverability of
the XM Radio System assets, the costs to terminate certain terrestrial repeater
site leases, the allocation of purchase price of assets acquired, the estimated
life of a subscriber's subscription, the payments to be made to distributors and
manufacturers for radios sold or activated, the amount of stock-based
compensation arrangements and the valuation allowances against deferred tax
assets. Accordingly, actual amounts could differ from these estimates.

(o) Reclassifications

     Certain fiscal year 1999 and 2000 amounts have been reclassified to conform
to the current presentation.

(p) Derivative Instruments and Hedging Activities

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 2000 the FASB issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activity, an
amendment of SFAS 133. SFAS No. 133 and SFAS No. 138 require that all derivative
instruments be recorded on the balance sheet at their respective fair values.
SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters of all
fiscal years beginning after June 30, 2000. The Company adopted SFAS No. 133 and
SFAS No. 138 on January 1, 2001. The Company has reviewed its contracts and has
determined that it has no stand alone derivative instruments and does not engage
in hedging activities.


(2)  Accumulated Deficit

     The Company is devoting its efforts to market its digital audio radio
service and to increase its subscriber base. This effort involves substantial
risk and future operating results will be subject to significant business,
economic, regulatory, technical, and competitive uncertainties and
contingencies. These factors individually, or in the aggregate, could have an
adverse effect on the Company's financial condition and future operating results
and create an uncertainty as to the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.

     At the Company's current stage of operations, economic uncertainties exist
regarding the successful acquisition of additional debt or equity financings and
the attainment of positive cash flows from the XM Radio Service. The Company has
commenced commercial operations and will require substantial additional
financing to market and distribute the XM Radio Service. Failure to obtain the
required long-term financing may prevent the Company from continuing to provide
its service. Management's plan to fund operations and capital expansion includes
the sale of additional debt and equity securities through public and private
sources. There are no assurances, however, that such financing will be obtained.

(3)  Related Party Transactions

     The Company had the following amounts outstanding to related parties at
December 31, 2000 and 2001 (in thousands):

<TABLE>
<CAPTION>
                                                             December 31,
                                                          ------------------
                                                            2000       2001
                                                          -------    -------
     <S>                                                  <C>        <C>
     General Motors Corporation ("GM") ..............     $    --    $   656
     Hughes .........................................          --      7,686
     DIRECTV, Inc. ("DIRECTV") ......................         200         50
     LCC International, Inc. ("LCCI") ...............      15,141     15,407
</TABLE>

                                      X-11

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

<TABLE>
     <S>                                             <C>       <C>
     Clear Channel ..............................         25     2,101
     Motient ....................................         63       152
                                                     -------   -------
                                                     $15,429   $26,052
                                                     =======   =======
</TABLE>

     The Company has relied upon certain related parties for legal and technical
services during the years ended December 31, 1999, 2000 and 2001. Total costs
incurred in transactions with related parties are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     Year ended December 31, 1999
                                                     -----------------------------------------------------------
                                                       GM      Hughes    DIRECTV   LCCI   Clear Channel  Motient
                                                     ------   --------   -------  ------  -------------  -------
<S>                                                  <C>      <C>        <C>      <C>     <C>            <C>
Terrestrial repeater network engineering
     and manufacturing ............................  $   --   $ 3,500    $    --  $6,578      $      --  $    --
General and administrative ........................      --        --         --      --             --      224

<CAPTION>
                                                                     Year ended December 31, 2000
                                                     ------------------------------------------------------------
                                                       GM      Hughes    DIRECTV    LCCI   Clear Channel  Motient
                                                     ------   --------   -------  -------  -------------  -------
<S>                                                  <C>      <C>        <C>      <C>      <C>            <C>
Terrestrial repeater network engineering
     and manufacturing ............................  $   --   $ 11,858   $    --  $58,731     $      --   $    --
Terrestrial repeater site leases ..................      --         --        --       --             5        --
Customer care and billing operations ..............      --         --     1,008       --            --        --
Sales and marketing ...............................      --         --        --       --         3,175        --
General and administrative ........................      --         --        --       --             3       252

<CAPTION>
                                                                     Year ended December 31, 2001
                                                     ------------------------------------------------------------
                                                       GM      Hughes    DIRECTV    LCCI   Clear Channel  Motient
                                                     ------   --------   -------  -------  -------------  -------
<S>                                                  <C>      <C>        <C>      <C>      <C>            <C>
Terrestrial repeater network engineering
     and manufacturing ............................  $   --   $ 88,116   $    --  $59,958     $       --  $    --
Terrestrial repeater site leases ..................      --         --        --       --             36       --
Customer care and billing operations ..............      --         --       623       --             --       --
Sales and marketing ...............................   1,264         --        --       --          4,351       --
General and administrative ........................      --         --        --       --             --      193
</TABLE>

(a) GM

     In 1999, the Company established a distribution agreement with GM (see note
15 (f)). Under the terms of the agreement, GM distributes the XM Radio Service
in various models of its vehicles.

(b) Hughes

     In 1999, the Company entered into a terrestrial repeater manufacturing
agreement with Hughes (see note 15 (e)).

(c) DIRECTV

     In 1999, the Company entered into a consulting services agreement with
DIRECTV. The agreement provides for DIRECTV professionals to aid the Company's
efforts in establishing its customer care center and billing operations on a
time and materials basis.

(d) LCCI

     In 1999, the Company entered into the LCCI Services Contract (note 15 (e))
and LCCI also provides certain ongoing consulting engineering work for the
Company relating to the terrestrial repeater network on a time and materials
basis.

                                      X-12

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

(e) Clear Channel

     In 2000, the Company entered into an advertising sales agreement with
Premiere Radio Networks, an affiliate of Clear Channel Communications, pursuant
to which Premiere sells to advertisers the time inventory owned by the Company
for advertisements to be run on XM Radio channels. Also in 2000, the Company
entered into a sponsorship agreement with SFX Marketing, now known as Clear
Channel Entertainment, pursuant to which the Company advertises its service at
Clear Channel Entertainment events and venues.

(f) Motient

     In 1998, the Company entered into an agreement with Motient, in which
Motient would provide technical and administrative support relating to the
Company's operations. Payments for services provided under this agreement were
made based on negotiated hourly rates.

(4)   System Under Construction

     The Company has capitalized costs related to the development of its XM
Radio System to the extent that they have future benefits. During 2001, the
Company placed its Boeing 702 satellites "Rock" and "Roll" into service as well
as its DARS license, ground systems/spacecraft control facilities, related
computer systems, and its terrestrial repeater network and broadcast facilities
by transferring $1,000,228,000 from system under construction to property and
equipment. The remaining components in system under construction include the
ground spare satellite and costs incurred through December 31, 2001 for the
performance broadcasting studio. The amounts recorded as system under
construction consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                December 31,
                                                            -------------------
                                                              2000       2001
                                                            --------   --------
                 <S>                                        <C>        <C>
                 DARS license .........................     $140,220   $     --
                 Satellite system .....................      533,155     55,016
                 Terrestrial system ...................       84,715         --
                 Spacecraft control facilities.........       13,046         --
                 Broadcast facilities .................       27,971         40
                 Computer systems .....................       15,909         --
                                                            --------   --------
                                                            $815,016   $ 55,056
                                                            ========   ========
</TABLE>

(5)  Property and Equipment

     Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                  -----------------------
                                                                    2000          2001
                                                                  --------     ----------
     <S>                                                          <C>          <C>
     DARS license .............................................   $     --     $  146,271
     Satellite system .........................................         --        521,251
     Terrestrial system .......................................         --        243,755
     Spacecraft control facilities ............................         --         24,353
     Broadcast facilities .....................................     16,752         55,686
     Land .....................................................         --          7,156
     Building and improvements ................................         --         42,269
     Computer systems, furniture and fixtures, and equipment...     21,063         68,834
     Leasehold improvements ...................................     14,574             --
                                                                  --------     ----------
                                                                    52,389      1,109,575

     Accumulated depreciation and amortization ................     (2,337)       (43,384)
                                                                  --------    -----------
</TABLE>

                                      X-13


<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

              Net property and equipment, net ......... $50,052   $ 1,066,191
                                                        =======   ===========

     In July 2001, the Company received notification from BSS that the expected
life of its satellites was extended due to the accuracy of the respective
launches, which used less fuel than anticipated. The Company, therefore, changed
the useful life estimate for the satellite system and the DARS license from 15
years to 17.5 years.

     In September 2001, BSS advised the Company of a progressive degradation
problem with the solar array output power of 702 class satellites, including XM
"Rock" and XM "Roll". At the present time, the output power of the solar arrays
and the broadcast signal strength are above minimum acceptable levels and are
expected to remain that way at least through 2005, permitting full operation of
the XM System (based on patterns projected by BSS). The Company has advised its
insurance carriers of the situation. Since the issue is common to 702 class
satellites, the manufacturer is closely watching the progression of the problem,
including data from a satellite in orbit approximately 18 months' longer than XM
"Rock" and XM "Roll". With this 18-month advance visibility of performance
levels, insurance arrangements in place, a spare satellite under construction
that is being modified to address the solar array anomaly and availability of
additional satellites, the Company believes that it will be able to launch
additional satellites prior to the time the solar power problem might cause the
broadcast signal strength to fall below acceptable levels. The Company's
management will continue to monitor this situation carefully over the next few
years.

     In August 2001, the Company acquired its corporate headquarters, which was
previously subject to a long-term lease. The related leasehold improvements have
been classified as buildings and improvements as of December 31, 2001.

     In December 2001, the Company determined that the planned number of
terrestrial repeater sites could be reduced due to a network optimization study
that was conducted. The Company established a formal plan and recognized a
charge of $26,300,000 with respect to the terrestrial repeater sites no longer
required. The costs are principally related to the site acquisition and
build-out of the identified sites. These costs have been included within system
operations at December 31, 2001. Included within the charge is $8,595,000 for
costs to be incurred in 2002 related to these sites (see note 15 (h)).

(6) Goodwill and Other Intangible Assets

     On July 7, 1999, Motient acquired a former investor's remaining debt and
equity interests in the Company in exchange for approximately 8,600,000 shares
of Motient's common stock. Concurrent with Motient's acquisition of the
remaining interest in the Company, the Company recognized goodwill and other
intangible assets of $51,624,000, which has been allocated as follows (in
thousands):

                        DARS License ....................   $25,024
                        Goodwill ........................    13,738
                        Programming agreements ..........     8,000
                        Receiver agreements .............     4,600
                        Other intangibles ...............       262
                                                            -------
                                                            $51,624
                                                            =======

(7) Other Assets

     Other assets consist of the following at December 31, 2000 and 2001 (in
thousands):

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                          ----------------------
                                                                             2000        2001
                                                                           -------     ---------
   <S>                                                                    <C>          <C>
   14% senior secured notes deferred financing fees ...................    $ 8,493     $ 8,858
   7.75% convertible subordinated notes deferred financing fees .......         --       2,665
   Mortgage deferred financing fees ...................................         --         496
   Loan payable deferred financing fees ...............................         --         943
</TABLE>

                                      X-14

<PAGE>
                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001


<TABLE>
   <S>                                                                   <C>         <C>
   Refundable deposits and other long-term prepaid expenses ..........       1,444       1,726
                                                                         ---------   ---------
                                                                             9,937      14,688

        Less accumulated amortization ................................        (672)     (2,167)
                                                                         ---------   ---------

        Other assets, net ............................................   $   9,265   $  12,521
                                                                         =========   =========
</TABLE>

(8) Long-Term Debt

     Long-term debt at December 31, 2000 and 2001 consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                        ----------------------
                                                                           2000        2001
                                                                          --------   ---------
     <S>                                                                <C>          <C>
     14% senior secured notes .......................................    $ 325,000   $ 325,000
          Less unamortized discount on 14% senior secured notes .....      (63,702)    (60,694)
     7.75% convertible subordinated notes ...........................           --      79,057
     Mortgage .......................................................           --      28,909
     Loan payable ...................................................           --      35,000
     Capital leases .................................................        1,923       6,158
                                                                         ---------   ---------
          Total long-term debt ......................................      263,221     413,430

          Less current installments .................................         (556)     (1,910)
                                                                         ---------   ---------

          Long-term debt, excluding current installments ............    $ 262,665   $ 411,520
                                                                         =========   =========
</TABLE>

(a) 14% Senior Secured Notes

     On March 15, 2000, the Company closed a private placement of 325,000 units,
each unit consisting of $1,000 principal amount of 14% senior secured notes due
2010 of XMSR and one warrant to purchase 8.024815 shares of the Company's Class
A common stock at a price of $49.50 per share. The Company realized net proceeds
of $191,500,000, excluding $123,000,000 used to acquire securities that will be
used to pay interest payments due under the notes for the first three years. The
$325,000,000 face value of the notes was offset by a discount of $65,746,000
associated with the fair value of the related warrants. The Company had
amortized $2,044,000 and $5,052,000 of the discount through December 31, 2000
and 2001, respectively. See note 10(f) for further discussion regarding
adjustments that have occurred to the related warrants.

(b) 7.75% Convertible Subordinated Notes

     On March 6, 2001, the Company closed a public offering of $125,000,000 of
its 7.75% convertible subordinated notes due 2006, which yielded net proceeds of
$120,700,000. The subordinated notes are convertible into shares of the
Company's Class A common stock at a conversion price of $12.23 per share. The
first interest payment on the 7.75% convertible subordinated notes of $3.0
million was paid in September 2001. In July and August 2001, the holders of the
7.75% convertible subordinated notes exchanged $45,900,000 of notes for
4,194,272 shares of the Company's Class A common stock. The Company incurred a
charge to interest for the incentivized conversion of $6,500,000.

(c) Mortgage

      On August 24, 2001, the Company entered into a loan and security agreement
with a lender that provided it with $29,000,000 to purchase its corporate
headquarters and incurred $500,000 in financing costs associated with the
transaction. The loan bears interest at 8% until it adjusts on March 1, 2002 to
the six month LIBOR rate plus 3.5%. The interest rate will then be adjusted
every six months and may not exceed the ceiling rate of 14% or the floor rate of
8%. The loan will mature on September 1, 2006. The Company used the proceeds
along with $5,000,000 to purchase its corporate headquarters for $34,000,000 and
incurred $800,000 in closing costs on the

                                      X-15

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

transaction. The mortgage is secured by the building and an escrow of $2,000,000
at December 31, 2001. The Company is obligated to either increase the escrow by
$1,000,000 and $500,000 in 2002 and 2003, respectively, or establish letters of
credit to provide for these obligations.

(d) Loan Payable

     On December 5, 2001, the Company entered into a Customer Credit Agreement
with Boeing Capital Corporation ("BCC") pursuant to which the Company borrowed
$35,000,000 from BCC at an interest rate equal to LIBOR plus 3.5%, increasing to
LIBOR plus 4.5% after December 5, 2003, which is compounded annually and payable
quarterly in arrears. The principal is due on the earlier of December 5, 2006 or
the launch of the ground spare satellite. The principal would also become due
should the Boeing Satellite Contract (note 15(d)) be terminated. The loan is
secured by the Company's interest in the ground spare satellite, excluding its
payload.

(9)   Fair Value of Financial Instruments

     The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 2000 and 2001 (in
thousands). The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.

<TABLE>
<CAPTION>
                                                                   December 31,
                                                --------------------------------------------------
                                                         2000                      2001
                                                         ----                      ----
                                                 Carrying                   Carrying
                                                  Amount     Fair Value      Amount     Fair Value
                                                  ------     ----------      ------     ----------
<S>                                             <C>          <C>           <C>          <C>
Financial assets:
   Cash and cash equivalents .................   $ 224,903    $ 224,903    $ 182,497    $ 182,497
   Short-term investments ....................          --           --       28,355       28,355
   Restricted investments ....................     161,166      162,226       72,759       74,113
   Accounts receivable .......................          --           --          478          478
   Letters of credit .........................          --           12           --           13

Financial liabilities:
   Accounts payable ..........................      31,793       31,793       36,559       36,559
   Accrued expenses ..........................       3,474        3,474       22,541       22,541
   Accrued network optimization expenses .....          --           --        8,595        8,595
   Due to related parties ....................      15,429       15,429       26,052       26,052
   Royalty payable ...........................       5,165        5,165        5,357        5,357
   Long-term debt ............................     263,221      181,486      413,430      456,294
   Other non-current liabilities .............       4,787        4,787        1,354        1,354
</TABLE>

     The carrying amounts shown in the table are included in the consolidated
balance sheets under the indicated captions. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:

     Cash and cash equivalents, short-term investments, accounts receivable,
prepaid and other current assets, other assets, accounts payable, accrued
expenses, accrued network optimization expenses, due to related parties, royalty
payable and other non-current liabilities: The carrying amounts approximate fair
value because of the short maturity of these instruments.

     Restricted investments: The fair values of debt securities
(held-to-maturity investments) are based on quoted market prices at the
reporting date for those or similar investments.

     Letters of credit: The value of the letters of credit is based on the fees
paid to obtain the letters of credit.

     Long-term debt: The fair value of the Company's long-term debt is
determined by either estimation by discounting the future cash flows of each
instrument at rates currently offered to the Company for similar debt

                                      X-16

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

instruments of comparable maturities by the Company's bankers or by quoted
market prices at the reporting date for the traded debt securities (the carrying
value of XMSR's 14% senior secured notes is significantly less than face value
because the notes were sold at a discount for value allocated to the related
warrants).

(10) Equity

(a) Recapitalization

     Concurrent with the transaction discussed in note 6, the Company's capital
structure was reorganized. The Company's common stock was converted into the
newly authorized Class B common stock, which has three votes per share. The
Company also authorized Class A common stock, which is entitled to one vote per
share, and non-voting Class C common stock.

     The Company authorized 60,000,000 shares of preferred stock, of which
15,000,000 shares are designated Series A convertible preferred stock, 3,000,000
shares are designated 8.25% Series B convertible redeemable preferred stock, and
250,000 shares are designated 8.25% Series C convertible redeemable preferred
stock, which are all par value $0.01 per share. The Series A convertible
preferred stock is convertible into Class A common stock at the option of the
holder. The Series A preferred stock is non-voting and receives dividends, if
declared, ratably with the common stock. The Series B and C convertible
redeemable preferred stock are convertible to Class A common stock at the option
of the holder and are mandatorily redeemable in Class A common stock. The Series
B convertible redeemable preferred stock is non-voting. The Series C redeemable
preferred stock contains voting and certain veto rights.

     On January 15, 1999, the Company issued a convertible note to Motient for
$21,419,000. This convertible note bore interest at LIBOR plus 5% per annum and
was due on December 31, 2004. The principal and interest balances were
convertible at prices of $16.35 and $9.52, respectively, per Class B common
share. Following the transaction discussed in note 6, the Company issued a
convertible note maturing December 31, 2004 to Motient for $81,676,000 in
exchange for the $54,536,000 subordinated convertible notes payable to a former
investor, $6,889,000 in demand notes to a former investor, $20,251,000 in
accrued interest to a former investor and all of the former investor's
outstanding options to acquire the Company's common stock. This note bore
interest at LIBOR plus 5% per annum. The note was convertible at Motient's
option at $8.65 per Class B common share. The Company took a one-time $5,520,000
charge to interest due to the beneficial conversion feature of this note. These
Motient convertible notes, along with $3,870,000 of accrued interest, were
converted into 11,182,926 shares of Class B common stock upon the initial public
offering.

     At the closing of the transaction discussed in note 6, the Company issued
an aggregate $250.0 million of Series A subordinated convertible notes to six
new investors--GM, $50.0 million; Clear Channel Investments, Inc., $75.0
million; DIRECTV Enterprises, Inc., $50.0 million; and Columbia Capital, Telcom
Ventures, L.L.C. and Madison Dearborn Partners, $75.0 million. The Series A
subordinated convertible notes issued by the Company were convertible into
shares of the Company's Series A convertible preferred stock (in the case of
notes held by General Motors Corporation and DIRECTV) or Class A common stock
(in the case of notes held by the other investors) at the election of the
holders or upon the occurrence of certain events, including an initial public
offering of a prescribed size. The conversion price was $9.52 aggregate
principal amount of notes for each share of the Company's stock. These notes,
along with $6,849,000 of accrued interest, were converted into 16,179,755 shares
of Class A common stock and 10,786,504 shares of Series A preferred stock upon
the initial public offering.

     On September 9, 1999, the board of directors of the Company effected a
stock split providing 53,514 shares of stock for each share owned.

     In 2000, at the request of the Company, one of the Class B common
stockholders converted 1,314,914 shares of the Company's Class B common stock
into Class A common stock on a one-for-one basis.

     On July 14, 2000, the Company filed an application with the FCC to allow
the Company to transfer its control from Motient to a diffuse group of owners,
none of whom will have controlling interest. On December 22, 2000, the

                                      X-17

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

application was approved by the FCC. In 2001, Motient converted the remaining
16,557,262 shares of the Company's Class B common stock into Class A common
stock on a one-for-one basis.

(b) Initial Public Offering

     In October 1999, the Company completed an initial public offering of
10,241,000 shares of Class A common stock at $12.00 per share. The offering
yielded net proceeds of $114,134,000.

(c) 2000 Common Stock Offering and Sale of Series B Convertible Redeemable
Preferred Stock

     On January 31, 2000, the Company closed on a secondary offering of its
Class A common stock and newly designated Series B convertible redeemable
preferred stock. The Company sold 4,000,000 shares of its Class A common stock
for $32.00 per share, which yielded net proceeds of $120,837,000. The Company
concurrently sold 2,000,000 shares of its Series B convertible redeemable
preferred stock for $50.00 per share, which yielded net proceeds of $96,472,000.
The Series B convertible redeemable preferred stock provides for 8.25%
cumulative dividends that may be paid in Class A common stock or cash. The
Series B convertible redeemable preferred stock is convertible into Class A
common stock at a conversion price of $40 per share and is redeemable in Class A
common stock on February 3, 2003. On February 9, 2000, the underwriters
exercised a portion of the over-allotment option for 370,000 shares of Class A
common stock, which yielded net proceeds of approximately $11,233,000.

