Exhibit 99.2



FINANCIAL STATEMENTS OF MOBILE SATELLITE VENTURES LP

AS OF AND FOR THE YEARS ENDED

DECEMBER 31, 2003, 2004 AND 2005



---

Report of Independent Auditors



General Partner and Unit Holders

Mobile Satellite Ventures LP



We have audited the accompanying consolidated balance sheets of Mobile Satellite Ventures LP (a Delaware limited partnership) (the Company) as of
December 31, 2004 and 2005, and the related consolidated statements of operations, partners equity (deficit), and cash flows for each of the three years in the period ended December 31, 2005. 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. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and 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 consolidated financial position of Mobile
Satellite Ventures LP at December 31, 2004 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally
accepted in the United States.



As discussed in Note 2 to
the consolidated financial statements, in 2005 the Company adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities.



/s/ Ernst & Young LLP



McLean, Virginia

February 22, 2006



2



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Mobile Satellite Ventures LP



Consolidated Balance Sheets

(In Thousands)



|                                                      |  |             |         |   |      |   |         |  
|----------------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | -
|                                                      |  | December 31 |        
|                                                      |  | 2004        |         |   | 2005 |  
|Assets                                                |  |             |         |   |      |   |         |  
|Current assets:                                       |  |             |         |   |      |   |         |  
|Cash and cash equivalents                             |  | $           | 129,124 |   |      | $ | 59,925  |  
|Investments                                           |  |             | -       |   |      |   | 52,278  |  
|Restricted cash                                       |  |             | 75      |   |      |   | 1,664   |  
|Accounts receivable, net of allowance of $70 and $103 |  |             | 3,344   |   |      |   | 3,370   |  
|Management fee due from TerreStar Networks            |  |             | -       |   |      |   | 769     |  
|Inventory                                             |  |             | 698     |   |      |   | 710     |  
|Prepaid expenses and other current assets             |  |             | 782     |   |      |   | 1,090   |  
|TerreStar assets, discontinued                        |  |             | 5,955   |   |      |   | -       |  
|Total current assets                                  |  |             | 139,978 |   |      |   | 119,806 |  
|Restricted cash, long-term                            |  |             | -       |   |      |   | 4,600   |  
|Property and equipment, net                           |  |             | 14,054  |   |      |   | 10,600  |  
|Intangible assets, net                                |  |             | 71,506  |   |      |   | 61,958  |  
|Goodwill                                              |  |             | 16,495  |   |      |   | 16,936  |  
|Other assets                                          |  |             | 85      |   |      |   | 2,884   |  
|TerreStar Networks assets, discontinued               |  |             | 4,105   |   |      |   | -       |  
|                                                      |  |             |         |   |      |   |         |  
|Total assets                                          |  | $           | 246,223 |   |      | $ | 216,784 |  
|                                                      |  |             |         |   |      |   |         |  
|Liabilities and partners equity                      |  |             |         |   |      |   |         |  
|Current liabilities:                                  |  |             |         |   |      |   |         |  
|Accounts payable and accrued expenses                 |  | $           | 6,171   |   |      | $ | 6,974   |  
|Vendor note payable, current portion                  |  |             | 206     |   |      |   | 225     |  
|Deferred revenue, current portion                     |  |             | 4,882   |   |      |   | 4,538   |  
|Other current liabilities                             |  |             | 65      |   |      |   | 74      |  
|TerreStar Networks liabilities, discontinued          |  |             | 549     |   |      |   | -       |  
|                                                      |  |             |         |   |      |   |         |  
|Total current liabilities                             |  |             | 11,873  |   |      |   | 11,811  |  
|Deferred revenue, net of current portion              |  |             | 20,690  |   |      |   | 23,243  |  
|Vendor note payable, net of current portion           |  |             | 696     |   |      |   | 470     |  
|                                                      |  |             |         |   |      |   |         |  
|Total liabilities                                     |  |             | 33,259  |   |      |   | 35,524  |  
|Commitments and contingencies                         |  |             |         |   |      |   |         |  
|Partners equity:                                     |  |             |         |   |      |   |         |  
|MSV general partner                                   |  |             | -       |   |      |   | -       |  
|MSV limited partners                                  |  |             | 217,643 |   |      |   | 186,803 |  
|Deferred compensation                                 |  |             | (4,185  | ) |      |   | (4,420  | )
|Accumulated other comprehensive loss                  |  |             | (494    | ) |      |   | (1,123  | )
|                                                      |  |             |         |   |      |   |         |  
|Total partners equity                                |  |             | 212,964 |   |      |   | 181,260 |  
|                                                      |  |             |         |   |      |   |         |  
|Total liabilities and partners equity                |  | $           | 246,223 |   |      | $ | 216,784 |  
|                                                      |  |             |         |   |      |   |         |  



See accompanying notes.