     On August 1, 2000, the Company entered into agreements with certain holders
of its 8.25% Series B convertible redeemable preferred stock to exchange their
shares of 8.25% Series B convertible redeemable preferred stock for shares of
the Company's Class A common stock. By August 31, 2000, the Company had issued
1,700,016 shares of its Class A common stock in exchange for 1,132,711 shares of
its 8.25% Series B convertible redeemable preferred stock. The Company recorded
an $11,200,000 charge to earnings attributable to common stockholders in the
third quarter related to this transaction. This charge represents the difference
in the fair value of the stock issued upon this conversion in excess of the
stock that the holders were entitled to upon a voluntary conversion.

     The Company paid the 2000 quarterly dividends on the 8.25% Series B
convertible redeemable preferred stock on May 1, 2000, August 1, 2000 and
November 1, 2000 by issuing 62,318, 57,114 and 25,734 shares of Class A common
stock, respectively, to the respective holders of record. The Company paid the
2001 quarterly dividends on February 1, 2001, May 1, 2001, August 1, 2001 and
November 1, 2001 by issuing 56,269, 178,099, 63,934 and 167,878 shares of Class
A common stock, respectively, to the respective holders of record.

(d) Series C Convertible Redeemable Preferred Stock

     On July 7, 2000, the Company reached an agreement for a private offering of
235,000 shares of its Series C convertible redeemable preferred stock for $1,000
per share, which closed on August 8, 2000 and yielded net proceeds of
$206,379,000 and a stock subscription of $20,000,000 that earned interest at 7%
per annum until it was paid on November 30, 2000. The stock subscription was
received in November 2000 and provided an additional $20,443,000. The Series C
convertible redeemable preferred stock provides for 8.25% cumulative dividends
payable in cash. As no dividends have been declared on the Series C convertible
redeemable preferred stock, the value of the cumulative dividends has increased
the liquidation preference. The Series C convertible redeemable preferred stock
is convertible, at the holders' option, into Class A common stock at the
conversion price then in effect. Initially, the conversion price was $26.50, but
is subject to change upon the occurrence of certain dilutive events. The
conversion price has been adjusted as discussed below. The Company must redeem
the Series C convertible redeemable preferred stock in Class A common stock on
February 1, 2012. At its option, the Company may redeem the Series C convertible
redeemable preferred stock beginning on February 8, 2005 in cash or, at the
holder's option, in Class A common stock.

     As a result of the current conversion price of $26.50 being less than the
market value of the Company's Class A common stock of $40.375 on the commitment
date, the Company recorded a $123,000,000 beneficial conversion charge that
reduced earnings available to common stockholders.

(e) 2001 Common Stock Offerings

                                      X-18

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

     On March 6, 2001, the Company completed a follow-on offering of 7,500,000
shares of its Class A common stock, which yielded net proceeds of $72,000,000.
On December 6, 2001, the Company completed a follow-on offering of 11,500,000
shares of its Class A common stock, which yielded net proceeds of $126,500,000.

(f) Adjustments To Warrants and Series C Convertible Redeemable Preferred Stock

     The issuance of the Series C convertible redeemable preferred stock caused
the exercise price of the warrants sold in March 2000 to be adjusted from $49.50
to $47.94 and the number of warrant shares to be increased to 8.285948 per
warrant.

     The closings of the offerings of 7.75% convertible subordinated notes in
March 2001 and Class A common stock in March and December 2001 caused the
conversion price of the Series C convertible redeemable preferred stock to be
adjusted from $26.50 to $22.17, the exercise price of the warrants sold in March
2000 to be adjusted to $45.27 and the number of warrant shares to be increased
to 8.776003 per warrant.

(g) Stock-Based Compensation

     The Company operates three separate stock plans, the details of which are
described below.

     1998 Shares Award Plan

     On June 1, 1998, the Company adopted the 1998 Shares Award Plan (the
"Plan") under which employees, consultants, and non-employee directors may be
granted options to purchase shares of Class A common stock of the Company. The
Company initially authorized 1,337,850 shares of Class A common stock under the
Plan, which was increased to 2,675,700 in July 1999, 5,000,000 in May 2000, and
8,000,000 in May 2001. The options are exercisable in installments determined by
the compensation committee of the Company's board of directors. The options
expire as determined by the committee, but no later than ten years from the date
of grant. On July 8, 1999, the Company's board of directors voted to reduce the
exercise price of the options outstanding in the shares award plan from $16.35
to $9.52 per share, which represented the fair value of the stock on the date of
repricing.

     Transactions and other information relating to the Plan for the years ended
December 31, 1999, 2000 and 2001 are summarized below:

<TABLE>
<CAPTION>
                                                           Outstanding Options
                                                     -------------------------------
                                                                       Weighted-
                                                        Number of       Average
                                                         Shares     Exercise Price
                                                         ------     --------------
            <S>                                      <C>            <C>
            Balance, January 1, 1999 ..............        787,297     $  16.35
                 Options granted ..................      2,188,988        10.50
                 Option repricing .................       (818,339)       16.35
                 Options canceled or expired ......        (57,786)       13.91
                 Options exercised ................         (1,071)        9.52
                                                       -----------
            Balance, December 31, 1999 ............      2,099,089     $  10.32
                 Options granted ..................      1,176,683        30.21
                 Options canceled or expired ......       (131,267)       17.01
                 Options exercised ................        (48,817)        9.52
                                                       -----------
            Balance, December 31, 2000 ............      3,095,688     $  17.61
                 Options granted ..................      2,680,415        15.54
                 Options canceled or expired ......        (23,570)        9.55
                 Options exercised ................       (253,593)       17.88
                                                       -----------
            Balance, December 31, 2001 ............      5,498,940     $  16.62
                                                       ===========
</TABLE>

                                      X-19

<PAGE>
                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001
<TABLE>
                           Options Outstanding                      Options Exercisable
          -----------------------------------------------------  -------------------------
                                            Weighted-
                                             Average    Weighted-               Weighted-
                                            Remaining    Average                 Average
                                                                 -------------------------
                              Number       Contractual  Exercise      Number     Exercise
             Exercise Price  Outstanding      Life       Price     Exercisable    Price
             --------------  -----------      ----       -----     -----------    -----
<S>       <C>                <C>           <C>          <C>      <C>             <C>
1999           $9.52-$12.00   2,099,089    9.24 years     $10.32       416,294      $ 9.52
          --------------------------------------------------------------------------------
2000           $9.52-$12.00   2,120,400    8.26 years     $10.39     1,110,756      $10.06
              $12.01-$30.50     297,685    9.03 years     $23.13         5,334      $13.13
              $30.51-$45.44     677,603    9.54 years     $37.92        20,000      $43.69
          --------------------------------------------------------------------------------
2001            $4.82-$9.42     363,700    9.31 years      $7.91        55,000      $ 8.46
               $9.44-$12.00   2,256,263    7.50 years     $10.37     1,716,153      $10.21
              $12.06-$26.88   2,142,409    9.14 years     $17.75       165,132      $18.90
              $27.63-$45.44     736,568    8.52 years     $36.81       272,681      $36.93
          --------------------------------------------------------------------------------
</TABLE>

     There were 416,294, 1,136,090 and 2,208,966 stock options exercisable at
December 31, 1999, 2000 and 2001, respectively. At December 31, 2001, there were
2,197,579 shares available under the plan for future grants. At December 31,
2001, all options have been issued to employees, officers and directors, except
for 76,000 options granted to non-employees for which the Company recognized
$1,147,000 in non-cash compensation.

     The per share weighted-average fair value of employee options granted
during the year ended December 31, 1999, 2000 and 2001 was $6.21, $22.06 and
$8.77, respectively, on the date of grant using the Black-Scholes Option Pricing
Model with the following weighted-average assumptions:

                                                December 31,
                                 ----------------------------------------------
                                       1999            2000           2001
                                   ------------   -------------    ------------
Expected dividend yield ........             0%              0%              0%
Volatility .....................         63.92%          68.21%          62.40%
Risk-free interest rate range .. 5.47% to 5.97%  4.99% to 6.71%  3.66% to 4.99%
Expected life ..................        5 years         5 years         5 years
                                 ==============  ==============  ==============

     Employee Stock Purchase Plan

     In 1999, the Company established an employee stock purchase plan that
provides for the issuance of 300,000 shares of Class A common stock, which was
increased to 600,000 shares in 2001. All employees whose customary employment is
more than 20 hours per week and for more than five months in any calendar year
are eligible to participate in the stock purchase plan, provided that any
employee who would own 5% or more of the Company's total combined voting power
immediately after an offering date under the plan is not eligible to
participate. Eligible employees must authorize the Company to deduct an amount
from their pay during offering periods established by the compensation
committee. The purchase price for shares under the plan will be determined by
the compensation committee but may not be less than 85% of the lesser of the
market price of the common stock on the first or last business day of each
offering period. As of December 31, 1999, 2000 and 2001, the Company had issued
28,791, 53,539 and 217,401 shares, respectively, under this plan. At December
31, 2001, there were 382,599 shares available under the plan for future sale.

     The per share weighted-average fair value of purchase rights granted during
the year was $3.30, $11.28, and $5.37 for the years ended December 31, 1999,
2000 and 2001, respectively. The estimates were calculated at the grant date
using the Black-Scholes Option Pricing Model with the following assumptions at
December 31, 1999, 2000 and 2001:

                                                        December 31,
                                      -----------------------------------------
                                            1999        2000           2001
                                        ----------   -----------     ----------
    Expected dividend yield ..........          0%            0%             0%
    Volatility .......................      62.92%        68.21%         62.40%
    Risk-free interest rate range ....       4.73%   5.33%-6.23%     2.4%-5.89%
    Expected life ....................  0.23 years    0.24 years     0.24 years
                                        ==========   ===========     ==========


                                      X-20
<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001


     The Company applies APB 25 in accounting for stock-based compensation for
both plans and, accordingly, no compensation cost has been recognized for its
stock options and stock purchase plan in the financial statements other than for
performance based stock options, for options granted with exercise prices below
fair value on the date of grant and for repriced options under FIN No. 44.
During 1999, 2000 and 2001, the Company incurred $4,070,000, $2,557,000,
$2,336,000, respectively, in compensation cost for these options. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS 123, the Company's net loss and net loss per
share would have been increased to the pro forma amounts indicated below (in
thousands):

<TABLE>
                                                                        Year ended December 31,
                                                                  ------------------------------
                                                                    1999       2000       2001
                                                                  --------- ---------- ----------
            <S>                                                   <C>       <C>        <C>
            Net loss:
                 As reported ...................................    $36,896   $201,338   $307,532
                 Pro forma .....................................     37,706    209,582    323,685
                 As reported--net loss per share--basic and
                    diluted ....................................      (2.40)     (4.15)     (5.13)
                 Pro forma--net loss per share--basic and
                    diluted ....................................      (2.62)     (4.32)     (5.40)
                                                                  =========   ========   ========
</TABLE>
     Talent Option Plan

     In May 2000, the Company adopted the XM Talent Option Plan ("Talent Plan")
under which non-employee programming consultants to the Company may be granted
options to purchase shares of Class A common stock of the Company. The Company
authorized 500,000 shares of Class A common stock under the Talent Plan. The
options are exercisable in installments determined by the talent committee of
the Company's board of directors. The options expire as determined by the talent
committee, but no later than ten years from the date of the grant. As of
December 31, 2000 and 2001, no and 144,500 options had been granted under the
Talent Plan. In 2001, the Company recognized $575,000 in non-cash compensation
expense related to these options under SFAS 123. At December 31, 2001, there
were 355,500 options available under the plan for future grant.

(11) Profit Sharing and Employee Savings Plan

     On July 1, 1998, the Company adopted a profit sharing and employee savings
plan under Section 401(k) of the Internal Revenue Code. This plan allows
eligible employees to defer up to 15% of their compensation on a pre-tax basis
through contributions to the savings plan. The Company contributed $0.50 in
1999, 2000 and 2001 for every dollar the employees contributed up to 6% of
compensation, which amounted to $164,000, $229,000 and $543,000, respectively.

(12) Interest Cost

     The Company capitalizes a portion of interest cost as a component of the
cost of the XM Radio System. The following is a summary of interest cost
incurred during December 31, 1999, 2000 and 2001 (in thousands):

<TABLE>
<CAPTION>
                                                               1999        2000       2001
                                                              -------    -------    -------
                      <S>                                     <C>        <C>        <C>
                      Interest cost capitalized ............  $15,343    $39,052    $45,211
                      Interest cost charged to expense .....    9,121         --     18,131
                                                              -------    -------    -------
                      Total interest cost incurred .........  $24,464    $39,052    $63,342
                                                              =======    =======    =======
</TABLE>

     The Company exceeded its capitalization threshold by $3,600,000 and
incurred a charge to interest of $5,520,000 for the beneficial conversion
feature of a related party note in 1999 and by $18,131,000 in 2001.

(13) Income Taxes

     For the period from December 15, 1992 (date of inception) to October 8,
1999, the Company filed consolidated federal and state tax returns with its

                                      X-21

<PAGE>
                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

majority stockholder Motient. The Company generated net operating losses and
other deferred tax benefits that were not utilized by Motient. As no formal tax
sharing agreement has been finalized, the Company was not compensated for the
net operating losses. Had the Company filed on a stand-alone basis for the
three-year period ending December 31, 2001, the Company's tax provision would be
as follows:

     Taxes on income included in the Statements of Operations consists of the
following (in thousands):

                                                         December 31,
                                                      ------------------
                                                      1999   2000   2001
                                                      ----   ----   ----
     Current taxes:
          Federal ................................    $ --   $ --   $ --
          State ..................................      --     --     --
                                                      ----   ----   ----
               Total current taxes ...............      --     --     --
                                                      ----   ----   ----
     Deferred taxes:
          Federal ................................    $ --   $ --   $ --
          State ..................................      --     --     --
                                                      ----   ----   ----
               Total deferred taxes ..............      --     --     --
                                                      ----   ----   ----
               Total tax expense (benefit) .......    $ --   $ --   $ --
                                                      ====   ====   ====

     A reconciliation of the statutory tax expense, assuming all income is taxed
at the statutory rate applicable to the income and the actual tax expense is as
follows (in thousands):

<TABLE>
                                                                                         December 31,
                                                                                -------------------------------
                                                                                  1999       2000        2001
                                                                                --------   --------   ---------
     <S>                                                                        <C>        <C>        <C>
     Income (loss) before taxes on income, as reported in the statements
        of income ...........................................................   $(36,896)  $(51,873)  $(284,380)
                                                                                ========   ========   =========
     Theoretical tax benefit on the above amount at 35% .....................    (12,545)   (18,156)    (99,533)
     State tax, net of federal benefit ......................................        462     (2,588)    (13,225)
     Increase in taxes resulting from permanent differences, net ............      2,060        562       2,701
     Adjustments arising from differences in the basis of measurement
        for tax purposes and financial reporting purposes and other .........     13,182          9          --
     Change in valuation allowance ..........................................     (3,159)    20,173     110,057
                                                                                --------   --------   ---------
     Taxes on income for the reported year ..................................   $     --   $     --   $      --
                                                                                ========   ========   =========
</TABLE>

     At December 31, 1999, 2000 and 2001, deferred income tax consists of future
tax assets/(liabilities) attributable to the following (in thousands):

<TABLE>
                                                                                         December 31,
                                                                                -------------------------------
                                                                                  1999       2000        2001
                                                                                --------   --------   ---------
     <S>                                                                        <C>        <C>        <C>
     Deferred tax assets:
          Net operating loss/other tax attribute carryovers .................   $  2,490   $ 14,716   $  60,369
          Start-up costs ....................................................     17,765     40,033      99,822
          Other deferred tax assets .........................................         --         --      18,886
                                                                                --------   --------   ---------
               Gross total deferred tax assets ..............................     20,255     54,749     179,077
     Valuation allowance for deferred tax assets ............................     (4,819)   (24,992)   (135,049)
                                                                                --------   --------   ---------
               Net deferred assets ..........................................     15,436     29,757      44,028
                                                                                --------   --------   ---------
     Deferred tax liabilities:
          Fixed assets ......................................................        (51)   (15,500)    (29,437)
          DARS license ......................................................    (10,160)    (9,735)     (9,670)
          Other intangible assets ...........................................     (5,225)    (4,522)     (4,921)
                                                                                --------   --------   ---------
               Net deferred tax liabilities .................................    (15,436)   (29,757)    (44,028)
                                                                                --------   --------   ---------
               Deferred income tax, net .....................................   $     --   $     --   $      --
                                                                                ========   ========   =========
</TABLE>
                                      X-22
<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

     At December 31, 2001, the Company had accumulated net operating losses of
$150,884,000 for Federal income tax purposes that are available to offset future
regular taxable income. These operating loss carryforwards expire between the
years 2012 and 2021. Utilization of these net operating losses are subject to
limitations because there have been significant changes in the stock ownership
of the Company. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment.

(14)  Supplemental Cash Flows Disclosures

     The Company paid $0, $11,198,000, and $9,174,000 for interest (net of
amounts capitalized) during 1999, 2000, and 2001, respectively. Additionally,
the Company incurred the following non-cash financing and investing activities
(in thousands):

<TABLE>
                                                                                       December 31,
                                                                              --------------------------------
                                                                                1999       2000        2001
                                                                              --------   --------   ----------
       <S>                                                                    <C>        <C>        <C>
       Increase in DARS license, goodwill and intangibles .................   $ 51,624   $     --   $       --
       Liabilities exchanged for new convertible note to related parties...     81,676         --           --
       Non-cash capitalized interest ......................................     15,162     16,302        4,571
       Accrued system milestone payments ..................................     15,500     30,192       37,775
       Systems under construction placed into service .....................         --         --    1,000,228
       Property acquired through capital leases ...........................        470      1,688        6,177
       Conversion of debt to equity .......................................    353,315         --       50,992
       Use of deposit/escrow for terrestrial repeater contracts ...........         --      3,422       80,431
       Interest converted into principal note balance .....................      4,601         --           --
       Accrued expenses transferred to loan balance .......................      7,405         --           --
</TABLE>

(15)  Commitments and Contingencies

(a) DARS License

     The Company's DARS license is valid for eight years upon successful launch
and orbital insertion of the satellites and can be extended by the Company. The
DARS license requires that the Company comply with a construction and launch
schedule specified by the FCC for each of the two authorized satellites, which
has occurred. The FCC has the authority to revoke the authorizations and in
connection with such revocation could exercise its authority to rescind the
Company's license. The Company believes that the exercise of such authority to
rescind the license is unlikely. Additionally, the FCC has not yet issued final
rules permitting the Company to deploy its terrestrial repeaters to fill gaps in
satellite coverage. The Company is operating its repeaters on a non-interference
basis pursuant to a grant of special temporary authority from the FCC, which
expired March 18, 2002. On March 11, 2002, the Company applied for an extension
of this special temporary authority and can continue to operate its terrestrial
repeaters pursuant to the special temporary authority pending a final
determination on this extension request. This authority is currently being
challenged by operators of terrestrial wireless systems who have asserted that
the Company's repeaters may cause interference.

(b) Application for Review of DARS License

     One of the losing bidders for the DARS licenses filed an Application for
Review by the full FCC of the Licensing Order that granted the Company its DARS
license. The Application for Review alleges that a former investor had
effectively taken control of the Company without FCC approval. The FCC has
denied the Application for Review and the losing bidder has appealed to the
United States Court of Appeals for the District of Columbia Circuit. The FCC or
the U.S. Court of Appeals has the authority to overturn the award of the DARS
license should they rule in favor of the losing bidder. Although the Company
believes that its right to the DARS license will withstand the challenge as the
former investor is no longer a stockholder in the Company, no prediction of the
outcome of this challenge can be made with any certainty. The FCC's approval of
the transfer of control of the DARS license to a diffuse group of owners,
granted in December 2000, is conditioned upon the outcome of the application for
review.

                                      X-23

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

(c) Technology Licenses

     Effective January 1, 1998, XMSR entered into a technology licensing
agreement with Motient and WorldSpace Management Corporation ("WorldSpace MC")
by which as compensation for certain licensed technology then under development
to be used in the XM Radio System, XMSR will pay up to $14,300,000 to WorldSpace
MC over a ten-year period. As of December 31, 2001, XMSR incurred costs of
$6,696,000 payable to WorldSpace MC. Any additional amounts to be incurred under
this agreement are dependent upon further development of the technology, which
is at XMSR's option. No liability exists to Motient or WorldSpace MC should such
developments prove unsuccessful. XMSR maintains an accrual of $5,357,000 payable
to WorldSpace MC for quarterly royalty payments to be made after XMSR recognizes
$5,000,000 in revenue.

(d) Satellite Contract

     During the first half of 1999, the Company and BSS amended the satellite
contract to construct and launch the Company's satellites to implement a revised
work timetable, payment schedule to reflect the timing of the receipt of
additional funding, and technical modifications. BSS has delivered two
satellites in orbit and is to complete the construction of a ground spare
satellite. BSS has also provided ground equipment and software used in the XM
Radio System and certain launch and operations support services. The contract
also provides for in-orbit incentives to be earned depending on the performance
of the in-orbit satellites over their useful lives. Such payments could total up
to an additional $70,183,000 over the useful lives of the satellites. As of
December 31, 2001, the Company had paid $470,376,000 under the satellite
contract and had accrued $741,000.

     On December 5, 2001, the Company and Boeing amended the satellite contract
so as to permit the deferral of approximately $31 million of payments to be made
under the agreement, as well as to provide certain additional rights and
obligations to the Company, including the launch of the ground spare satellite
on the SeaLaunch launch vehicle should the ground spare satellite be launched
between specified dates. Under the amendment, deferred amounts must be repaid by
December 5, 2006 and the amounts deferred bear interest at the rate of 8%,
compounded annually, and are payable quarterly in arrears.

(e) Terrestrial Repeater System Contracts

     As of December 31, 2001, the Company had incurred aggregate costs of
approximately $243,500,000 for its terrestrial repeater system. These costs
covered the capital costs of the design, development and installation of a
system of terrestrial repeaters to cover approximately 60 cities and
metropolitan areas. In August 1999, the Company signed a contract with LCCI
calling for engineering and site preparation. As of December 31, 2001, the
Company had paid $109,860,000 and accrued an additional $15,407,000 under this
contract. The Company also entered into a contract effective October 22, 1999
with Hughes for the design, development and manufacture of the terrestrial
repeaters. Payments under the contract are expected to be approximately
$128,000,000, which could be modified based on the number of terrestrial
repeaters that are required for the system. As of December 31, 2001, the Company
had paid $95,788,000 and accrued an additional $7,685,000 under this contract.

(f) GM Distribution Agreement

     The Company has signed a long-term distribution agreement with the OnStar
division of GM providing for the installation of XM radios in GM vehicles.
During the term of the agreement, which expires 12 years from the commencement
date of the Company's commercial operations, GM has agreed to distribute the
service to the exclusion of other S-band satellite digital radio services. The
Company will also have a non-exclusive right to arrange for the installation of
XM radios included in OnStar systems in non-GM vehicles that are sold for use in
the United States. The Company has significant annual, fixed payment obligations
to General Motors through 2004. These payments approximate $35,000,000 in the
aggregate during this period. Additional annual fixed payment obligations beyond
2004 range from less than $35,000,000 to approximately $130,000,000 through
2009, aggregating approximately $400,000,000. In order to encourage the broad
installation of XM radios in GM vehicles, the Company has agreed to subsidize a
portion of the cost of XM radios, and to make incentive payments to GM when the
owners of GM vehicles with installed XM radios become subscribers for the
Company's service. The Company must also share with GM a percentage of the
subscription revenue attributable to GM vehicles with installed XM radios, which
percentage increases until there are more than 8 million GM vehicles with
installed XM radios. The Company will also make available to GM bandwidth on the
Company's systems. The agreement is subject to renegotiations at any time based
upon the installation of radios that are compatible with a unified standard

                                      X-24
<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

or capable of receiving Sirius Satellite Radio, Inc.'s ("Sirius Radio") service.
The agreement is subject to renegotiations if, four years after the commencement
of the Company's commercial operations and at two-year intervals thereafter GM
does not achieve and maintain specified installation levels of GM vehicles
capable of receiving the Company's service, starting with 1,240,000 units after
four years, and thereafter increasing by the lesser of 600,000 units per year
and amounts proportionate to target market shares in the satellite digital radio
service market. There can be no assurances as to the outcome of any such
renegotiations. GM's exclusivity obligations will discontinue if, four years
after the Company commences commercial operations and at two-year intervals
thereafter, the Company fails to achieve and maintain specified minimum market
share levels in the satellite digital radio service market. Prior to 2001, the
Company had not incurred any costs under the contract. As of December 31, 2001,
the Company has paid $608,000 and accrued costs of $656,000 under the agreement.

(g) Joint Development Agreement

     On January 12, 1999, Sirius Radio, the other holder of an FCC satellite
radio license, commenced an action against the Company in the United States
District Court for the Southern District of New York, alleging that the Company
was infringing or would infringe three patents assigned to Sirius Radio. In its
complaint, Sirius Radio sought money damages to the extent the Company
manufactured, used or sold any product or method claimed in their patents and
injunctive relief. On February 16, 2000, this suit was resolved in accordance
with the terms of a joint development agreement between the Company and Sirius
Radio and both companies agreed to cross-license their respective property. Each
party is obligated to fund one half of the development cost for a unified
standard for satellite radios. Each party will be entitled to license fees or a
credit towards its one half of the cost based upon the validity, value, use,
importance and available alternatives of the technology it contributes. The
amounts for these fees or credits will be determined over time by agreement of
the parties or by arbitration. The parties have yet to agree on the validity,
value, use, importance and available alternatives of their respective
technologies. The companies have agreed to seek arbitration to resolve issues
with respect to certain existing technology. If this agreement is terminated
before the value of the license has been determined due to the Company's failure
to perform a material covenant or obligation, then this suit could be refiled.

(h)  Accrued Network Optimization Expenses

     In December 2001, the Company determined that the planned number of
terrestrial repeater sites could be reduced due to a network optimization study
that was conducted. The Company established a formal plan and recognized a
charge of $26,300,000 with respect to the terrestrial repeater sites no longer
required. Included within the charge is $8,595,000 for costs to be incurred in
2002 related to these sites.

     The Company estimated lease termination costs based upon contractual lease
costs and expected negotiation results as determined by discussions with
landlords and consultants. Approximately 53% of these leases are subject to
master lease agreements with large tower companies. Based upon preliminary
discussions with the tower companies, the Company assumed that they would be
able to swap a portion of the existing sites for other sites in other areas in
which terrestrial repeater networks will be developed in the future, without
incurring all of the contractual obligations. As a result, the Company estimated
the total of the lease termination costs would be substantially lower than the
contractual lease obligations. The contractual payments amount to approximately
$35,100,000. Additionally, the Company's leases typically contain a clause that
requires the Company to return a site to its original condition upon lease
termination. The Company has established an accrual of $8,595,000 for the
estimated lease termination costs and costs to deconstruct the sites. The actual
amount to be incurred could vary significantly from this estimate.

(i) Warrants

     Sony Warrant

     In February 2000, the Company issued a warrant to Sony exercisable for
shares of the Company's Class A common stock. The warrant will vest at the time
that the Company attains its millionth customer, and the number of shares
underlying the warrant will be determined by the percentage of XM Radios that
have a Sony brand name as of the vesting date. If Sony achieves its maximum
performance target, the warrant will be exercisable for 2% of the total number
of shares of the Company's Class A common stock on a fully-diluted basis. The
exercise price of the

                                      X-25

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

Sony warrant will equal 105% of fair market value of the Class A common stock on
the vesting date, determined based upon the 20-day trailing average. As the
Company has commenced commercial operations and Sony began selling its radios in
the fourth quarter of 2001, the Company recognized $131,000 of compensation
expense related to this warrant in 2001.

     CNBC Warrant

     In May 2001, the Company granted a warrant to purchase 90,000 shares of
Class A common stock consisting of three 30,000 share tranches to purchase
shares at $26.50 per share, which expire in 11, 12, and 13 years, respectively.
The warrants began to vest on September 25, 2001 when the Company reached its
commercial launch and will be vested on September 1, 2002, 2003, and 2004,
respectively. The Company recognized $290,000 in non-cash compensation expense
related to these warrants in 2001.

(j) Sales, Marketing and Distribution Agreements


     The Company has entered into various joint sales, marketing and
distribution agreements. Under the terms of these agreements, the Company is
obligated to provide incentives, subsidies and commissions to other entities
that may include fixed payments, per-unit radio and subscriber amounts and
revenue sharing arrangements. The amount of these operational, promotional,
subscriber acquisition, joint development, and manufacturing costs related to
these agreements cannot be estimated, but are expected to be substantial future
costs. During the years ended December 31, 1999, 2000 and 2001 the Company
incurred expenses of $0, $0 and $19,545,000, respectively, in relation to these
agreements. The amount of these costs will vary in future years, but is expected
to increase in the next year as the number of subscribers and revenue increase.

(k) Programming Agreements

     The Company has entered into various programming agreements. Under the
terms of these agreements, the Company is obligated to provide payments and
commissions to other entities that may include fixed payments, advertising
commitments and revenue sharing arrangements. The amount of these costs related
to these agreements cannot be estimated, but are expected to be substantial
future costs. During the years ended December 31, 1999, 2000, 2001, the Company
incurred expenses of $0, $0 and $7,230,000, respectively, in relation to these
agreements. The amount of these costs will vary in future years, but is expected
to increase in the next year as the number of subscribers and revenue increase.

(l) Leases

     The Company has noncancelable operating leases for office space and
terrestrial repeater sites and noncancelable capital leases for equipment that
expire over the next ten years. Additionally, the Company owns a building and
leases a portion of the space to other entities. The future minimum lease
payments and rentals under noncancelable leases as of December 31, 2001 are (in
thousands):

<TABLE>
<CAPTION>
                                                     Capital  Operating
                                                      Lease     Lease     Rental
                                                    Payments   Payments   Income
                                                    --------   --------   ------
<S>                                                 <C>       <C>        <C>
Year ending December 31:
     2002 ........................................  $  2,974   $20,471   $ 1,511
     2003 ........................................     2,835    20,966     1,427
     2004 ........................................     1,098    21,423     1,716
     2005 ........................................       141    17,351     1,802
     2006 ........................................        --     6,687     1,804
     Thereafter ..................................        --     9,439    26,065
                                                    --------   -------   -------
          Total ..................................     7,048   $96,337   $34,325
                                                               =======   =======
Less amount representing interest ................      (890)
                                                    --------
Present value of net minimum lease payments ......     6,158
Less current maturities ..........................    (1,530)
                                                    --------
Long-term obligations ............................  $  4,628
                                                    ========
</TABLE>

                                      X-26

<PAGE>

                XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

     Rent expense for 1999, 2000 and 2001 was $649,000, $6,082,000 and
$22,724,000, respectively.

     As discussed in note 15(h), in December 2001, the Company determined that
the planned number of terrestrial repeater sites could be reduced due to the
relative signal strength provided by the Company's satellites. The Company
recognized a charge of $26,300,000 with respect to the terrestrial repeater
sites no longer required. This charge includes a lease termination accrual of
$8,595,000 for 646 terrestrial site leases, which would reduce the future
minimum lease payments.

(16)  Quarterly Data (Unaudited)

<TABLE>
<CAPTION>
                                                                   1999
                                                  -------------------------------------
                                                    1st       2nd       3rd      4th
                                                    ---       ---       ---      ---
                                                  Quarter   Quarter   Quarter   Quarter
                                                  -------   -------   -------   -------
<S>                                               <C>       <C>       <C>       <C>
Revenues ......................................   $    --   $    --   $    --   $    --
Operating loss ................................     4,421     4,020     9,374    12,876
Loss before income taxes ......................     4,367     3,999    17,402    11,128
Net loss attributable to common stockholders...     4,367     3,999    17,402    11,128
     Net loss per share--basic and diluted ....   $ (0.65)  $ (0.60)  $ (2.60)  $ (0.27)


<CAPTION>
                                                                  2000
                                                  -------------------------------------
                                                    1st       2nd        3rd      4th
                                                    ---       ---        ---      ---
                                                  Quarter   Quarter    Quarter   Quarter
                                                  -------   -------    -------   -------
<S>                                               <C>       <C>       <C>       <C>
Revenues ......................................   $    --   $    --   $     --  $     --
Operating loss ................................    16,888    13,937     28,109    20,544
Loss before income taxes ......................    12,740     5,088     20,060    13,985
Net loss attributable to common stockholders...    14,212     7,259    160,095    19,773
     Net loss per share--basic and diluted ....   $ (0.30)  $ (0.15)  $  (3.26) $  (0.40)

<CAPTION>
                                                                  2001
                                                  -------------------------------------
                                                    1st       2nd       3rd      4th
                                                    ---       ---       ---      ---
                                                  Quarter   Quarter   Quarter   Quarter
                                                  -------   -------   -------   -------
<S>                                               <C>       <C>       <C>      <C>
Revenues ......................................   $    --   $    --   $     1  $    532
Operating loss ................................    42,124    42,094    62,114   135,274
Loss before income taxes ......................    36,948    38,478    64,982   143,971
Net loss attributable to common stockholders...    42,736    44,267    70,770   149,759
     Net loss per share--basic and diluted ....   $ (0.80)  $ (0.76)  $ (1.14) $  (2.26)
</TABLE>

     The sum of quarterly per share net losses do not necessarily agree to the
net loss per share for the year due to the timing of stock issuances.

     During the fourth quarter of 2001, the Company completed the nationwide
launch of its service. The Company also completed a public offering of
11,500,000 million shares of its Class A common stock (see note 10(e)),
realizing net proceeds of $126,500,000. In addition, the Company also closed on
a $66,000,000 financing package with The Boeing Company (see notes 8(d) and
15(d)), including $35,000,000 in new debt financing. Further, the Company
incurred a charge of $26,300,000 to system operations for terrestrial repeater
sites no longer required (see note 15(h)).

                                      X-27

<PAGE>

    Independent Auditors' Report on Consolidated Financial Statement Schedule

The Board of Directors
XM Satellite Radio Holdings Inc.:

     Under date of January 23, 2002, we reported on the consolidated balance
sheets of XM Satellite Radio Holdings Inc. and subsidiaries as of December 31,
2000 and 2001, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2001, which are included in the XM
Satellite Radio Holdings Inc. and subsidiaries annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.

     In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

     The audit report on the consolidated financial statements of XM Satellite
Radio Holdings Inc. and subsidiaries referred to above contains an explanatory
paragraph that states that the Company is dependent upon additional debt or
equity financing, which raises substantial doubt about its ability to continue
as a going concern. The consolidated financial statement schedule does not
include any adjustments that might result from the outcome of this uncertainty.

                                               /s/ KPMG LLP

McLean, VA
January 23, 2002

                                      X-28

<PAGE>

                  Schedule I--Valuation And Qualifying Accounts
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                          Charged to
                                                                             Charged to      Other     Write-Offs/
                                                                   Balance    Costs and   Accounts--    Payments/     Balance
Description                                                       January 1   Expenses     Describe       Other     December 31
- -----------                                                       ---------   --------     --------       -----     -----------
<S>                                                               <C>        <C>          <C>          <C>          <C>
Year Ended December 31, 1999
   Allowance for doubtful accounts ............................   $     --         --            --          --       $     --
   Deferred Tax Assets--Valuation
        Allowance .............................................   $  7,978     (3,159)           --          --       $  4,819
   Accrued network optimization
        expenses ..............................................   $     --         --            --          --       $     --

Year Ended December 31, 2000
   Allowance for doubtful accounts ............................   $     --         --            --          --       $     --
   Deferred Tax Assets--Valuation
        Allowance .............................................   $  4,819     20,173            --          --       $ 24,992
   Accrued network optimization
        expenses ..............................................   $     --         --            --          --       $     --

Year Ended December 31, 2001
   Allowance for doubtful accounts ............................   $     --         10            --          --       $     10
   Deferred Tax Assets--Valuation
        Allowance .............................................   $ 24,992    110,057            --          --       $135,049
   Accrued network optimization
        expenses ..............................................   $     --      8,595            --          --       $  8,595
</TABLE>

                                      X-29

<PAGE>

             Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders
XM Satellite Radio Inc.:

We have audited the accompanying consolidated balance sheets of XM Satellite
Radio Inc. and subsidiaries as of December 31, 2000 and 2001, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of XM Satellite Radio
Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company is dependent upon additional debt
or equity financing, which raises substantial doubt about its ability to
continue as a going concern. Management's plan in regard to these matters is
also described in note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

                                                 /s/ KPMG LLP


McLean, VA
January 23, 2002

                                      X-30

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                                                             2000         2001
                                                                                                          ----------   ----------
                                                 ASSETS                                                    (in thousands, except
                                                                                                                  share data)
<S>                                                                                                       <C>          <C>
Current assets:
     Cash and cash equivalents ........................................................................   $  203,191   $   62,368
     Short-term investments ...........................................................................           --       10,296
     Restricted investments ...........................................................................       45,585       44,861
     Accounts receivable, net of allowance for doubtful accounts of $0 and $10 ........................           --          478
     Prepaid and other current assets .................................................................        8,815       15,271
                                                                                                          ----------   ----------
          Total current assets ........................................................................      257,591      133,274
Other assets:
     Restricted investments, net of current portion ...................................................      115,581       25,873
     System under construction ........................................................................      786,159       18,597
     Property and equipment, net of accumulated depreciation and amortization of $2,337 and $42,904 ...       50,052    1,031,810
     Goodwill and intangibles, net of accumulated amortization of $2,599 and $3,974 ...................       24,001       22,626
     Other assets, net of accumulated amortization of $672 and $1,587 .................................        9,133        9,182
                                                                                                          ----------   ----------
          Total assets ................................................................................   $1,242,517   $1,241,362
                                                                                                          ==========   ==========

                                   LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
     Accounts payable .................................................................................   $   31,706   $   35,308
     Accrued expenses .................................................................................        6,030       26,498
     Accrued network optimization expenses (note 15) ..................................................           --        8,595
     Current portion of long-term debt ................................................................          556        1,530
     Due to related parties ...........................................................................       15,366       25,900
     Accrued interest .................................................................................       13,397       13,486
                                                                                                          ----------   ----------
          Total current liabilities ...................................................................       67,055      111,317
Long-term debt, net of current portion ................................................................      262,665      268,934
Royalty payable, net of current portion ...............................................................        2,600        1,800
Other non-current liabilities .........................................................................        4,787        3,857
                                                                                                          ----------   ----------
          Total liabilities ...........................................................................      337,107      385,908
                                                                                                          ----------   ----------
Stockholder's equity:
   Common stock, par value $0.10; 3,000 shares authorized, 125 shares issued and outstanding ..........           --           --
   Additional paid-in capital .........................................................................    1,004,879    1,238,898
   Accumulated deficit ................................................................................      (99,469)    (383,444)
                                                                                                          ----------   ----------
          Total stockholder's equity ..................................................................      905,410      855,454
                                                                                                          ----------   ----------
Commitments and contingencies (notes 1, 2, 3, 5, 10 and 15)
          Total liabilities and stockholder's equity ..................................................   $1,242,517   $1,241,362
                                                                                                          ==========   ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      X-31

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                                   1999        2000         2001
                                                                                 --------    --------    ---------
                                                                                  (in thousands, except share data)
<S>                                                                              <C>         <C>        <C>
Revenue:
     Subscriber revenue ......................................................   $     --    $     --    $     246
     Ad sales revenue ........................................................         --          --          294
        Less:  Agency commissions ............................................         --          --          (43)
     Other revenue ...........................................................         --          --           36
                                                                                 --------    --------    ---------
          Total revenue ......................................................         --          --          533
                                                                                 --------    --------    ---------
Operating expenses:
     Broadcasting operations:
        Content/programming ..................................................     (1,014)     (6,878)     (27,924)
        System operations ....................................................     (2,877)    (23,227)     (67,571)
        Customer care and billing operations .................................         --        (856)      (6,034)
     Sales and marketing .....................................................     (3,352)    (16,078)     (99,789)
     General and administrative ..............................................    (14,475)    (16,272)     (25,782)
     Research and development ................................................     (7,440)    (12,701)     (14,255)
     Depreciation and amortization ...........................................     (1,512)     (3,115)     (41,491)
                                                                                 --------    --------    ---------
          Total operating expenses ...........................................    (30,670)    (79,127)    (282,846)
                                                                                 --------    --------    ---------
Operating loss ...............................................................    (30,670)    (79,127)    (282,313)

Other income (expense):
     Interest income .........................................................        533      27,200       14,102
     Interest expense ........................................................        (43)         --      (15,157)
     Other expense, net ......................................................         --          --         (607)
                                                                                 --------    --------    ---------
             Net loss ........................................................    (30,180)    (51,927)    (283,975)
                                                                                 --------    --------    ---------
</TABLE>

     See accompanying notes to consolidated financial statements.

                                      X-32

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                  YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
<TABLE>
<CAPTION>
                                                                             Additional                       Total
                                                           Common Stock        Paid-in      Accumulated   Stockholder's
                                                         Shares    Amount      Capital        Deficit        Equity
                                                         ------    ------      -------        -------        ------
                                                          (in thousands)
<S>                <C>                                   <C>       <C>      <C>            <C>            <C>
Balance at January 1, 1999 ............................     125     $  --   $   144,818    $   (17,362)       127,456
Contributions to paid in capital ......................      --        --       301,994             --        301,994
Increase in DARS license, goodwill and intangibles.....      --        --        51,624             --         51,624
Non-cash stock compensation ...........................      --        --         4,210             --          4,210
Net Loss ..............................................      --        --            --        (30,180)       (30,180)
                                                           ----     -----   -----------    -----------      ---------
Balance at December 31, 1999 ..........................     125        --       502,646        (47,542)       455,104
Contributions to paid in capital ......................      --        --       499,490             --        499,490
Non-cash stock compensation ...........................      --        --         2,743             --          2,743
Net Loss ..............................................      --        --            --        (51,927)       (51,927)
                                                           ----     -----   -----------    -----------      ---------
Balance at December 31, 2000 ..........................     125        --     1,004,879        (99,469)       905,410
Contributions to paid in capital ......................      --        --       196,249             --        196,249
Transfer of satellite bus to Parent ...................      --        --       (35,321)            --        (35,321)
Funds received for transfer of satellite bus ..........      --        --        31,600             --         31,600
Contribution of fixed assets from Parent ..............      --        --        36,624             --         36,624
Non-cash stock compensation ...........................      --        --         4,867             --          4,867
Net Loss ..............................................      --        --            --       (283,975)      (283,975)
                                                           ----     -----   -----------    -----------      ---------
Balance at December 31, 2001 ..........................     125     $  --   $ 1,238,898    $  (383,444)     $ 855,454
                                                           ----     -----   -----------    -----------      ---------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      X-33

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                                     1999         2000         2001
                                                                                  ---------    ---------    ---------
                                                                                             (in thousands)
<S>                                                                               <C>          <C>          <C>
Cash flows from operating activities:
  Net loss .....................................................................  $ (30,180)   $ (51,927)   $(283,975)
  Adjustments to reconcile net loss to net cash used in operating
activities:
    Bad debt expense ...........................................................         --           --           10
    Depreciation and amortization ..............................................      1,478        3,369       41,942
    Loss on disposal computer equipment ........................................         --           --          435
    Non-cash stock-based compensation ..........................................      4,210        2,743        4,867
    Changes in operating assets and liabilities:
      Increase in accounts receivable ..........................................         --           --         (488)
      Increase in prepaid and other current assets .............................       (905)      (7,738)      (6,456)
      Decrease in other assets .................................................         62           --           --
      Increase in accounts payable and accrued expenses ........................      7,149       16,012       31,278
      Increase due to related parties ..........................................         --           25        2,607
      Increase in accrued interest .............................................         --           --           90
                                                                                  ---------    ---------    ---------
        Net cash used in operating activities ..................................    (18,186)     (37,516)    (209,690)
                                                                                  ---------    ---------    ---------
Cash flows from investing activities:
  Purchase of property and equipment ...........................................     (2,008)     (41,925)     (15,402)
  Additions to system under construction .......................................   (159,510)    (424,342)    (142,321)
  Proceeds from transfer of ground spare satellite bus to Parent ...............         --           --       31,600
  Net purchase/maturity of short-term investments ..............................    (69,472)      69,472      (10,296)
  Net purchase/maturity of restricted investments ..............................         --     (106,338)      40,317
  Other investing activities ...................................................     (3,422)     (56,268)     (30,915)
                                                                                  ---------    ---------    ---------
        Net cash used in investing activities ..................................   (234,412)    (559,401)    (127,017)
                                                                                  ---------    ---------    ---------
Cash flows from financing activities:
  Proceeds from sale of common stock and capital contribution ..................         --      499,490      196,249
  Capital contribution from parent through transfer of liabilities .............    302,002           --           --
  Proceeds from issuance of 14% senior secured notes and warrants ..............         --      259,353           --
  Payments for deferred financing costs ........................................         --       (8,365)        (365)
  Other net financing activities ...............................................        (84)          --           --
                                                                                  ---------    ---------    ---------
        Net cash provided by financing activities ..............................    301,918      750,478      195,884
                                                                                  ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents ...........................     49,320      153,561     (140,823)
Cash and cash equivalents at beginning of period ...............................        310       49,630      203,191
                                                                                  ---------    ---------    ---------
Cash and cash equivalents at end of period .....................................  $  49,630    $ 203,191    $  62,368
                                                                                  =========    =========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      X-34

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

(1)  Summary of Significant Accounting Policies and Practices

(a) Nature of Business

     XM Satellite Radio Inc. (the "Company"), was incorporated on December 15,
1992 in the State of Delaware as a wholly owned subsidiary of Motient
Corporation ("Motient"), for the purpose of operating a digital audio radio
service ("DARS") under a license from the Federal Communications Commission
("FCC"). XM Satellite Radio Holdings Inc. (the "Parent") was formed as a holding
company for the Company on May 16, 1997.

     The Company became the first digital satellite radio service in the United
States of America on September 25, 2001 when it commenced commercial operations
in the lead markets of Dallas, Texas and San Diego, California as part of its
national rollout. On October 18, 2001, the Company continued its national
rollout as it launched service in the southern half of the country and completed
its national rollout on November 12, 2001. In 2001, the Company's satellites,
"Rock" and "Roll", were successfully launched on March 18, 2001 and May 8, 2001,
respectively.

(b) Principles of Consolidation and Basis of Presentation

     The consolidated financial statements include the accounts of XM Satellite
Radio Inc. and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated. The Company emerged from the development stage in
the fourth quarter of 2001 as its principal operations had commenced and its
national rollout had been completed. Accordingly, the Company revised the
presentation of its Consolidated Statements of Operations to reflect that of a
commercial enterprise.

(c) Cash and Cash Equivalents

      The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. The Company
had the following cash and cash equivalents balances (in thousands):

<TABLE>
<CAPTION>
                                                            December 31,
                                                        --------------------
                                                          2000        2001
                                                        --------    --------
             <S>                                        <C>         <C>
             Cash on deposit .........................  $     92     ($4,257)
             Overnight investments ...................        --      41,181
             Money market funds ......................   203,099       2,794
             Commercial paper ........................        --      22,650
                                                        --------    --------
                                                        $203,191    $ 62,368
                                                        ========    ========
</TABLE>

(d) Short-term Investments

     At December 31, 2001, the Company held commercial paper with maturity dates
of less than one year that were stated at amortized cost, which approximated
fair value.

(e) Restricted Investments

     Restricted investments consist of fixed income securities and are stated at
amortized cost plus accrued interest income. At December 31, 2000 and 2001,
restricted investments represent securities held in escrow to secure the
Company's future performance with regard to certain contracts and obligations,
which include the interest payments required on the Company's 14% senior secured
notes through March 2003, payments under the Hughes Electronics Corporation
("Hughes") terrestrial repeater contract, and certain facility leases and other
secured credits. The interest reserve consists of US Treasury securities and are
classified as held-to-maturity investments. The remaining investments are
principally money market funds and certificates of deposit. The amortized cost,
gross unrealized holding gains, gross unrealized holding losses and fair value
of the restricted investments at December 31, 2000 and 2001, were as follows (in
thousands):

                                      X-35

<PAGE>
                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                                          Gross       Gross
                                                                                       Unrealized   Unrealized
                                                                            Amortized    Holding      Holding
                                                                              Cost        Gains       Losses    Fair Value
                                                                              ----        -----       ------    ----------
<S>                                                                         <C>        <C>          <C>         <C>
At December 31, 2000:
-----------------------
Interest reserve ........................................................   $ 106,338    $ 1,060      $    --    $107,398
Contract escrow .........................................................      49,692         --           --      49,692
Collateral for letters of credit and other secured credit ...............       5,136         --           --       5,136
                                                                            ---------    -------      -------    --------
                                                                            $ 161,166    $ 1,060      $    --    $162,226
                                                                            =========    =======      =======    ========
At December 31, 2001:
-----------------------
Interest reserve ........................................................   $  66,020    $ 1,354      $    --    $ 67,374
Contract escrow .........................................................       2,930         --           --       2,930
Collateral for letters of credit and other secured credit ...............       1,784         --           --       1,784
                                                                            ---------    -------      -------    --------
                                                                            $  70,734    $ 1,354      $    --    $ 72,088
                                                                            =========    =======      =======    ========
</TABLE>
(f) Property and Equipment

     Property and equipment are carried at cost less accumulated depreciation
and amortization. Equipment under capital leases is stated at the present value
of minimum lease payments. Depreciation and amortization is calculated using the
straight-line method over the following estimated useful lives:

<TABLE>
    <S>                                                                         <C>
    Satellite system, DARS license, and space craft control facilities.......   17.5 years
    Terrestrial repeater network ............................................   5-10 years
    Broadcast facilities ....................................................   3-7 years
    Computer systems ........................................................   3-7 years
    Furniture and fixtures ..................................................   3-7 years
    Equipment under capital leases and leasehold improvements ...............   Lesser of useful life or
                                                                                remaining lease term
</TABLE>
     Depreciation of the Company's in-orbit satellites commenced in May and June
2001 upon their acceptance from Boeing Satellite Systems International, Inc.
("BSS"). Amortization of the DARS license and depreciation of the ground
systems/spacecraft control facilities and related computer systems commenced on
September 25, 2001, which was the date the service was launched in the Company's
lead markets. Depreciation of the broadcast facilities and the terrestrial
repeaters commenced when they were placed in service.

     The Company accounts for long-lived assets in accordance with the newly
adopted provisions of Statement of Financial Accounting Standards ("SFAS") No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
Statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

(g) Goodwill and Other Intangible Assets

     Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 15 years. Other intangible assets are
amortized over 10 years. The Company assesses the recoverability of its
intangible assets by determining whether the amortization of the goodwill and
intangible assets balance over its remaining life can be recovered through
undiscounted future operating cash flows. The amount of goodwill and intangible
assets impairment, if any, is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, Business Combinations, ("SFAS No. 141") and SFAS No. 142, Goodwill and

                                      X-36
<PAGE>
                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations. SFAS No.
141 specifies criteria that intangible assets acquired in a business combination
must meet to be recognized and reported separately from goodwill. SFAS No. 142
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144 after its adoption.

     Upon adoption of SFAS No. 142 in the first quarter of 2002, the Company is
required to evaluate its existing acquired intangible assets and goodwill, and
to make any necessary reclassifications in order to conform with the new
classification criteria in SFAS No. 141 for recognition separate from goodwill.
The Company will be required to reassess the useful lives and residual values of
all intangible assets acquired, and make any necessary amortization period
adjustments by the end of the first quarter of 2002. If an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS No. 142 within the first interim period. Impairment is measured as the
excess of carrying value over the fair value of an intangible asset with an
indefinite life. Any impairment loss will be measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle.

     In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. The Company will then have up to six
months from January 1, 2002 to determine the fair value of each reporting unit
and compare it to the carrying amount of the reporting unit. To the extent the
carrying amount of a reporting unit exceeds the fair value of the reporting
unit, an indication exists that the reporting unit goodwill may be impaired and
the Company must perform the second step of the transitional impairment test.
The Company has determined that it only has one reporting unit as defined by the
Standard.

     The second step is required to be completed as soon as possible, but no
later than the end of the year of adoption. In the second step, the Company must
compare the implied fair value of the reporting unit goodwill with the carrying
amount of the reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation, in accordance with SFAS No. 141. The residual fair
value after this allocation is the implied fair value of the reporting unit
goodwill. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of income.

     As of the date of adoption of SFAS No. 142, the Company expects to have
unamortized goodwill in the amount of $11,461,000 and unamortized identifiable
intangible assets in the amount of $155,207,000 all of which will be subject to
the transition provisions of SFAS No. 142. Amortization expense related to
goodwill and other intangible assets was $1,220,000, $1,379,000 and $3,604,000
for the years ended December 31, 1999, 2000, and 2001, respectively. Although
the Company has not yet finalized its analysis of the adoption of SFAS No. 141
and No. 142, the Company does not expect to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.

(h) Revenue Recognition

     The Company derives revenue from subscriber subscription and activation
fees as well as advertising.

     Subscriber revenue, which is generally billed in advance, consists of fixed
charges for service, which are recognized as the service is provided and through
non-refundable activation fees that are recognized ratably over the expected
life of the customer relationship. Direct activation costs are expensed as
incurred.

     The Company recognizes advertising revenue from sales of spot announcements
to national advertisers that are recognized in the period in which the spot
announcement is broadcast. Agency commissions are presented as a reduction to
revenue in the Consolidated Statement of Operations.

                                      X-37
<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

(i) Stock-Based Compensation

     The Company accounts for stock-based compensation arrangements in
accordance with the provisions of Accounting Principle Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations including FASB Interpretation ("FIN") No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of APB
opinion No. 25 issued in March 2000, and complies with the disclosure provisions
of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB 25,
compensation expense is based upon the difference, if any, on the date of grant,
between the fair value of the Company's stock and the exercise price. All
stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.

     The Company adopted FIN No. 44 in July 2000 to account for stock options
that had been repriced during the period covered by FIN No. 44. The application
resulted in additional compensation of $1,213,000 and $1,232,000 during the year
ended December 31, 2000 and 2001, respectively. Additional compensation charges
may result depending upon the market value of the common stock at each balance
sheet date.

(j) Research and Development and Advertising

     Research and development costs and advertising costs are expensed as
incurred.

(k) Income Taxes

     The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and the financial reporting amounts at each year-end and operating
loss and tax credit carryforwards, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the sum of taxes payable for the period and the change during the period in
deferred tax assets and liabilities.

(l) Comprehensive Income

     The Company has engaged in no transactions during the years ended December
31, 1999, 2000 and 2001 that would be classified as other comprehensive income.

(m) Accounting Estimates

     The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reporting period. The estimates involve judgments with respect to, among
other things, various future factors which are difficult to predict and are
beyond the control of the Company. Significant estimates include valuation of
the Company's investment in the DARS license, the allowance for doubtful
accounts, the valuation of goodwill and intangible assets, the recoverability of
the XM Radio System assets, the costs to terminate certain terrestrial repeater
site leases, the allocation of purchase price of assets acquired, the estimated
life of a subscriber's subscription, the payments to be made to distributors and
manufacturers for radios sold or activated, the amount of stock-based
compensation arrangements and the valuation allowances against deferred tax
assets. Accordingly, actual amounts could differ from these estimates.

(n) Reclassifications

     Certain fiscal year 1999 and 2000 amounts have been reclassified to conform
to the current presentation.

(o) Derivative Instruments and Hedging Activities

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 2000 the FASB issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging

                                      X-38

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

Activity, an amendment of SFAS 133. SFAS No. 133 and SFAS No. 138 require that
all derivative instruments be recorded on the balance sheet at their respective
fair values. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters
of all fiscal years beginning after June 30, 2000. The Company adopted SFAS No.
133 and SFAS No. 138 on January 1, 2001. The Company has reviewed its contracts
and has determined that it has no stand alone derivative instruments and does
not engage in hedging activities.

(2) Accumulated Deficit

     The Company is devoting its efforts to market its digital audio radio
service and to increase its subscriber base. This effort involves substantial
risk and future operating results will be subject to significant business,
economic, regulatory, technical, and competitive uncertainties and
contingencies. These factors individually, or in the aggregate, could have an
adverse effect on the Company's financial condition and future operating results
and create an uncertainty as to the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.

     At the Company's current stage of operations, economic uncertainties exist
regarding the successful acquisition of additional debt or equity financings and
the attainment of positive cash flows from the XM Radio Service. The Company has
commenced commercial operations and will require substantial additional
financing to market and distribute the XM Radio Service. Failure to obtain the
required long-term financing may prevent the Company from continuing to provide
its service. Management's plan to fund operations and capital expansion includes
the sale of additional debt and equity securities through public and private
sources or future contributions from the Parent. There are no assurances,
however, that such financing will be obtained.

(3) Related Party Transactions

     The Company had the following amounts outstanding to related parties at
December 31, 2000 and 2001 (in thousands):

                                                           December 31,
                                                       -------------------
                                                         2000        2001
                                                       -------     -------
     General Motors Corporation ("GM") ...........     $    --     $   656
     Hughes ......................................          --       7,686
     DIRECTV, Inc. ("DIRECTV") ...................         200          50
     LCC International, Inc. ("LCCI") ............      15,141      15,407
     Clear Channel ...............................          25       2,101
                                                       -------     -------
                                                       $15,366     $25,900
                                                       =======     =======

     The Company has relied upon certain related parties for legal and technical
services during the years ended December 31, 1999, 2000 and 2001. Total costs
incurred in transactions with related parties are as follows (in thousands):

<TABLE>
                                                                     Year ended December 31, 1999
                                                      --------------------------------------------------------------
                                                         GM    Hughes     DIRECTV      LCCI  Clear Channel   Motient
                                                         --    ------     -------      ----  -------------   -------
<S>                                                   <C>      <C>        <C>        <C>     <C>             <C>
Terrestrial repeater network engineering
     and manufacturing .............................    $--    $3,500        $ --    $6,578          $  --      $ --
General and administrative .........................     --        --          --        --                      224
</TABLE>

<TABLE>
                                                                     Year ended December 31, 2000
                                                      -------------------------------------------------------------
                                                         GM    Hughes     DIRECTV      LCCI  Clear Channel   Motient
                                                         --    ------     -------      ----  -------------   -------
<S>                                                   <C>     <C>         <C>       <C>      <C>             <C>
Terrestrial repeater network engineering
     and manufacturing .............................    $--   $11,858      $   --   $58,731         $   --       $--
Terrestrial repeater site leases ...................     --        --          --        --              5        --
Customer care and billing operations ...............     --        --       1,008        --             --        --
Sales and marketing ................................     --        --          --        --          3,175        --
</TABLE>

                                      X-39
<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

<TABLE>
<S>                                                <C>       <C>         <C>       <C>            <C>      <C>
General and administrative ..................      --        --          --        --              3       252
</TABLE>

<TABLE>
<CAPTION>
                                                                      Year ended December 31, 2001
                                               ------------------------------------------------------------------------
                                                   GM    Hughes     DIRECTV      LCCI  Clear Channel   Motient   Parent
                                                   --    ------     -------      ----  -------------   -------   ------
<S>                                            <C>     <C>          <C>      <C>       <C>             <C>       <C>
Terrestrial repeater network engineering
     and manufacturing ......................  $   --  $ 88,116        $ --  $ 59,958         $   --      $ --   $   --
Terrestrial repeater site leases ............      --        --          --        --             36        --       --
Customer care and billing operations ........      --        --         623        --             --        --       --
Sales and marketing .........................   1,264        --          --        --          4,351        --       --
General and administrative ..................      --        --          --        --             --       193       --
Facility rental costs .......................      --        --          --        --             --        --    1,512
</TABLE>

(a) GM

     In 1999, the Company established a distribution agreement with GM (see note
15 (f)). Under the terms of the agreement, GM distributes the XM Radio Service
in various models of its vehicles.

(b) Hughes

     In 1999, the Company entered into a terrestrial repeater manufacturing
agreement with Hughes (see note 15 (e)).

(c) DIRECTV

     In 1999, the Company entered into a consulting services agreement with
DIRECTV. The agreement provides for DIRECTV professionals to aid the Company's
efforts in establishing its customer care center and billing operations on a
time and materials basis.

(d) LCCI

     In 1999, the Company entered into the LCCI Services Contract (note 15 (e))
and LCCI also provides certain ongoing consulting engineering work for the
Company relating to the terrestrial repeater network on a time and materials
basis.

(e) Clear Channel

     In 2000, the Company entered into an advertising sales agreement with
Premiere Radio Networks, an affiliate of Clear Channel Communications, pursuant
to which Premiere sells to advertisers the time inventory owned by the Company
for advertisements to be run on XM Radio channels. Also in 2000, the Company
entered into a sponsorship agreement with SFX Marketing, now known as Clear
Channel Entertainment, pursuant to which the Company advertises its service at
Clear Channel Entertainment events and venues.

(f) Motient

     In 1998, the Company entered into an agreement with Motient, in which
Motient would provide technical and administrative support relating to the
Company's operations. Payments for services provided under this agreement were
made based on negotiated hourly rates. Liabilities for these services are
absorbed by the Parent.

(g) Parent

     Through December 31, 1999, the Parent provided funding to the Company of
$373,705,000 through both public and private equity and debt offerings that it
had completed.

     On January 31, 2000, the Parent closed on a secondary offering of its Class
A common stock and newly designated Series B convertible redeemable preferred
stock. The Parent sold 4,000,000 shares of its Class A

                                      X-40

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

common stock for $32.00 per share, which yielded net proceeds of $120,837,000.
The Parent concurrently sold 2,000,000 shares of its Series B convertible
redeemable preferred stock for $50.00 per share, which yielded net proceeds of
$96,472,000. On February 9, 2000, the underwriters exercised a portion of the
over-allotment option for 370,000 shares of Class A common stock, which yielded
net proceeds of approximately $11,233,000. All proceeds were contributed to the
Company by the Parent.

     On March 15, 2000 the Parent and the Company closed a private placement of
325,000 units, each unit consisting of $1,000 principal amount of 14 percent
Senior Secured Notes due 2010 of the Company (note 8) and one warrant to
purchase 8.024815 shares of the Parent's Class A common stock at a price of
$49.50 per share. The Company realized net proceeds of $191,500,000, excluding
$123,000,000 used to acquire securities to pay interest payments due under the
notes for the first three years. The $325,000,000 face value of the notes was
offset by a discount of $65,746,000 associated with the fair value of the
warrants sold, the net proceeds from which were contributed to the Company.

     On July 7, 2000, the Parent reached an agreement for a private offering of
235,000 shares of its Series C convertible redeemable preferred stock for $1,000
per share, which closed on August 8, 2000 and yielded net proceeds of
$206,379,000 and a stock subscription of $20,000,000 that earned interest at 7
percent per annum until it was paid on November 30, 2000. The stock subscription
was received by the Parent in November 2000 and provided an additional
$20,443,000. All proceeds, except the receipt of the stock subscription and
$1,177,000 were contributed to the Company by the Parent.

     On March 6, 2001, the Parent completed a follow-on offering of 7,500,000
shares of its Class A common stock, which yielded net proceeds of $72,000,000,
which was contributed to the Company. Also on March 6, 2001, the Parent closed a
public offering of $125,000,000 of its 7.75% convertible subordinated notes due
2006, which yielded net proceeds of $120,700,000, which was contributed to the
Company.

     On December 6, 2001, the Parent completed a follow-on offering of
11,500,000 shares of its Class A common stock, which yielded net proceeds of
$126,500,000, of which, $3,549,000 was contributed to the Company.

     In August 2001, the Company's facility lease for its corporate headquarters
was amended and the Parent became the Company's new landlord (note 15 (l)).

      On December 5, 2001, the Company transferred its rights in the spare
satellite, excluding the satellite payload, to the Parent, which had a carrying
value of $35,300,000. In return, the Company received $31,600,000 in cash, which
was the estimated fair value of the satellite bus as determined by management
with the assistance of a third-party appraiser. Concurrent with the asset
transfer, the Parent entered into a Customer Credit Agreement with Boeing
Capital Corporation ("BCC") pursuant to which the Parent borrowed $35,000,000
from BCC at an interest rate equal to LIBOR plus 3.5%, increasing to LIBOR plus
4.5% after December 5, 2003, which is compounded annually and payable quarterly
in arrears. The principal is due on the earlier of December 5, 2006 or the
launch of the ground spare satellite. The principal would also become due should
the Boeing Satellite Contract (note 15(d)) be terminated. The loan is secured by
the Parent's interest in the ground spare satellite, excluding its payload.

      During 2001, the Parent transferred $36,624,000 in capitalized interest
associated with the construction of the XM Radio System to the Company.

(4) System Under Construction

     The Company has capitalized costs related to the development of its XM
Radio System to the extent that they have future benefits. During 2001, the
Company placed its Boeing 702 satellites "Rock" and "Roll" into service as well
as its DARS license, ground systems/spacecraft control facilities, related
computer systems, and its terrestrial repeater network and broadcast facilities
by transferring $971,861,000 from system under construction to property and
equipment. The remaining components in system under construction include the
ground spare satellite payload and costs incurred through December 31, 2001 for
the performance broadcasting studio. The amounts recorded as system under
construction consist of the following (in thousands):

                                      X-41

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

                                                           December 31,
                                                 ----------------------------
                                                       2000         2001
                                                     --------     --------
               DARS license ...................     $ 122,944    $      --
               Satellite system ...............       521,573       18,557
               Terrestrial system .............        84,715           --
               Spacecraft control facilities ..        13,046           --
               Broadcast facilities ...........        27,971           40
               Computer systems ...............        15,910           --
                                                    ---------    ---------
                                                    $ 786,159    $  18,597
                                                    =========    =========

(5)  Property and Equipment

     Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                       ------------------------------
                                                                              2000          2001
                                                                            -------       -------
<S>                                                                      <C>          <C>
     DARS license ...................................................    $       --   $   146,271
     Satellite system ...............................................            --       521,251
     Terrestrial system .............................................            --       243,755
     Spacecraft control facilities ..................................            --        24,353
     Broadcast facilities ...........................................        16,752        55,686
     Computer systems, furniture and fixtures, and equipment ........        21,063        68,824
     Leasehold improvements .........................................        14,574        14,574
                                                                         ----------   -----------
                                                                             52,389     1,074,714

     Accumulated depreciation and amortization ......................        (2,337)      (42,904)
                                                                         ----------   -----------

              Net property and equipment, net .......................    $   50,052   $ 1,031,810
                                                                         ==========   ===========
</TABLE>

     In July 2001, the Company received notification from BSS that the expected
life of its satellites was extended due to the accuracy of the respective
launches, which used less fuel than anticipated. The Company, therefore, changed
the useful life estimate for the satellite system and the DARS license from 15
years to 17.5 years.

     In September 2001, BSS advised the Company of a progressive degradation
problem with the solar array output power of 702 class satellites, including XM
"Rock" and XM "Roll". At the present time, the output power of the solar arrays
and the broadcast signal strength are above minimum acceptable levels and are
expected to remain that way at least through 2005, permitting full operation of
the XM System (based on patterns projected by BSS). The Company has advised its
insurance carriers of the situation. Since the issue is common to 702 class
satellites, the manufacturer is closely watching the progression of the problem,
including data from a satellite in orbit approximately 18 months' longer than XM
"Rock" and XM "Roll". With this 18-month advance visibility of performance
levels, insurance arrangements in place, a spare satellite under construction
that is being modified to address the solar array anomaly and availability of
additional satellites, the Company believes that it will be able to launch
additional satellites prior to the time the solar power problem might cause the
broadcast signal strength to fall below acceptable levels. The Company's
management will continue to monitor this situation carefully over the next few
years.

     In December 2001, the Company determined that the planned number of
terrestrial repeater sites could be reduced due to a network optimization study
that was conducted. The Company established a formal plan and recognized a
charge of $26,300,000 with respect to the terrestrial repeater sites no longer
required. The costs are principally related to the site acquisition and
build-out of the identified sites. These costs have been included within system
operations at December 31, 2001. Included within the charge is $8,595,000 for
costs to be incurred in 2002 related to these sites (see note 15 (h)).

                                      X-42

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

(6)  Goodwill and Other Intangible Assets

     On July 7, 1999, Motient acquired a former investor's remaining debt and
equity interests in the Parent in exchange for approximately 8,600,000 shares of
Motient's common stock. Concurrent with Motient's acquisition of the remaining
interest in the Parent, the Company recognized goodwill and other intangible
assets of $51,624,000, which has been allocated as follows (in thousands):

               DARS License .............................   $25,024
               Goodwill .................................    13,738
               Programming agreements ...................     8,000
               Receiver agreements ......................     4,600
               Other intangibles ........................       262
                                                            -------
                                                            $51,624
                                                            =======

(7)  Other Assets

     Other assets consist of the following at December 31, 2000 and 2001 (in
thousands):

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                          ------------------------
                                                                               2000        2001
                                                                              ------      ------
<S>                                                                        <C>         <C>
     14% senior secured notes deferred financing fees ..................   $   8,493   $   8,858
     Refundable deposits and other long-term prepaid expenses ..........       1,444       1,911
                                                                           ---------   ---------
                                                                               9,937      10,769

        Less accumulated amortization ..................................        (672)     (1,587)
                                                                           ---------   ---------

        Other assets, net ..............................................   $   9,265   $   9,182
                                                                           =========   =========
</TABLE>


(8)  Long-Term Debt

     Long-term debt at December 31, 2000 and 2001 consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                          ------------------------
                                                                               2000        2001
                                                                              ------      ------
<S>                                                                        <C>         <C>
     14% senior secured notes ..........................................   $ 325,000   $ 325,000
          Less unamortized discount on 14% senior secured notes ........     (63,702)    (60,694)
     Capital leases ....................................................       1,923       6,158
                                                                           ---------   ---------
          Total long-term debt .........................................     263,221     270,464

          Less current installments ....................................        (556)     (1,530)
                                                                           ---------   ---------

          Long-term debt, excluding current installments ...............   $ 262,665   $ 268,934
                                                                           =========   =========
</TABLE>

14% Senior Secured Notes

     On March 15, 2000, the Parent and the Company closed a private placement of
325,000 units, each unit consisting of $1,000 principal amount of 14% senior
secured notes due 2010 of the Company and one warrant to purchase 8.024815
shares of the Parent's Class A common stock at a price of $49.50 per share. The
Company realized net proceeds of $191,500,000, excluding $123,000,000 used to
acquire securities that will be used to pay interest payments due under the
notes for the first three years. The $325,000,000 face value of the notes was
offset by a discount of $65,746,000 associated with the fair value of the
warrants sold, which was contributed to the Company. The Company had amortized
$2,044,000 and $5,052,000 of the discount through December 31, 2000 and 2001,
respectively.

                                      X-43

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

(9)  Fair Value of Financial Instruments

     The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 2000 and 2001 (in
thousands). The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.

<TABLE>
<CAPTION>
                                                                    December 31,
                                              ----------------------------------------------------
                                                          2000                       2001
                                                          ----                       ----
                                                 Carrying                   Carrying
                                                  Amount      Fair Value     Amount      Fair Value
                                                  ------      ----------     ------      ----------
<S>                                              <C>          <C>          <C>            <C>
Financial assets:
   Cash and cash equivalents .................   $ 203,191    $ 203,191    $  62,368      $  62,368
   Short-term investments ....................          --           --       10,296         10,296
   Restricted investments ....................     161,166      162,226       70,734         72,088
   Accounts receivable .......................          --           --          478            478
   Letters of credit .........................          --           12           --             13

Financial liabilities:
   Accounts payable ..........................      31,706       31,706       35,308         35,308
   Accrued expenses ..........................       3,465        3,465       22,941         22,941
   Accrued network optimization expenses .....          --           --        8,595          8,595
   Due to related parties ....................      15,366       15,366       25,900         25,900
   Royalty payable ...........................       5,165        5,165        5,357          5,357
   Long-term debt ............................     263,221      181,486      270,464        263,314
   Other non-current liabilities .............       4,787        4,787        3,857          3,857
</TABLE>

     The carrying amounts shown in the table are included in the consolidated
balance sheets under the indicated captions. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:

     Cash and cash equivalents, short-term investments, accounts receivable,
prepaid and other current assets, other assets, accounts payable, accrued
expenses, accrued network optimization expenses, due to related parties, royalty
payable and other non-current liabilities: The carrying amounts approximate fair
value because of the short maturity of these instruments.

     Restricted investments: The fair values of debt securities
(held-to-maturity investments) are based on quoted market prices at the
reporting date for those or similar investments.

     Letters of credit: The value of the letters of credit is based on the fees
paid to obtain the letters of credit.

     Long-term debt: The fair value of the Company's long-term debt is
determined by either estimation by discounting the future cash flows of each
instrument at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bankers or by quoted
market prices at the reporting date for the traded debt securities (the carrying
value of the Company's 14% senior secured notes is significantly less than face
value because the notes were sold at a discount for value allocated to the
related warrants).

(10) Stock-Based Compensation

     The Company operates three separate stock plans, the details of which are
described below.

(a)  1998 Shares Award Plan

                                      X-44

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

     On June 1, 1998, the Parent adopted the 1998 Shares Award Plan (the "Plan")
under which employees, consultants, and non-employee directors may be granted
options to purchase shares of Class A common stock of the Parent. The Parent
initially authorized 1,337,850 shares of Class A common stock under the Plan,
which was increased to 2,675,700 in July 1999, 5,000,000 in May 2000, and
8,000,000 in May 2001. The options are exercisable in installments determined by
the compensation committee of the Parent's board of directors. The options
expire as determined by the committee, but no later than ten years from the date
of grant. On July 8, 1999, the Parent's board of directors voted to reduce the
exercise price of the options outstanding in the shares award plan from $16.35
to $9.52 per share, which represented the fair value of the stock on the date of
repricing.

     Transactions and other information relating to the Plan for the years ended
December 31, 1999, 2000 and 2001 are summarized below:

<TABLE>
<CAPTION>
                                                               Outstanding Options
                                                         ---------------------------------
                                                                             Weighted-
                                                            Number of        Average
                                                             Shares       Exercise Price
                                                             ------       --------------
<S>                                                      <C>             <C>
            Balance, January 1, 1999 .................      787,297         $  16.35
                 Options granted .....................    2,188,988            10.50
                 Option repricing ....................     (818,339)           16.35
                 Options canceled or expired .........      (57,786)           13.91
                 Options exercised ...................       (1,071)            9.52
                                                          ---------
            Balance, December 31, 1999 ...............    2,099,089         $  10.32
                 Options granted .....................    1,176,683            30.21
                 Options canceled or expired .........     (131,267)           17.01
                 Options exercised ...................      (48,817)            9.52
                                                          ---------
            Balance, December 31, 2000 ...............    3,095,688         $  17.61
                 Options granted .....................    2,680,415            15.54
                 Options canceled or expired .........      (23,570)            9.55
                 Options exercised ...................     (253,593)           17.88
                                                          ---------
            Balance, December 31, 2001 ...............    5,498,940         $  16.62
                                                          =========
</TABLE>

<TABLE>
<CAPTION>
                           Options Outstanding                                    Options Exercisable
           ----------------------------------------------------------------- -------------------------------
                                                 Weighted-
                                                  Average       Weighted-
                                                 Remaining       Average                         Weighted-
                                    Number      Contractual      Exercise         Number          Average
               Exercise Price    Outstanding        Life          Price         Exercisable       Exercise
               --------------    -----------        ----          -----         -----------       --------
<S>       <C>                    <C>            <C>             <C>             <C>              <C>
1999               $9.52-$12.00    2,099,089     9.24 years       $10.32           416,294        $ 9.52
          --------------------------------------------------------------------------------------------------
2000               $9.52-$12.00    2,120,400     8.26 years       $10.39         1,110,756        $10.06
                  $12.01-$30.50      297,685     9.03 years       $23.13             5,334        $13.13
                  $30.51-$45.44      677,603     9.54 years       $37.92            20,000        $43.69
          --------------------------------------------------------------------------------------------------
2001                $4.82-$9.42      363,700     9.31 years       $ 7.91            55,000        $ 8.46
                   $9.44-$12.00    2,256,263     7.50 years       $10.37         1,716,153        $10.21
                  $12.06-$26.88    2,142,409     9.14 years       $17.75           165,132        $18.90
                  $27.63-$45.44      736,568     8.52 years       $36.81           272,681        $36.93
          --------------------------------------------------------------------------------------------------
</TABLE>

     There were 416,294, 1,136,090 and 2,208,966 stock options exercisable at
December 31, 1999, 2000 and 2001, respectively. At December 31, 2001, there were
2,197,579 shares available under the plan for future grants. At December 31,
2001, all options have been issued to employees, officers and directors, except
for 76,000 options granted to non-employees for which the Company recognized
$1,147,000 in non-cash compensation.

     The per share weighted-average fair value of employee options granted
during the year ended December 31, 1999, 2000 and 2001 was $6.21, $22.06 and
$8.77, respectively, on the date of grant using the Black-Scholes Option Pricing
Model with the following weighted-average assumptions:

                                      X-45

<PAGE>
                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

<TABLE>
                                                                            December 31,
                                                         ---------------------------------------------------
                                                              1999              2000               2001
                                                         --------------    --------------    ---------------
            <S>                                          <C>               <C>                <C>
            Expected dividend yield ...............                  0%                0%                0%
            Volatility ............................              63.92%            68.21%            62.40%
            Risk-free interest rate range .........      5.47% to 5.97%    4.99% to 6.71%    3.66% to 4.99%
            Expected life .........................             5 years           5 years           5 years
                                                         ==============    ==============    =============
</TABLE>

(b) Employee Stock Purchase Plan

     In 1999, the Parent established an employee stock purchase plan that
provides for the issuance of 300,000 shares of Class A common stock, which was
increased to 600,000 shares in 2001. All employees whose customary employment is
more than 20 hours per week and for more than five months in any calendar year
are eligible to participate in the stock purchase plan, provided that any
employee who would own 5% or more of the Parent's total combined voting power
immediately after an offering date under the plan is not eligible to
participate. Eligible employees must authorize the Parent to deduct an amount
from their pay during offering periods established by the compensation
committee. The purchase price for shares under the plan will be determined by
the compensation committee but may not be less than 85% of the lesser of the
market price of the common stock on the first or last business day of each
offering period. As of December 31, 1999, 2000 and 2001, the Parent had issued
28,791, 53,539 and 217,401 shares, respectively, under this plan. At December
31, 2001, there were 382,599 shares available under the plan for future sale.

     The per share weighted-average fair value of purchase rights granted during
the year was $3.30, $11.28, and $5.37 for the years ended December 31, 1999,
2000 and 2001, respectively. The estimates were calculated at the grant date
using the Black-Scholes Option Pricing Model with the following assumptions at
December 31, 1999, 2000 and 2001:

                                                  December 31,
                                    -----------------------------------------
                                          1999         2000           2001
                                       ----------   ----------    -----------
Expected dividend yield ..........            0%            0%             0%
Volatility .......................        62.92%        68.21%         62.40%
Risk-free interest rate range ....         4.73%   5.33%-6.23%     2.4%-5.89%
Expected life ....................    0.23 years    0.24 years     0.24 years
                                      ==========   ===========    ===========

     The Company applies APB 25 in accounting for stock-based compensation for
both plans and, accordingly, no compensation cost has been recognized for its
stock options and stock purchase plan in the financial statements other than for
performance based stock options, for options granted with exercise prices below
fair value on the date of grant and for repriced options under FIN No. 44.
During 1999, 2000 and 2001, the Company incurred $4,070,000, $2,557,000,
$2,336,000, respectively, in compensation cost for these options. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS 123, the Company's net loss and net loss per
share would have been increased to the pro forma amounts indicated below (in
thousands):

                                                Year ended December 31,
                                          ----------------------------------
                                             1999       2000       2001
                                          ---------   --------   --------
  Net loss:
       As reported ...................      $30,180    $51,927   $283,975
       Pro forma .....................       30,990     60,171    300,127

(c) Talent Option Plan

     In May 2000, the Parent adopted the XM Talent Option Plan ("Talent Plan")
under which non-employee programming consultants to the Company may be granted
options to purchase shares of Class A common stock of the Parent. The Parent
authorized 500,000 shares of Class A common stock under the Talent Plan. The
options are exercisable in installments determined by the talent committee of
the Parent's board of directors. The options expire as determined by the talent
committee, but no later than ten years from the date of the grant. As of
December 31, 2000 and 2001, no and 144,500 options had been granted under the
Talent Plan. In 2001, the Company recognized $575,000 in non-cash compensation

                                      X-46
<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

expense related to these options under SFAS 123. At December 31, 2001, there
were 355,500 options available under the plan for future grant.

(11)  Profit Sharing and Employee Savings Plan

     On July 1, 1998, the Company adopted a profit sharing and employee savings
plan under Section 401(k) of the Internal Revenue Code. This plan allows
eligible employees to defer up to 15 % of their compensation on a pre-tax basis
through contributions to the savings plan. The Company contributed $0.50 in
1999, 2000 and 2001 for every dollar the employees contributed up to 6% of
compensation, which amounted to $164,000, $229,000 and $543,000, respectively.

(12)  Interest Cost

     The Company capitalizes a portion of interest cost as a component of the
cost of the XM Radio System. The following is a summary of interest cost
incurred during December 31, 1999, 2000 and 2001 (in thousands):

                                                1999        2000        2001
                                              --------    --------    --------
 Interest cost capitalized ................   $    210    $ 39,022    $ 36,153
 Interest cost charged to expense .........         43          --      15,157
                                              --------    --------    --------
 Total interest cost incurred .............   $    253    $ 39,022    $ 51,310
                                              ========    ========    ========

(13)  Income Taxes

     For the period from December 15, 1992 (date of inception) to October 8,
1999, the Parent and the Company filed consolidated federal and state tax
returns with its majority stockholder Motient. The Company generated net
operating losses and other deferred tax benefits that were not utilized by
Motient. As no formal tax sharing agreement has been finalized, the Company was
not compensated for the net operating losses. Had the Company filed on a
stand-alone basis for the three-year period ending December 31, 2001, the
Company's tax provision would be as follows:

     Taxes on income included in the Statements of Operations consists of the
following (in thousands):

                                                          December 31,
                                                    --------------------------
                                                      1999     2000     2001
                                                     ------   ------   ------
     Current taxes:
          Federal ...............................   $    --  $    --  $    --
          State .................................        --       --       --
                                                    -------  -------  -------
               Total current taxes ..............        --       --       --
                                                    -------  -------  -------

     Deferred taxes:
          Federal ...............................   $    --  $    --  $    --
          State .................................        --       --       --
                                                    -------  -------  -------
               Total deferred taxes .............        --       --       --
                                                    -------  -------  -------
               Total tax expense (benefit) ......   $    --  $    --  $    --
                                                    =======  =======  =======

     A reconciliation of the statutory tax expense, assuming all income is taxed
at the statutory rate applicable to the income and the actual tax expense is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                 ------------------------------------
                                                                                     1999        2000        2001
                                                                                    ------      ------      ------
<S>                                                                                <C>         <C>        <C>
     Income (loss) before taxes on income, as reported in the statements
        of operations ...........................................................  $(30,181)   $(51,972)  $(283,975)
                                                                                   ========    ========   ==========
     Theoretical tax benefit on the above amount at 35% .........................   (10,563)    (18,174)    (99,391)
     State tax, net of federal benefit ..........................................     1,370      (2,877)    (13,274)
     Increase in taxes resulting from permanent differences, net ................     2,120         562       2,701
     Adjustments arising from differences in the basis of measurement
</TABLE>

                                      X-47
<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

<TABLE>
<S>                                                                                <C>         <C>        <C>

        for tax purposes and financial reporting purposes and other .............   13,252           7         --
     Change in valuation allowance ..............................................   (6,179)     20,482    109,964
                                                                                   -------     -------    -------
     Taxes on income for the reported year ......................................  $    --     $    --    $    --
                                                                                   =======     =======    =======
</TABLE>

     At December 31, 1999, 2000 and 2001, deferred income tax consists of future
tax assets/(liabilities) attributable to the following (in thousands):

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                        -----------------------------------
                                                                                             1999       2000        2001
                                                                                           --------   --------    --------
<S>                                                                                        <C>        <C>        <C>
     Deferred tax assets:
          Net operating loss/other tax attribute carryovers ...........................    $  2,054   $ 12,396   $  58,377
          Start-up costs ..............................................................      14,972     42,252     106,609
          Other deferred tax assets ...................................................          --         --      11,533
                                                                                           --------   --------    --------
               Gross total deferred tax assets ........................................      17,026     54,648     176,519
     Valuation allowance for deferred tax assets ......................................      (1,590)   (22,072)   (132,036)
                                                                                           --------   --------   ---------
               Net deferred assets ....................................................      15,436     32,576      44,483
                                                                                           --------   --------   ---------
     Deferred tax liabilities:
          Fixed assets ................................................................         (51)   (16,532)    (29,541)
          DARS license ................................................................     (10,160)    (9,821)     (9,670)
          Other intangible assets .....................................................      (5,225)    (6,223)     (5,272)
                                                                                           --------   --------   ---------
               Net deferred tax liabilities ...........................................     (15,436)   (32,576)    (44,483)
                                                                                           --------   --------   ---------
               Deferred income tax, net ...............................................    $     --   $     --   $      --
                                                                                           ========   ========   =========
</TABLE>

     At December 31, 2001, the Company had accumulated net operating losses of
$145,945,000 for Federal income tax purposes that are available to offset future
regular taxable income. These operating loss carryforwards expire between the
years 2012 and 2021. Utilization of these net operating losses are subject to
limitations because there have been significant changes in the stock ownership
of the Company. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment.

(14) Supplemental Cash Flows Disclosures

     The Company paid $0, $11,198,000, and $14,026,000 for interest (net of
amounts capitalized) during 1999, 2000, and 2001, respectively. Additionally,
the Company incurred the following non-cash financing and investing activities
(in thousands):

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                        -----------------------------------
                                                                                             1999       2000        2001
                                                                                           --------   --------    --------
<S>                                                                                        <C>        <C>        <C>
        Increase in DARS license, goodwill and intangibles ............................    $ 51,624   $     --   $      --
        Non-cash capitalized interest .................................................          --     16,302       3,923
        Accrued system milestone payments .............................................      15,500     30,192      37,775
        Systems under construction placed into service ................................          --         --     971,861
        Contribution of fixed assets from Parent ......................................          --         --      36,624
        Transfer of ground spare satellite bus to Parent ..............................          --         --       3,721
        Property acquired through capital leases ......................................         470      1,688       6,177
        Use of deposit/escrow for terrestrial repeater contracts ......................          --      3,422      80,431
</TABLE>

(15) Commitments and Contingencies

(a) DARS License

                                      X-48

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

     The Company's DARS license is valid for eight years upon successful launch
and orbital insertion of the satellites and can be extended by the Company. The
DARS license requires that the Company comply with a construction and launch
schedule specified by the FCC for each of the two authorized satellites, which
has occurred. The FCC has the authority to revoke the authorizations and in
connection with such revocation could exercise its authority to rescind the
Company's license. The Company believes that the exercise of such authority to
rescind the license is unlikely. Additionally, the FCC has not yet issued final
rules permitting the Company to deploy its terrestrial repeaters to fill gaps in
satellite coverage. The Company is operating its repeaters on a non-interference
basis pursuant to a grant of special temporary authority from the FCC, which
expired March 18, 2002. On March 11, 2002, the Company applied for an extension
of this special temporary authority and can continue to operate its terrestrial
repeaters pursuant to the special temporary authority pending a final
determination on this extension request. This authority is currently being
challenged by operators of terrestrial wireless systems who have asserted that
the Company's repeaters may cause interference.

(b) Application for Review of DARS License

     One of the losing bidders for the DARS licenses filed an Application for
Review by the full FCC of the Licensing Order that granted the Company its DARS
license. The Application for Review alleges that a former investor had
effectively taken control of the Company without FCC approval. The FCC has
denied the Application for Review and the losing bidder has appealed to the
United States Court of Appeals for the District of Columbia Circuit. The FCC or
the U.S. Court of Appeals has the authority to overturn the award of the DARS
license should they rule in favor of the losing bidder. Although the Company
believes that its right to the DARS license will withstand the challenge as the
former investor is no longer a stockholder in the Parent, no prediction of the
outcome of this challenge can be made with any certainty. The FCC's approval of
the transfer of control of the DARS license to a diffuse group of owners,
granted in December 2000, is conditioned upon the outcome of the application for
review.

(c) Technology Licenses

     Effective January 1, 1998, the Company entered into a technology licensing
agreement with Motient and WorldSpace Management Corporation ("WorldSpace MC")
by which as compensation for certain licensed technology then under development
to be used in the XM Radio System, the Company will pay up to $14,300,000 to
WorldSpace MC over a ten-year period. As of December 31, 2001, the Company
incurred costs of $6,696,000 payable to WorldSpace MC. Any additional amounts to
be incurred under this agreement are dependent upon further development of the
technology, which is at the Company's option. No liability exists to Motient or
WorldSpace MC should such developments prove unsuccessful. The Company maintains
an accrual of $5,357,000 payable to WorldSpace MC, for quarterly royalty
payments to be made after the Company recognizes $5,000,000 in revenue.

(d) Satellite Contract

     During the first half of 1999, the Company and BSS amended the satellite
contract to construct and launch the Company's satellites to implement a revised
work timetable, payment schedule to reflect the timing of the receipt of
additional funding, and technical modifications. BSS has delivered two
satellites in orbit and is to complete the construction of a ground spare
satellite. BSS has also provided ground equipment and software used in the XM
Radio System and certain launch and operations support services. The contract
also provides for in-orbit incentives to be earned depending on the performance
of the in-orbit satellites over their useful lives. Such payments could total up
to an additional $68,700,000 over the useful lives of the satellites. As of
December 31, 2001, the Company had paid $470,376,000 under the satellite
contract and had accrued $741,000.

     On December 5, 2001, the Company and Boeing amended the satellite contract
so as to permit the deferral of approximately $31,000,000 of payments to be made
under the agreement, as well as to provide certain additional rights and
obligations to the Company; including the launch of the ground spare satellite
on the SeaLaunch launch vehicle should the ground spare satellite be launched
between specified dates. Under the amendment, deferred amounts must be repaid by
December 5, 2006 and the amounts deferred bear interest at the rate of 8%,
compounded annually, and are payable quarterly in arrears.

(e) Terrestrial Repeater System Contracts

                                      X-49

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

     As of December 31, 2001, the Company had incurred aggregate costs of
approximately $243,500,000 for its terrestrial repeater system. These costs
covered the capital costs of the design, development and installation of a
system of terrestrial repeaters to cover approximately 60 cities and
metropolitan areas. In August 1999, the Company signed a contract with LCCI
calling for engineering and site preparation. As of December 31, 2001, the
Company had paid $109,860,000 and accrued an additional $15,407,000 under this
contract. The Company also entered into a contract effective October 22, 1999
with Hughes for the design, development and manufacture of the terrestrial
repeaters. Payments under the contract are expected to be approximately
$128,000,000, which could be modified based on the number of terrestrial
repeaters that are required for the system. As of December 31, 2001, the Company
had paid $95,788,000 and accrued an additional $7,685,000 under this contract.

(f) GM Distribution Agreement

     The Company has signed a long-term distribution agreement with the OnStar
division of GM providing for the installation of XM radios in GM vehicles.
During the term of the agreement, which expires 12 years from the commencement
date of the Company's commercial operations, GM has agreed to distribute the
service to the exclusion of other S-band satellite digital radio services. The
Company will also have a non-exclusive right to arrange for the installation of
XM radios included in OnStar systems in non-GM vehicles that are sold for use in
the United States. The Company has significant annual, fixed payment obligations
to General Motors through 2004. These payments approximate $35,000,000 in the
aggregate during this period. Additional annual fixed payment obligations beyond
2004 range from less than $35,000,000 to approximately $130,000,000 through
2009, aggregating approximately $400,000,000. In order to encourage the broad
installation of XM radios in GM vehicles, the Company has agreed to subsidize a
portion of the cost of XM radios, and to make incentive payments to GM when the
owners of GM vehicles with installed XM radios become subscribers for the
Company's service. The Company must also share with GM a percentage of the
subscription revenue attributable to GM vehicles with installed XM radios, which
percentage increases until there are more than 8 million GM vehicles with
installed XM radios. The Company will also make available to GM bandwidth on the
Company's systems. The agreement is subject to renegotiation at any time based
upon the installation of radios that are compatible with a unified standard or
capable of receiving Sirius Satellite Radio, Inc.'s ("Sirius Radio") service.
The agreement is subject to renegotiation if, four years after the commencement
of the Company's commercial operations and at two-year intervals thereafter GM
does not achieve and maintain specified installation levels of GM vehicles
capable of receiving the Company's service, starting with 1,240,000 units after
four years, and thereafter increasing by the lesser of 600,000 units per year
and amounts proportionate to target market shares in the satellite digital radio
service market. There can be no assurances as to the outcome of any such
renegotiation. GM's exclusivity obligations will discontinue if, four years
after the Company commences commercial operations and at two-year intervals
thereafter, the Company fails to achieve and maintain specified minimum market
share levels in the satellite digital radio service market. Prior to 2001, the
Company had not incurred any costs under the contract. As of December 31, 2001,
the Company has paid $608,000 and accrued costs of $656,000 under the agreement.

(g) Joint Development Agreement

     On January 12, 1999, Sirius Radio, the other holder of an FCC satellite
radio license, commenced an action against the Company in the United States
District Court for the Southern District of New York, alleging that the Company
was infringing or would infringe three patents assigned to Sirius Radio. In its
complaint, Sirius Radio sought money damages to the extent the Company
manufactured, used or sold any product or method claimed in their patents and
injunctive relief. On February 16, 2000, this suit was resolved in accordance
with the terms of a joint development agreement between the Company and Sirius
Radio and both companies agreed to cross-license their respective property. Each
party is obligated to fund one half of the development cost for a unified
standard for satellite radios. Each party will be entitled to license fees or a
credit towards its one half of the cost based upon the validity, value, use,
importance and available alternatives of the technology it contributes. The
amounts for these fees or credits will be determined over time by agreement of
the parties or by arbitration. The parties have yet to agree on the validity,
value, use, importance and available alternatives of their respective
technologies. The companies have agreed to seek arbitration to resolve issues
with respect to certain existing technology. If this agreement is terminated
before the value of the license has been determined due to the Company's failure
to perform a material covenant or obligation, then this suit could be refiled.

                                      X-50

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

(h)  Accrued Network Optimization Expenses

     In December 2001, the Company determined that the planned number of
terrestrial repeater sites could be reduced due to a network optimization study
that was conducted. The Company established a formal plan and recognized a
charge of $26,300,000 with respect to the terrestrial repeater sites no longer
required. Included within the charge is $8,595,000 for costs to be incurred in
2002 related to these sites.

     The Company estimated lease termination costs based upon contractual lease
costs and expected negotiation results as determined by discussions with
landlords and consultants. Approximately 53% of these leases are subject to
master lease agreements with large tower companies. Based upon preliminary
discussions with the tower companies, the Company assumed that they would be
able to swap a portion of the existing sites for other sites in other areas in
which terrestrial repeater networks will be developed in the future, without
incurring all of the contractual obligations. As a result, the Company estimated
the total of the lease termination costs would be substantially lower than the
contractual lease obligations. The contractual payments amount to approximately
$35,100,000. Additionally, the Company's leases typically contain a clause that
requires the Company to return a site to its original condition upon lease
termination. The Company has established an accrual of $8,595,000 for the
estimated lease termination costs and costs to deconstruct the sites. The actual
amount to be incurred could vary significantly from this estimate.

(i)  Warrants

     Sony Warrant

     In February 2000, the Parent issued a warrant to Sony exercisable for
shares of the Parent's Class A common stock. The warrant will vest at the time
that the Company attains its millionth customer, and the number of shares
underlying the warrant will be determined by the percentage of XM Radios that
have a Sony brand name as of the vesting date. If Sony achieves its maximum
performance target, the warrant will be exercisable for 2% of the total number
of shares of the Parent's Class A common stock on a fully-diluted basis. The
exercise price of the Sony warrant will equal 105% of fair market value of the
Class A common stock on the vesting date, determined based upon the 20-day
trailing average. As the Company has commenced commercial operations and Sony
began selling its radios in the fourth quarter of 2001, the Company recognized
$131,000 of compensation expense related to this warrant in 2001.

     CNBC Warrant

     In May 2001, the Parent granted a warrant to purchase 90,000 shares of the
Parent's Class A common stock consisting of three 30,000 share tranches to
purchase shares at $26.50 per share, which expire in 11, 12, and 13 years,
respectively. The warrants began to vest on September 25, 2001 when the Company
reached its commercial launch and will be vested on September 1, 2002, 2003, and
2004, respectively. The Company recognized $290,000 in non-cash compensation
expense related to these warrants in 2001.

(j) Sales, Marketing and Distribution Agreements

     The Company has entered into various joint sales, marketing and
distribution agreements. Under the terms of these agreements, the Company is
obligated to provide incentives, subsidies and commissions to other entities
that may include fixed payments, per-unit radio and subscriber amounts and
revenue sharing arrangements. The amount of these operational, promotional,
subscriber acquisition, joint development, and manufacturing costs related to
these agreements cannot be estimated, but are expected to be substantial future
costs. During the years ended December 31, 1999, 2000 and 2001 the Company
incurred expenses of $0, $0 and $19,545,000, respectively, in relation to these
agreements. The amount of these costs will vary in future years, but is expected
to increase in the next year as the number of subscribers and revenue increase.

(k) Programming Agreements

     The Company has entered into various programming agreements. Under the
terms of these agreements, the Company is obligated to provide payments and
commissions to other entities that may include fixed payments,

                                      X-51

<PAGE>

                    XM SATELLITE RADIO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 2001

advertising commitments and revenue sharing arrangements. The amount of these
costs related to these agreements cannot be estimated, but are expected to be
substantial future costs. During the years ended December 31, 1999, 2000, 2001,
the Company incurred expenses of $0, $0 and $7,230,000, respectively, in
relation to these agreements. The amount of these costs will vary in future
years, but is expected to increase in the next year as the number of subscribers
and revenue increase.

(l) Leases

     The Company has noncancelable operating leases for office space and
terrestrial repeater sites and noncancelable capital leases for equipment that
expire over the next ten years. The future minimum lease payments and rentals
under noncancelable leases as of December 31, 2001 are (in thousands):

<TABLE>
<CAPTION>
                                                           Capital      Operating
                                                            Lease         Lease
                                                          Payments       Payments
                                                          --------       --------
<S>                                                     <C>            <C>
      Year ending December 31:
           2002 .......................................     $ 2,974       $ 23,771
           2003 .......................................       2,835         24,385
           2004 .......................................       1,098         25,166
           2005 .......................................         141         21,205
           2006 .......................................          --         10,658
           Thereafter .................................          --         72,328
                                                            -------       --------
                Total .................................       7,048       $177,513
                                                                          ========
      Less amount representing interest ...............        (890)
                                                            -------
      Present value of net minimum lease payments .....       6,158
      Less current maturities .........................      (1,530)
                                                            -------
      Long-term obligations ...........................     $ 4,628
                                                            =======
</TABLE>

     Rent expense for 1999, 2000 and 2001 was $649,000, $6,082,000 and
$24,236,000, respectively.

     As discussed in note 15(h), in December 2001, the Company determined that
the planned number of terrestrial repeater sites could be reduced due to the
relative signal strength provided by the Company's satellites. The Company
recognized a charge of $26,300,000 with respect to the terrestrial repeater
sites no longer required. This charge includes a lease termination accrual of
$8,595,000 for 646 terrestrial site leases, which would reduce the future
minimum lease payments.

                                      X-52

<PAGE>

    Independent Auditors' Report on Consolidated Financial Statement Schedule

The Board of Directors
XM Satellite Radio Inc.:

     Under date of January 23, 2002, we reported on the consolidated balance
sheets of XM Satellite Radio Inc. and subsidiaries as of December 31, 2000 and
2001, and the related consolidated statements of operations, stockholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 2001, which are included in the XM Satellite Radio Inc. and
subsidiaries annual report on Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial statement schedule based
on our audits.

     In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

     The audit report on the consolidated financial statements of XM Satellite
Radio Inc. and subsidiaries referred to above contains an explanatory paragraph
that states that the Company is dependent upon additional debt or equity
financing, which raises substantial doubt about its ability to continue as a
going concern. The consolidated financial statement schedule does not include
any adjustments that might result from the outcome of this uncertainty.

                                                 /s/ KPMG LLP

McLean, VA
January 23, 2002

                                      X-53

<PAGE>

                  Schedule I--Valuation And Qualifying Accounts
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        Charged to
                                                         Charged to       Other      Write-Offs/
                                              Balance     Costs and     Accounts--    Payments/     Balance
Description                                  January 1    Expenses      Describe        Other      December 31
-------------                                  ---------    --------      --------        -----      -----------
<S>                                          <C>         <C>           <C>           <C>          <C>
Year Ended December 31, 1999
   Allowance for doubtful accounts ........  $      --          --            --              --    $       --
   Deferred Tax Assets--Valuation
        Allowance .........................  $   7,769      (6,179)           --              --    $    1,590
   Accrued network optimization
        expenses ..........................  $      --          --            --              --    $       --

Year Ended December 31, 2000
   Allowance for doubtful accounts ........  $      --          --            --              --    $       --
   Deferred Tax Assets--Valuation
        Allowance .........................  $   1,590      20,482            --              --    $   22,072
   Accrued network optimization
        expenses ..........................  $      --          --            --              --    $       --

Year Ended December 31, 2001
   Allowance for doubtful accounts ........  $      --          10            --              --    $       10
   Deferred Tax Assets--Valuation
        Allowance .........................  $  22,072     109,964            --              --    $  132,036
   Accrued network optimization
        expenses ..........................  $      --       8,595            --              --    $    8,595
</TABLE>


                                      X-54

<PAGE>















    MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES

    Consolidated Financial Statements

    Years ended December 31, 2003 and 2002 with Report of Independent Auditors













<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

                        Consolidated Financial Statements

                     Years ended December 31, 2003 and 2002



                                    Contents

Report of Independent Auditors...............................................M-1

Audited Consolidated Financial Statements

Consolidated Balance Sheets..................................................M-2
Consolidated Statements of Operations........................................M-3
Consolidated Statements of Partners' (Deficit) Equity........................M-4
Consolidated Statements of Cash Flows........................................M-5
Notes to Consolidated Financial Statements...................................M-6






<PAGE>


                         Report of Independent Auditors

General Partners and Unit Holders
Mobile Satellite Ventures LP

We have audited the accompanying consolidated balance sheets of Mobile Satellite
Ventures LP (a Delaware limited partnership) and subsidiaries (collectively, the
Company) as of December 31, 2003 and 2002, and the related consolidated
statements of operations, partners' (deficit) equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mobile Satellite Ventures LP
and subsidiaries as of December 31, 2003 and 2002, and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.


/s/ Ernst & Young LLP

McLean, Virginia

April 23, 2004



                                      M-1
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                     December 31
                                                                               2003                 2002
                                                                         ------------------------------------
<S>                                                                      <C>                    <C>
Assets

Current assets:
Cash and cash equivalents                                                $   3,981,624          $   5,781,674
Restricted cash                                                                 74,246                652,860
Accounts receivable, net of allowance of $71,687 and $785,195 as of
December 31, 2003 and 2002, respectively                                     4,156,416              3,094,483
Inventory                                                                    1,406,604              2,118,583
Prepaid expenses and other current assets                                    1,058,942                735,384
                                                                         -------------          -------------
Total current assets                                                        10,677,832             12,382,984

Property and equipment, net                                                 23,598,573             28,767,458
Intangible assets, net                                                      80,673,205             89,947,520
Goodwill                                                                    15,784,572             11,261,943
Other assets                                                                    84,779              1,935,553
                                                                         -------------          -------------
Total assets                                                             $ 130,818,961          $ 144,295,458
                                                                         =============          =============

Liabilities and partners' (deficit) equity

Current liabilities:
Accounts payable and accrued expenses                                    $   4,172,297          $   4,117,186
Due to Motient - related party                                                  74,246                656,202
Vendor note payable, current portion                                           127,211                     --
Deferred revenue, current portion                                            5,887,381              5,298,120
Other current liabilities                                                      110,766                483,373
                                                                         -------------          -------------
Total current liabilities                                                   10,371,901             10,554,881

Deferred revenue, net of current portion                                    20,865,511             16,633,917
Accrued interest                                                            16,725,057              9,340,336
Vendor note payable, net of current portion                                    915,785                     --
Notes payable to Investors                                                  82,924,667             84,500,000
                                                                         -------------          -------------
Total liabilities                                                          131,802,921            121,029,134

Commitments and contingencies

Partners' (deficit) equity:
MSV general partner                                                                 --                     --
MSV limited partners                                                        (1,041,013)            23,259,457
Accumulated other comprehensive income                                          57,053                  6,867
                                                                         -------------          -------------
Total partners' (deficit) equity                                              (983,960)            23,266,324
                                                                         -------------          -------------
Total liabilities and partners' (deficit) equity                         $ 130,818,961          $ 144,295,458
                                                                         =============          =============
</TABLE>

See accompanying notes


                                      M-2
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                               Year ended December 31
                                                                             2003                  2002
                                                                        -------------------------------------
<S>                                                                     <C>                      <C>
Revenues:
   Services and related revenues                                        $ 25,536,096             $ 24,389,482
   Equipment sales and other revenues                                      1,588,294                  464,833
                                                                        ------------             ------------
Total revenues                                                            27,124,390               24,854,315

Operating expenses:
   Satellite operations and cost of services                              10,604,156               10,532,376
   Satellite capacity purchased from related party-
   MSV Canada                                                              4,858,305                4,647,224
   Next-generation research and development expenditures                   2,119,303                1,621,886
   Legal, regulatory and consulting                                        4,966,044                3,652,636
   Sales and marketing                                                     1,973,381                2,416,050
   General and administrative                                              3,992,187                4,546,327
   Depreciation and amortization                                          17,942,672               18,235,030
                                                                        ------------             ------------
Total operating expenses                                                  46,456,048               45,651,529
                                                                        ------------             ------------

Loss from operations                                                     (19,331,658)             (20,797,214)

Other income (expense):
   Management fee from related party-MSV Canada                            3,199,974                3,100,847
   Equity in losses of MSV Canada                                         (1,030,119)                (373,738)
   Interest income                                                            40,355                   55,538
   Interest expense                                                       (9,616,235)              (8,577,407)
   Write-off of investment in CelSat joint venture                        (2,000,000)                      --
   Other income, net                                                         737,213                  424,490
                                                                        ------------             ------------
Net loss                                                                $(28,000,470)            $(26,167,484)
                                                                        ============             ============
</TABLE>


See accompanying notes.




                                      M-3
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

              Consolidated Statements of Partners' (Deficit) Equity

<TABLE>
<CAPTION>
                                                                          Partner's (Deficit) Equity
                                         -------------------------------------------------------------------------------------------
                                               General Partner     Limited Partners       Accumulated       Total
                                         -----------------------------------------------    Other         Partners'
                                         Number of             Number of                 Comprehensive    (Deficit)    Comprehensive
                                           Units     Amount      Units        Amount        Income         Equity          Loss
                                         -------------------------------------------------------------------------------------------

<S>                                        <C>      <C>       <C>          <C>            <C>           <C>            <C>
Balance at December 31, 2001                -       $  -      16,642,732   $ 49,426,941   $      -      $  49,426,941  $          -
   Net loss                                 -          -               -    (26,167,484)         -        (26,167,484)  (26,167,484)
   Translation adjustment                   -          -               -             -       6,867              6,867         6,867
                                         -------------------------------------------------------------------------------------------
Balance at December 31, 2002                -          -      16,642,732     23,259,457      6,867         23,266,324
Total, December 31, 2002                                                                                               $(26,160,617)
                                                                                                                       -------------
   Issuance of MSV LP Class A Preferred     -          -         573,951      3,700,000          -          3,700,000             -
   units
   Net loss                                 -          -               -    (28,000,470)         -        (28,000,470)  (28,000,470)
   Change in market value of derivative
   instruments                              -          -               -              -     81,712             81,712        81,712
   Translation adjustment                   -          -               -              -    (31,526)           (31,526)      (31,526)
                                         -------------------------------------------------------------------------------------------
Balance at December 31, 2003                -       $  -      17,216,683   $ (1,041,013)  $ 57,053      $    (983,960)
                                         =============================================================================
Total, December 31, 2003                                                                                               $(27,950,284)
                                                                                                                       =============
</TABLE>


See accompanying notes.


                                      M-4
<PAGE>




                  Mobile Satellite Ventures LP and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                Year ended December 31
                                                                             2003                    2002
                                                                         -------------------------------------
<S>                                                                        <C>                     <C>
Operating activities
Net loss                                                                 $(28,000,470)           $(26,167,484)
Adjustments to reconcile net loss to net cash used in operating
   activities:
   Depreciation and amortization                                           17,942,672              18,235,030
   Equity in losses of MSV Canada                                           1,030,119                 373,738
   Write-off of investment in joint venture                                 2,000,000                      --
   Changes in operating assets and liabilities:
    Accounts receivable                                                    (1,061,933)                471,009
    Inventory                                                                 711,979                 811,197
    Prepaid assets and other assets                                          (941,512)               (353,808)
    Accounts payable and accrued expenses                                     290,671               1,076,582
    Other current liabilities                                                (751,514)             (4,138,827)
    Accrued interest                                                        7,384,721               8,571,854
    Deferred revenue                                                        1,274,075                 723,136
                                                                         ------------            ------------
Net cash used in operating activities                                        (121,192)               (397,573)

Investing activities
Purchase of Motient Satellite Business                                     (2,200,000)             (2,200,000)
Purchase of property and equipment                                         (1,316,512)               (840,328)
Purchase of option to form CelSat joint venture                            (1,000,000)             (1,000,000)
                                                                         ------------            ------------
Net cash used in investing activities                                      (4,516,512)             (4,040,328)

Financing activities
Proceeds from issuance of Class A Preferred Units                           3,700,000                      --
Principal payment on notes payable to Investors                            (1,575,333)                     --
Proceeds from issuance of notes payable to Investors                               --               3,000,000
                                                                         ------------            ------------
Net cash provided by financing activities                                   2,124,667               3,000,000

Effect of exchange rates on cash and cash equivalents                         134,373                 235,076
                                                                         ------------            ------------
Net decrease in cash and cash equivalents                                  (2,378,664)             (1,202,825)
Cash and cash equivalents, beginning of year                                6,434,534               7,637,359
                                                                         ------------            ------------
Cash and cash equivalents, end of year                                   $  4,055,870            $  6,434,534
                                                                         ============            ============

Supplemental information
Cash paid for interest                                                   $  2,124,667            $      5,553
                                                                         ------------            ------------

Non-cash flow financing information
Equipment obtained through issuance of notes to vendor                   $  1,042,996            $         --
                                                                         ============            ============
</TABLE>


See accompanying notes.



                                      M-5
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

                   Notes to Consolidated Financial Statements

                           December 31, 2003 and 2002


1. Organization and Business

Mobile Satellite Venture LP's predecessor company, Motient Satellite Ventures
LLC, was incorporated as a limited liability company pursuant to the Delaware
Limited Liability Company Act on June 15, 2000, by Motient Corporation
(Motient). On December 19, 2000, Motient Satellite Ventures LLC changed its name
to Mobile Satellite Ventures LLC. The Company commenced operations in June 2000
and was considered a development stage enterprise until November 26, 2001. On
November 26, 2001, Mobile Satellite Ventures LLC was converted into a limited
partnership, Mobile Satellite Ventures LP (MSV or the Company), subject to the
laws of the state of Delaware. Concurrently, the Company acquired certain assets
and liabilities of the Motient and TMI Communications LP (TMI) satellite
businesses, and issued $55.0 million of notes to certain existing and new
investors in exchange for cash. In connection with its purchase of TMI's
satellite business, the Company acquired a 20% equity interest in Mobile
Satellite Ventures (Canada) Inc. (MSV Canada) and 33-1/3% equity interest in
Mobile Satellite Ventures Holdings (Canada) Inc. (MSV Holdings).

The Company provides mobile satellite and communications services to individual
and corporate customers in the United States and Canada via its own satellite
and leased satellite capacity. The Company's operations are subject to
significant risks and uncertainties including technological, competitive,
financial, operational, and regulatory risks associated with the wireless
communications business. Uncertainties also exist regarding the successful
issuance of additional debt and equity financing and the ultimate profitability
of the Company's proposed next-generation wireless system. The Company will
require substantial additional capital resources to construct its
next-generation wireless system.

The Company's current operating assumptions and projections, which reflect
management's best estimate of future revenue and operating expenses, indicate
that anticipated operating expenditures through 2004 can be met by cash flows
from operations and available working capital; however, the Company's ability to
meet its projections is subject to uncertainties and there can be no assurance
that the Company's current projections will be accurate, and if the Company's
cash requirements are more than projected, the Company may require additional
financing. In addition, the Company entered into a satellite construction
contract (see Note 9) during 2002 that will require the Company to obtain
additional funding to finance the required payments during 2004 unless the
contract is terminated by the Company prior to certain payment due dates. The
Company is not currently planning to terminate the contract. The type, timing,





                                      M-6
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


1. Organization and Business (continued)

and terms of financing, if required, selected by the Company will be dependent
upon the Company's cash needs, the availability of financing sources and the
prevailing conditions in the financial markets. There can be no assurance that
such financing will be available to the Company at any given time or available
on favorable terms.

2. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries prepared in accordance with accounting principles
generally accepted in the United States. All significant intercompany accounts
are eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates affecting the consolidated financial
statements include management's judgments regarding the allowance for doubtful
accounts, reserves for inventory, future cash flows expected from long-lived
assets and accrued expenses for probable losses. Actual results could differ
from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments, such as money
market accounts, with an original maturity of three months or less.

Restricted Cash

In connection with the purchase of the Motient satellite business, the Company
held back approximately $4.0 million, which was restricted to pay Motient's rent
obligation to the Company for the lease of office space in the Company's
headquarters and to ensure the provision of certain services to the Company by





                                      M-7
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Restricted Cash (continued)

Motient under a transition services agreement. During 2002, $955,533 of this
cash was used to satisfy Motient's obligations under its sublease with the
Company. Under the terms of the original arrangement, an additional $1,011,022
was released to Motient as a scheduled return of amounts held for Motient's
service obligations since the services had been appropriately provided. During
2002, the Company and Motient amended the terms of this arrangement. As a
result, an additional $1,104,708 was returned to Motient and $336,060 was
released to the Company related to services that were to be provided under the
transition services agreement. During 2003, $50,708 was returned to Motient and
$530,742 was released to the Company for Motient's lease of office space in the
Company's headquarters, which has been shown as a reduction of satellite
operations and cost of services in the accompanying consolidated statement of
operations for the year ended December 31, 2003. As of December 31, 2003,
including interest earned since inception, $74,246 of cash remains restricted
related to Motient's lease and facilities obligations.

Inventory

Inventories consist of finished goods that are communication devices and are
stated at the lower of cost or market, average cost method. The Company
periodically assesses the market value of its inventory, based on sales trends
and forecasts and technological changes, and records a charge to current period
income when such factors indicate that a reduction in net realizable value is
appropriate.

Property and Equipment

Property and equipment acquired in business combinations are recorded at their
estimated fair value on the date of acquisition. Purchases of property and
equipment are recorded at cost. Depreciation is computed using the straight-line
method over estimated useful lives, ranging from three to five years. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the remaining lease term.



                                      M-8
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Property and Equipment (continued)

Property and equipment consisted of the following:

                                                    December 31
                                              2003                2002
                                          --------------------------------

Space and ground segments                 $ 39,771,813        $ 36,791,020
Satellite under construction                   850,000             500,000
Office equipment and furniture                 836,961             832,325
Leasehold improvements                         300,000             300,000
                                          ------------        ------------
                                            41,758,774          38,423,345
Accumulated depreciation                   (18,160,201)         (9,655,887)
                                          ------------        ------------
Property and equipment, net               $ 23,598,573        $ 28,767,458
                                          ============        ============

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived assets including property and equipment and intangible
assets other than goodwill, whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
determine the recoverability of its long-lived assets, the Company evaluates the
probability that future estimated undiscounted net cash flows will be less than
the carrying amount of the assets. If such estimated cash flows are less than
the carrying amount of the long-lived assets, then such assets are written down
to their fair value. No impairment charges were recorded in the years ended
December 31, 2003 and 2002. The Company's estimates of anticipated cash flows
and the remaining estimated useful lives of long-lived assets could be reduced
significantly in the future. As a result, the carrying amount of long-lived
assets could be reduced in the future.

Goodwill

The Company's goodwill arose from the November 2001 Motient and TMI
acquisitions. Because these transactions were consummated after June 30, 2001,
the Company applies the non-amortization provisions of SFAS No. 142, Goodwill
and Other Intangible Assets.




                                      M-9
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Goodwill (continued)

SFAS No. 142 requires the use of a non-amortization approach to account for
purchased goodwill. Under a non-amortization approach, goodwill is not amortized
into results of operations, but instead is reviewed for impairment and written
down and charged to results of operations only in the periods in which the
recorded value of goodwill is determined to be more than its estimated fair
value. No impairment charges were recorded in the years ended December 31, 2003
and 2002.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains cash balances at financial institutions that
may at times exceed federally insured limits. The Company maintains its cash and
cash equivalents at high credit quality institutions and, as a result,
management believes that credit risk related to its cash is not significant.

The Company generally grants credit to customers on an unsecured basis. Risk on
accounts receivable is reduced through ongoing evaluation of probability of
collection of amounts owed to the Company. The Company records an allowance for
doubtful accounts equal to the amount estimated to be uncollectible. For the
year ended December 31, 2003, three customers comprised approximately 13%, 12%
and 11%, respectively, of the Company's total revenues. Two customers each
comprised approximately 13% of the Company's total revenues for the year ended
December 31, 2002. In addition, as of December 31, 2003, two customers comprised
14% and 12%, respectively, of the Company's accounts receivable balance. Two
different customers comprised approximately 15% and 13%, respectively, of the
Company's accounts receivable balance as of December 31, 2002.

Fair Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosures regarding the fair value of certain financial instruments. The
carrying amount of the Company's cash and cash equivalents, accounts receivable,
and accounts payable and accrued expenses approximate their fair value because




                                      M-10
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Fair Value of Financial Instruments (continued)

of the short-term maturity of these instruments. The Company estimates the fair
value of its notes payable using estimated market prices based upon the current
interest rate environment and the remaining term to maturity. The Company
believes the fair value of these liabilities approximates their carrying value.

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans using the fair value method. The Company has chosen to
account for employee stock-based compensation using the intrinsic value method
as prescribed in Accounting Principles Board Opinion (APB Opinion) No. 25,
Accounting for Stock Issued to Employees, and its related interpretations. In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which prescribes certain disclosures and
provides guidance on how to transition from the intrinsic value method of
accounting for employee stock-based compensation under APB No. 25 to the fair
value method of accounting under SFAS No. 123, if a company so elects.

The Company continues to account for its stock-based compensation in accordance
with APB No. 25 and its related interpretations. No stock-based compensation
cost related to option grants to employees has been reflected in net income, as
all options granted have had an exercise price equal to the fair market value of
the underlying equity security on the date of grant. The following illustrates
the effect on net loss if the Company had applied the fair value method of SFAS
No. 123:

<TABLE>
<CAPTION>
                                                                                  December 31
                                                                            2003               2002
                                                                        --------------------------------
<S>                                                                     <C>                  <C>
Net loss, as reported                                                   $28,000,470          $26,167,484
Additional stock-based employee compensation
expense determined under fair value method                                1,080,385              621,148
                                                                        -----------          -----------
Pro forma net loss                                                      $29,080,855          $26,788,632
                                                                        ===========          ===========
</TABLE>



                                      M-11
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Stock-Based Compensation (continued)

In accordance with SFAS No. 123, the fair value of the options granted was
estimated at the grant date using an option-pricing model with the following
weighted-average assumptions: risk-free interest rate of 3.9% and 4.5% for the
years ended December 31, 2003 and 2002, respectively; no dividends; expected
life of the options of approximately five years; no volatility.

Derivatives

The Company accounts for derivatives in accordance with SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended, which requires
the recognition of all derivatives as either assets or liabilities measured at
fair value with changes in fair value of derivatives other than hedges reflected
as current period income (loss) unless the derivatives qualify as hedges of
future cash flows. For derivatives qualifying as hedges of future cash flows,
the effective portion of changes in fair value is recorded temporarily in
equity, and then recognized in earnings along with the related effects of the
hedged items. Any ineffective portion of hedges is reported in earnings as it
occurs.

In the normal course of business the Company is exposed to the impact of
fluctuations in the exchange rate with the Canadian dollar. The Company limits
this risk by following an established foreign currency financial management
policy. This policy provides for the use of forward and option contracts, which
limit the effects of exchange rate fluctuations of the Canadian dollar on
financial results. The Company does not use derivatives for trading or
speculative purposes. During the year ended and as of December 31, 2003, in
accordance with its foreign currency financial management policy, the Company
employed the use of forward and option contracts.

As of December 31, 2003, the Company hedged aggregate exposures of $2.8 million
by entering into forward exchange contracts requiring the purchase of the
Canadian dollar and the sale of the U.S. dollar. In general, the forward
exchange contracts have varying maturities up to, but not exceeding, one year
with cash settlements made at maturity based upon rates agreed to at contract
inception. These forward exchange contracts satisfy the hedge criteria of SFAS
No. 133, and therefore, the Company recognized a gain on these contracts of
$81,712, which is reflected as a credit in other comprehensive income and an
asset within prepaid expenses and other current assets as of December 31, 2003.



                                      M-12
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Revenue Recognition

The Company generates revenue primarily through the sale of wireless airtime
service and equipment. The Company recognizes revenue when the services are
performed or delivery has occurred, evidence of an arrangement exists, the fee
is fixed and determinable, and collectibility is probable.

The Company receives activation fees related to initial registration for retail
customers. Revenue from activation fees is deferred and recognized ratably over
the customer's contractual service period, generally one year.

Foreign Currency and International Operations

The functional currency of one of the Company's subsidiaries is the Canadian
dollar. The financial statements of this subsidiary are translated to U.S.
dollars using period-end rates for assets and liabilities and average rates
during the relevant period for revenue and expenses. For the years ended
December 31, 2003 and 2002, the Company recognized a foreign exchange gain of
$444,753 and a loss of $266,507, respectively, as a component of other income,
net in the accompanying consolidated statements of operations. The Company's
Canadian subsidiary generated a net loss of approximately $4.2 million and $3.4
million for the years ended December 31, 2003 and 2002, respectively.

Comprehensive Income (Loss)

The Company reports comprehensive income (loss) in accordance with SFAS No. 130,
Reporting Comprehensive Income, which establishes rules for the reporting and
display of comprehensive income and its components. SFAS No. 130 requires
foreign currency translation adjustments and the change in market value of
effective derivative instruments to be included in other comprehensive income.

Equity Method Investments

The Company accounts for its equity investments in MSV Canada and MSV Holdings
pursuant to the equity method of accounting. The carrying value of these
investments was $0 at December 31, 2003 and 2002. Because the Company is
obligated to provide working capital financial support to MSV Canada through a




                                      M-13
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Equity Method Investments (continued)

management agreement, the Company records losses related to such funding as
equity in losses of affiliates in the accompanying consolidated statements of
operations. The accumulated, but as yet unfunded losses are included in other
current liabilities in the accompanying consolidated balance sheets at December
31, 2003 and 2002.

Income Taxes

As a limited partnership, the Company is not subject to income tax directly.
Rather, each unit holder is subject to income taxation based on the unit
holder's portion of the Company's income or loss as defined in the limited
partnership agreement.

Recent Pronouncements

The EITF issued EITF Issue 00-21, Revenue Arrangements with Multiple
Deliverables (EITF 00-21). EITF 00-21 provides guidance on how to determine
whether a revenue arrangement involving multiple deliverable items contains more
than one unit of accounting and, if so, requires that revenue be allocated
amongst the different units based on fair value. EITF 00-21 also requires that
revenue on any item in a revenue arrangement with multiple deliverables not
delivered completely must be deferred until delivery of the item is completed.
The guidance in EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company implemented EITF 00-21
in 2003. Its implementation did not have a material impact on the Company's
consolidated results of operations or financial position.

In January 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51, which requires the consolidation of an entity in which an enterprise
absorbs a majority of the entity's expected losses, receives a majority of the
entity's expected residual returns, or both, as a result of ownership or
contractual or other financial interests in the entity. Currently, an entity is
generally consolidated by an enterprise when the enterprise has a controlling
financial interest in the entity through ownership of a majority voting interest
in the entity. The Company is currently evaluating the impact of adoption of FIN
46, which will be required for the first annual period beginning after December
15, 2004.



                                      M-14
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Recent Pronouncements (continued)

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for classifying and measuring as liabilities certain
financial instruments that have characteristics of both liabilities and equity.
The provisions of SFAS No. 150 will be applied to mandatorily redeemable
instruments of nonpublic companies in fiscal periods beginning after December
15, 2003. Early adoption of SFAS No. 150 is not permitted. The provisions of
this statement require that any financial instruments that are mandatorily
redeemable on a fixed or determinable date or upon an event certain to occur be
classified as liabilities. The Company does not expect that the provisions of
SFAS No. 150 will have a material impact on its financial condition or results
of operations.

3. Acquisitions

Motient Asset Purchase Agreement and Investment Agreement

Under the original terms of the Motient Asset Purchase Agreement, the Company
obtained from Motient the right to purchase (Motient Asset Purchase Deposit) the
Motient satellite business for an additional cash payment. In June 2000, certain
investors (Investors) unrelated to Motient paid $50 million to the Company (in
the aggregate) in exchange for a minority equity interest in the Company.
Pursuant to the Investment Agreement, the Investors also acquired certain rights
to convert, at their option, their initial investment in the Company into shares
of Motient's common stock (Motient Conversion Right).

In connection with the original terms of the Motient Asset Purchase Agreement,
the Company paid $29.4 million to Motient for the Motient Asset Purchase Deposit
and the Motient Conversion Right. This amount was allocated between the Motient
Asset Purchase Deposit ($10.8 million) and the Motient Conversion Right ($18.6
million) based on the relative fair value of each. Similarly, a portion ($18.6
million) of the proceeds of the sale of the minority equity interest in the
Company was allocated to the written call option that permitted the investors to
exercise the Motient Conversion Right. The remaining investment proceeds were
allocated to the purchase of the equity interest.



                                      M-15
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


3. Acquisitions (continued)

Motient Asset Purchase Agreement and Investment Agreement (continued)

The Company estimated the fair value of both the call option purchase from
Motient on its common stock and the call option written to the Investors on the
Motient common stock based on advice from an independent appraiser to be
approximately $18.6 million using the Black-Scholes valuation model. The Company
accounted for both the purchased and written call options on Motient common
stock as derivatives pursuant to SFAS No. 133. During 2002 and 2001, Motient has
undergone a restructuring and reorganization that has resulted in such options
having no value. As a result, the fair value of both of these options at
December 31, 2002 was $0; and the net change in fair value of these derivatives
for the year then ended was $0.

TMI Asset Purchase

In January 2001, the Company entered into certain agreements (January 2001
Agreements) with Motient, the Investors, and TMI. The January 2001 Agreements
provided for TMI to contribute the TMI satellite business to the Company in
exchange for certain equity interests in the Company, $7.5 million in cash, and
an $11.5 million five-year note. Pursuant to the January 2001 Agreements, a
portion of the Company's payment to TMI was to be funded by a loan from Motient
in the amount of $2.5 million, as evidenced by a note.

The January 2001 Agreements also modified the original Investment Agreement and
Motient Asset Purchase Agreement such that, upon closing, Motient contributed
the Motient satellite business to the Company in exchange for a cash payment of
$45.0 million and a $15.0 million five-year note. The January 2001 Agreements
were amended in October 2001 (October 2001 Agreements). Pursuant to the October
2001 Agreements, the Company issued $50.0 million of convertible notes
(Convertible Notes) to a subsidiary of SkyTerra Communications, Inc., formerly
Rare Medium Group, Inc. (New Investor), as well as $2.5 million to the Investors
and $2.5 million to Motient.

2001 Acquisitions

On November 26, 2001, MSV completed the acquisition of certain satellite assets
and related liabilities from Motient and TMI. The satellite businesses acquired
are engaged in the provision of satellite voice and data communications services
to customers in North America. These transactions were accounted for using the



                                      M-16
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


3. Acquisitions (continued)

2001 Acquisitions (continued)

purchase method of accounting. The consolidated financial statements include the
results of operations of the acquired Motient and TMI Satellite Business
subsequent to November 26, 2001. At the time of the acquisitions, the Company
allocated the purchase price to the assets acquired and liabilities assumed on
the preliminary basis based on their respective estimated fair values. During
2002, the Company revised its purchase price allocation based upon changes in
estimates related primarily to certain liabilities assumed in the acquisition.
In addition, under the terms of the agreement, the Company paid a total of $6.6
million through December 31, 2003 in contingent consideration to Motient for the
provision of services to a customer under a contract assumed by the Company.
These payments were accounted for as contingent consideration and were included
in the determination of the purchase price when paid to Motient. The $2.2
million final payment made during 2003 served to increase recorded goodwill. As
of December 31, 2003, there are no contingent purchase payments remaining.

The aggregate purchase price, including $6.6 million of contingent consideration
paid through December 31, 2003, and allocation to the assets acquired and
liabilities assumed based on their estimated fair values is as follows:

Cash paid                                                          $ 59,117,552
Transaction costs                                                     1,829,926
Notes payable issued                                                 26,500,000
Prepaid satellite capacity and asset purchase deposit                 7,539,752
MSV LP common units issued                                           42,805,306
Current and noncurrent liabilities assumed                           19,653,236
                                                                   ------------
                                                                   $157,445,772
                                                                   ============

Current assets acquired                                            $  6,385,051
Property and equipment                                               37,443,345
Intangible assets                                                   100,230,000
Goodwill                                                             13,387,376
                                                                   ------------
                                                                   $157,445,772
                                                                   ============


                                      M-17
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


3. Acquisitions (continued)

2001 Acquisitions (continued)

The increase in goodwill from December 31, 2002 to December 31, 2003 is a result
of the fluctuation of the exchange rate between the U.S. and Canadian dollar and
as a result of the $2.2 million contingent purchase price payment to Motient.

The Company's identifiable intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                                  December 31
                                                                            2003               2002
                                                                      -----------------------------------
<S>                                                                   <C>                   <C>
Customer contracts                                                    $  18,092,565         $  17,886,694
Next generation intellectual property                                    82,350,000            82,350,000
                                                                      -------------         -------------
                                                                        100,442,565           100,236,694
Accumulated amortization                                                (19,769,360)          (10,289,174)
                                                                      -------------         -------------
Intangible assets, net                                                $  80,673,205         $  89,947,520
                                                                      =============         =============
</TABLE>



Customer contracts and the next-generation intellectual property are being
amortized over 5 and 15 years, respectively. Management estimated the fair value
of identified intangibles based on a third-party appraisal. During 2003 and
2002, the Company recorded approximately $9,427,000 and $9,401,000,
respectively, of amortization expense related to these intangible assets. The
Company's next generation intellectual property consists of a combination of
spectrum licenses and contractual rights to various authorizations,
applications, certain technology; and certain other rights, all of which
resulted from the 2001 acquisitions.

Future amortization of intangible assets is as follows as of December 31, 2003:

             2004                                          $ 9,427,357
             2005                                            9,427,357
             2006                                            7,400,753
             2007                                            5,490,000
             2008                                            5,490,000
             Thereafter                                     43,437,738
                                                           -----------
                                                           $80,673,205
                                                           ===========



                                      M-18
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


4. Long-Term Debt

Notes Payable

On November 26, 2001, the Company issued $55.0 million of Convertible Notes and
$26.5 million of Non-Convertible Notes, respectively (collectively, the Notes).
The Notes mature on November 26, 2006 and bear interest at 10% per annum,
compounded semiannually, and payable at maturity.

The Convertible Notes are convertible, at any time, into the Company's Class A
Preferred Units (Preferred Units) equal to a number of Preferred Units
determined by dividing the principal being converted by $6.45. The conversion
price of $6.45 (Conversion Price) is subject to adjustment in certain
circumstances. The terms of the Convertible Notes were amended during 2003 to
automatically convert into Preferred Units upon the Company's payment in full of
the principal and accrued interest on the Non-Convertible Notes and the accrued
interest on the Convertible Notes.

In August 2002, the Company issued an additional $3.0 million of Convertible
Notes. These notes were issued with terms identical to those of the Convertible
Notes issued in November 2001. In August 2003, the Company repaid approximately
$1.6 million of the principal and all of the accrued interest of approximately
$2.1 million, on one of the Non-Convertible Notes, as required by the Interim
Investment (Note 5).

Long-term debt consists of the following:

                                                         December 31
                                                   2003                2002
                                                -------------------------------

Convertible Notes                               $58,000,000         $58,000,000
Non-Convertible Notes                            24,924,667          26,500,000
                                                -----------         -----------
Notes payable                                   $82,924,667         $84,500,000
                                                ===========         ===========



                                      M-19
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


4. Long-Term Debt (continued)

Vendor Notes Payable

In February 2003, the Company entered into an agreement with a satellite
communications provider that is a related party (the Vendor) for the
construction and procurement of a ground station. The Vendor provided financing
for this project totaling approximately $1.3 million at an interest rate of
9.5%.

In November 2003, the Company conditionally accepted the completed ground
station. The agreement requires that, over a five-year period, the Company make
monthly interest payments (at an interest rate of 9.5%) for the first six months
beginning from the date of acceptance, and monthly principal and interest
payments for the remaining fifty-four months.

Future payments on the Vendor note payable as of December 31, 2003 are as
follows:

             2004                                         $  231,812
             2005                                            279,523
             2006                                            279,523
             2007                                            279,523
             2008                                            232,936
                                                          -----------
             Total future payments                         1,303,317
             Less: interest                                 (260,321)
                                                          ----------
             Principal portion                             1,042,996
             Less: current portion                          (127,211)
                                                          ----------
             Long-term portion of vendor note payable     $  915,785
                                                          ==========

5. Partners' Equity

Effective November 26, 2001, pursuant to the Limited Partnership Agreement of
the Company, the partners' interests in the Company were divided into MSV LP
Common Units and MSV LP Class A Preferred Units. The Company's general partner,
Mobile Satellite Ventures, GP, Inc., a Delaware Corporation, has no economic
interest in the Company and is owned by the Company's partners in proportion to
their fully diluted interests in the Company.



                                      M-20
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


5. Partners' Equity (continued)

The Class A Preferred Units and Common Units carry many of the same rights and
privileges, except with respect to a distribution event, wherein the Class A
Preferred Units have preference over the Common Units in receiving proceeds
resulting from the distribution. As of December 31, 2003, there were 14,642,732
Common Units held by limited partners and 2,573,951 Class A Preferred Units held
by limited partners. The general partner did not hold any units as of December
31, 2003 or 2002. As of December 31, 2002, there were 14,642,732 Common Units
held by limited partners and 2,000,000 Class A Preferred Units held by limited
partners.

Allocation of Profits and Losses

Effective November 26, 2001, profits and losses are allocated to the partners in
proportion to their economic interests. Losses allocated to any partner for any
fiscal year will not exceed the maximum amount of losses that may be allocated
to such partner without causing such partner to have an adjusted capital account
deficit at the end of such fiscal year. Any losses in excess of this limitation
shall be specially allocated solely to the other partners. Thereafter,
subsequent profits shall be allocated to reverse any such losses specially
allocated pursuant to the preceding sentence.

Distributions

Except for certain capital proceeds and upon liquidation, the Company shall make
distributions as determined by the Board of Directors to the partners in
proportion to their respective percentage interests.

Upon dissolution of the Company, a liquidating trustee shall be appointed by the
Board, or under certain circumstances, the required investor majority, as
defined, who shall immediately commence to wind up the Company's affairs. The
proceeds of liquidation shall be distributed, in the following order:

o    First, to creditors of the Company, including partners, in the order
     provided by law; and

o    Thereafter, to the partners in the same order as other distributions.




                                      M-21
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


5. Partners' Equity (continued)

Issuance of Class A Preferred Units

In August 2003, the Company amended the October 2001 Agreements, and entered
into the First Amended and Restated Investment Agreement (Amended Agreement)
with the partners. Under the terms of the Amended Agreement, within 90 days of
receipt of the final approval from the FCC (as defined), and provided that the
approval occurred before March 31, 2004, the Investors would invest an
additional $21.3 million in the Company in return for additional equity
interests. The Amended Agreement extended this timeline and divided the
investment originally contemplated in the October 2001 agreements into two
tranches: an Interim Investment and a Subsequent Investment.

In August 2003, under the Interim Investment, the Company received $3.7 million
in exchange for the issuance of 573,951 Class A Preferred units at $6.45 per
unit to the Investors in the amounts of their respective subscription and
contributions. The Company used these funds to repay approximately $1.6 million
of the principal and approximately $2.1 million of accrued interest on one of
the Non-Convertible Notes (see Note 4).

In April 2004, the Company received $17.6 million of Subsequent Investment
proceeds from the Investors in exchange for the issuance of 2,735,317 of Class A
Preferred Units at $6.45 per unit to the Investors and repaid approximately $2.4
million of the principal balance and approximately $2.6 million of accrued
interest on Non-Convertible Notes.

6. Unit Option Plan

MSV Option Plan

In December 2001, the Company adopted a unit option incentive plan (Unit Option
Incentive Plan). Under the Unit Option Incentive Plan, the Company reserved for
issuance and may grant up to 4,000,000 options to acquire units to employees and
directors upon approval by the Board of Directors. The exercise price of each
option will be equal to the fair value of the partnership's unit on the date of
grant. Options to acquire units generally vest over a three-year period and the
options to acquire units have a 10-year life.



                                      M-22
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. Unit Option Plan (continued)

The following summarizes activity in the Unit Incentive Option Plan:

                                                                     Weighted-
                                                                      Average
                                                                      Exercise
                                                 Options to          Price per
                                                Acquire Units          Unit
                                               -------------------------------

Options outstanding at January 1, 2002           1,318,500            $ 6.45
   Granted                                          89,000              6.45
                                                ----------            ------
Options outstanding at December 31, 2002         1,407,500              6.45
   Granted                                       1,588,000              6.45
   Canceled                                       (107,332)             6.45
                                                ----------            ------
Options outstanding at December 31, 2003         2,888,168            $ 6.45
                                                ==========            ======

At December 31, 2003 and 2002, 468,435 and 439,500 options were exercisable,
respectively. At December 31, 2003 and 2002, the weighted-average remaining
contractual life for outstanding options was 9.0 years and 8.6 years,
respectively. The weighted-average fair value of unit options granted during the
year ended December 31, 2003 and 2002 was $0.91 and $1.30 and per unit,
respectively.

TerreStar Option Plan

In July 2002, the Board of Directors of TerreStar approved the 2002 Stock
Incentive Plan. The plan terms are similar to the Unit Option Incentive Plan.
Options are granted with exercise price equal to the fair market value of the
TerreStar stock on the grant date, which was determined to be $0.70 per share




                                      M-23
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. Unit Option Plan (continued)

TerreStar Option Plan (continued)

for the years ended December 31, 2003 and 2002, and vest over a three-year
period. At December 31, 2003 and 2002, the weighted-average remaining
contractual life for outstanding options was 8.6 and 9.5 years, respectively.

                                                                     Weighted-
                                                                      Average
                                                                      Exercise
                                                   Options to        Price per
                                                  Acquire Units        Unit
                                                 -----------------------------

Options outstanding at January 1, 2002                   --           $ 0.70
   Granted                                        1,781,596             0.70
                                                 ----------           ------
Options outstanding at December 31, 2002          1,781,596             0.70
   Granted                                          107,722             0.70
   Canceled                                         (36,517)            0.70
                                                 ----------           ------
Options outstanding at December 31, 2003          1,852,801           $ 0.70
                                                 ==========           ======

7. Related Party Transactions

During the years ended December 31, 2003 and 2002, respectively, the Company
incurred $150,966 and $1,441,673 of administrative expenses related primarily to
services provided by Motient. In addition, the Company provided
facilities-related services to Motient of $133,729 during the year ended
December 31, 2003.

The Company has an arrangement with MSV Canada, under which the Company provides
management services to MSV Canada and purchases satellite capacity from MSV
Canada. MSV Canada owns the satellite formerly owned by TMI. The Company earns
revenues under the management agreement by providing certain services to MSV
Canada such as allowing access to its intellectual property; providing voice and
data switching capabilities; providing backup, restoral, and emergency spectrum
and satellite capacity and providing accounting, customer service, and billing
services. The Company recognizes the related management fee income in the month
in which the rights and services are provided.



                                      M-24
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


7. Related Party Transactions (continued)

The Company leases satellite capacity from MSV Canada pursuant to a lease
agreement. The term of the lease extends for 25 years and may be terminated by
the Company with one year's notice or by either party in certain circumstances.
The amount of the lease payments is determined by the parties periodically based
upon the amount of capacity usage by the Company and market rates. Payments due
under the lease may be offset against amounts owed to the Company.

During the year ended December 31, 2002, the Company incurred $117,000 of
consulting expenses for services provided by a company controlled by one of the
Company's Investors, which is included in legal, regulatory and consulting
expenses in the accompanying consolidated statement of operations.

The Company leases office space from an affiliate of TMI (see Note 8). The
Company has also entered into an agreement with this company for telemetry,
tracking, and control services. The agreement ends April 30, 2006, with
automatic extension for three successive additional renewal periods of one year
each. The agreement may be terminated at any time, provided that the Company
makes a payment equal to the lesser of 12 months of service or the remaining
service fee.

8. Commitments and Contingencies

Leases

As of December 31, 2003, the Company has noncancelable operating leases,
expiring through August 2008. Rental expense, net of sublease income, for the
years ended December 31, 2003 and 2002, was approximately $1.1 million and $1.8
million, respectively. Future minimum lease payments under noncancelable
operating leases with initial terms of one year or more are as follows for the
years ended December 31:

       2004                               $  873,836
       2005                                  870,936
       2006                                  864,116
       2007                                  864,116
       2008                                  518,455
                                          ----------
                                          $3,991,459
                                          ==========



                                      M-25
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


8. Commitments and Contingencies (continued)

Leases (continued)

Office facility leases may provide for periodic escalations of rent, rent
abatements during specified periods of the lease, and payment of pro rata
portions of building operating expenses, as defined. The Company records rent
expense for operating leases using the straight-line method over the term of the
lease agreement. Deferred rent represents expenses recorded in excess of
payments made.

The minimum lease payment for 2004 is net of expected sublease income of
approximately $67,000.

Litigation and Claims

The Company is periodically a party to lawsuits and claims in the normal course
of business. While the outcome of the lawsuits and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of the matters will not have a material adverse effect on the
financial position or results of operations of the Company.

Contingencies

From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company records
contingent liabilities when it is probable that future expenditures will be made
and such expenditures can be reasonably estimated. As of December 31, 2003, the
Company has accrued $400,000 in accounts payable and accrued expenses in the
accompanying consolidated balance sheet related to contingent liabilities.



                                      M-26
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


8. Commitments and Contingencies (continued)

Regulatory Matters

During 2001, Motient applied to the FCC to transfer licenses and authorizations
related to its L-Band MSS system to MSV, which was approved in November 2001. In
connection with this application, Motient sought FCC authority to launch and
operate a next-generation mobile satellite system (MSS) that will include the
deployment of satellites and terrestrial base stations operating in the same
frequencies as an integrated network. In February 2003, the FCC adopted general
rules based on the Company's proposal to develop an integrated
satellite-terrestrial system, subject to the requirement that the Company file
an additional application for a specific terrestrial component consistent with
the broader guidelines issued in the February 2003 ruling. These broad
guidelines govern issues such as aggregate system interference to other MSS
operators, the level of integration between satellite and terrestrial service
offerings, and specific requirements of the satellite component that the Company
currently meets by virtue of its existing satellite system. While the Company's
current satellite assets satisfy these requirements, the Company anticipates the
future need to construct and deploy more powerful satellites.

The Company believes that the ruling allows for significant commercial
opportunity related to the Company's next-generation system. Both proponents and
opponents of Ancillary Terrestrial Component (ATC), including the Company, have
asked the FCC to reconsider the rules adopted in the February 2003 order.
Opponents of the ruling have advocated changes that could adversely impact the
Company's business plans. The Company has also sought certain corrections and
relaxations of technical standards that would further enhance the commercial
viability of the next-generation system. Moreover, one terrestrial wireless
carrier has filed an appeal of the FCC's decision with a United States Court of
Appeals, which has been held in abeyance until the FCC rules on the
reconsideration requests. In November 2003, the Company applied for authority to
operate ATC in conjunction with the current and next-generation satellites of
MSV and MSV Canada.

There can be no assurance that, following the conclusion of the rulemaking and
the other legal challenges, the Company will have authority to operate a
commercially viable next-generation network.

9. TerreStar Networks

In February 2002, the Company established TerreStar Networks, Inc. (TerreStar),
a wholly owned subsidiary, to develop business opportunities related to the
proposed receipt of certain licenses in the 2 GHz band.



                                      M-27
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


9. TerreStar Networks (continued)

Regulatory Matters

TMI holds the approval issued by Industry Canada for a 2 GHz space station
authorization and related spectrum licenses for the provision of mobile
satellite service in the 2 GHz band as well as an authorization from the FCC for
the provision of mobile satellite service (MSS) in the 2 GHz band (MSS
authorization). These authorizations are subject to FCC and Industry Canada
milestones relating to construction, launch and operational date of the system.
TMI plans to transfer the Canadian authorizations to an entity that is eligible
to hold the Canadian authorizations and in which TerreStar and/or TMI will have
an interest, subject to obtaining the necessary Canadian regulatory approvals.
In order to satisfy the milestone requirements included within the
authorizations, TerreStar and TMI entered into an agreement in which TerreStar
agreed to enter into a non-contingent satellite procurement contract for the
construction and delivery to TMI of a satellite that is consistent with the
Canadian and FCC authorizations. Further, TMI agreed that at TerreStar's
election, TMI will transfer the 2 GHz assets to the entities described above,
subject to any necessary Canadian and U.S. regulatory approvals. In December
2002, TMI and TerreStar jointly applied to the FCC for authority to transfer
TMI's MSS authorization to TerreStar.

In August 2002, Industry Canada advised the Company that this arrangement met
the requirement that TMI demonstrate that it is bound to a contractual agreement
for the construction of the proposed satellite. However, certain wireless
carriers had urged the FCC to cancel TMI's MSS authorization. A similar group
also filed a petition in January 2003 asking the FCC to dismiss the application
to transfer TMI's MSS authorization to TerreStar. In February 2003, the FCC
adopted an order canceling TMI's MSS authorization due to an alleged failure to
enter into a noncontingent satellite construction contract before the specified
first milestone date. Also in February 2003, the FCC adopted an order allowing
MSS carriers, including those in the 2 GHz band, to provide an ATC. A number of
parties, principally wireless carriers, have challenged the validity of that
order (see note 8). At the same time that it adopted the ATC order, the FCC
decreased the amount of spectrum allocated for all MSS carriers in the 2 GHz
band from 70 MHz to 40 MHz. Challenges to that decision by MSS carriers were not
successful.



                                      M-28
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


9. TerreStar Networks (continued)

Regulatory Matters (continued)

The failure of the FCC to reverse the order canceling TMI's authorization could
have an adverse impact on TerreStar because, in that event, TMI would have no
authorization to assign the 2 GHz band to TerreStar. In addition, TerreStar has
entered into a satellite construction contract in contemplation of the
assignment of the TMI authorization and, therefore, if the authorization
assignment is not consummated, TerreStar may terminate its satellite
construction contract, which may result in certain termination costs.

Joint Venture Option

During 2002, TerreStar acquired an option to establish a joint venture with a
third party to develop the 2 GHz licenses and orbital rights that each party had
previously obtained. The FCC licensed the third party to construct, launch and
operate a communications system consisting of two geostationary satellites in
the 2 GHz band, a communications network and user terminals. Consideration for
the option consisted of nonrefundable payments made by TerreStar of $1.0 million
during 2002 and $500,000 during 2003. In January 2003, TerreStar exercised its
option to form the joint venture. Under the terms of the memorandum of agreement
(MOA), TerreStar contributed an additional $500,000 to the joint venture upon
signing of the joint venture agreements. However, as a result of the FCC order
canceling TMI's 2 GHz license, TerreStar and the third party mutually agreed to
terminate the option agreement and the joint venture and any remaining
obligations or liabilities related to these agreements in July 2003. As a
result, TerreStar wrote off its $2.0 million investment in the joint venture
during the year ended December 31, 2003.

Satellite Construction Contract

During 2002, TerreStar entered into a contract to purchase a satellite system,
including certain ground infrastructure for use with the 2 GHz band. The Company
made payments according to a milestone payment plan of $350,000 and $500,000
during the years ended December 31, 2003 and 2002, respectively. Such payments
have been capitalized as satellite under construction in property and equipment
in the accompanying balance sheets as of December 31, 2003 and 2002. Additional
payments totaling $150,000 are due upon the successful resolution of certain
regulatory issues surrounding TerreStar's application for a 2 GHz license. A
payment of $27.5 million originally due in August 2003 was also postponed until
the successful resolution of the regulatory issues. The remaining payments are
due through 2006 on the later of specified dates or upon the achievement of



                                      M-29
<PAGE>


                  Mobile Satellite Ventures LP and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


9. TerreStar Networks (continued)

Satellite Construction Contract (continued)

milestones as defined in the contract. The satellite manufacturer may also be
entitled to certain incentive payments based upon the performance of the
satellite once in operation. If the Company terminates the contract, the
manufacturer shall be entitled to payment of a termination liability as
prescribed in the contract. The termination liability will generally be equal to
the amounts previously paid by the Company or up to $1.0 million as of December
31, 2003. The satellite represents one component of a communications system that
includes ground-switching infrastructure, launch costs, and insurance. Total
cost of this system could exceed $500 million. In order to finance future
payments, the Company will be required to obtain additional debt or equity
financing, or may enter into various joint ventures to share the cost of
development. There can be no assurance that such financing or joint venture
opportunities will be available to the Company or available on terms acceptable
to the Company.




                                      M-30