3



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Mobile Satellite Ventures LP



Consolidated Statements of Operations

(In Thousands)



|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                              |  | Year ended December 31 |        
|                                                                                                              |  | 2003                   |         |   | 2004 |   |         | 2005 | 
|Revenues:                                                                                                     |  |                        |         |   |      |   |         |      |  |   |         |  
|Services and related revenues                                                                                 |  | $                      | 25,536  |   |      | $ | 26,664  |      |  | $ | 27,200  |  
|Equipment sales and other revenues                                                                            |  |                        | 1,588   |   |      |   | 2,343   |      |  |   | 2,181   |  
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Total revenues                                                                                                |  |                        | 27,124  |   |      |   | 29,007  |      |  |   | 29,381  |  
|Operating expenses:                                                                                           |  |                        |         |   |      |   |         |      |  |   |         |  
|Satellite operations and cost of services (exclusive of depreciation and amortization shown separately below) |  |                        | 15,640  |   |      |   | 16,618  |      |  |   | 14,264  |  
|Next generation expenditures (exclusive of depreciation and amortization shown separately below)              |  |                        | 4,268   |   |      |   | 8,593   |      |  |   | 18,516  |  
|Sales and marketing                                                                                           |  |                        | 1,973   |   |      |   | 4,762   |      |  |   | 4,093   |  
|General and administrative                                                                                    |  |                        | 4,319   |   |      |   | 7,350   |      |  |   | 15,552  |  
|Depreciation and amortization                                                                                 |  |                        | 17,928  |   |      |   | 18,439  |      |  |   | 16,109  |  
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                                                                      |  |                        | 44,128  |   |      |   | 55,762  |      |  |   | 68,534  |  
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Loss from continuing operations before other income (expense)                                                 |  |                        | (17,004 | ) |      |   | (26,755 | )    |  |   | (39,153 | )
|Other income (expense):                                                                                       |  |                        |         |   |      |   |         |      |  |   |         |  
|Rights and services fee from MSV Canada                                                                       |  |                        | 3,200   |   |      |   | 3,568   |      |  |   | -       |  
|Equity in losses of MSV Canada                                                                                |  |                        | (1,030  | ) |      |   | (275    | )    |  |   | -       |  
|Interest income                                                                                               |  |                        | 41      |   |      |   | 442     |      |  |   | 3,490   |  
|Interest expense                                                                                              |  |                        | (9,616  | ) |      |   | (8,551  | )    |  |   | (145    | )
|Management fee from TerreStar Networks                                                                        |  |                        | -       |   |      |   | -       |      |  |   | 3,621   |  
|Other income, net                                                                                             |  |                        | 737     |   |      |   | 55      |      |  |   | 61      |  
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Loss from continuing operations before cumulative effect of change in accounting principle                    |  |                        | (23,672 | ) |      |   | (31,516 | )    |  |   | (32,126 | )
|Loss from TerreStar Networks discontinued operations                                                          |  |                        | (4,328  | ) |      |   | (1,939  | )    |  |   | (9,553  | )
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Loss before cumulative effect of change in accounting principle                                               |  |                        | (28,000 | ) |      |   | (33,455 | )    |  |   | (41,679 | )
|Cumulative effect of change in accounting principle                                                           |  |                        | -       |   |      |   | -       |      |  |   | 724     |  
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Net loss                                                                                                      |  | $                      | (28,000 | ) |      | $ | (33,455 | )    |  | $ | (40,955 | )
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  



See accompanying notes.



4



---

Mobile Satellite Ventures LP



Consolidated Statements of Partners Equity (Deficit)

(In Thousands, except number of units)



|                                                    |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------- |  | --------------- |  | ---------------- | - | ------------- | -------------------- | ------ | - | ------------------------------------------ | - |  | ----------------------------- | ------ | - | ----------------- | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                    |  | General Partner |  | Limited Partners |   |               | DeferredCompensation |        |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | TotalPartnersEquity(Deficit) |        |   | ComprehensiveLoss |  
|                                                    |  | NumberofUnits   |  | Amount           |   | NumberofUnits |                      | Amount |   |                                            |   |  |                              
|Balance, December 31, 2002                          |  | -               |  | $                | - |               | 16,642,732           |        | $ | 23,259                                     |   |  | $                             | -      |   |                   | $ | 7      |   |  | $ | 23,266  |   |  |   |         |  
|Issuance of MSV Class A Preferred Units             |  | -               |  |                  | - |               | 573,951              |        |   | 3,700                                      |   |  |                               | -      |   |                   |   | -      |   |  |   | 3,700   |   |  |   |         |  
|Net loss                                            |  | -               |  |                  | - |               | -                    |        |   | (28,000                                    | ) |  |                               | -      |   |                   |   | -      |   |  |   | (28,000 | ) |  | $ | (28,000 | )
|Change in market value of derivative instruments    |  | -               |  |                  | - |               | -                    |        |   | -                                          |   |  |                               | -      |   |                   |   | 82     |   |  |   | 82      |   |  |   | 82      |  
|Foreign currency translation adjustment             |  | -               |  |                  | - |               | -                    |        |   | -                                          |   |  |                               | -      |   |                   |   | (32    | ) |  |   | (32     | ) |  |   | (32     | )
|                                                    |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2003                          |  | -               |  |                  | - |               | 17,216,683           |        |   | (1,041                                     | ) |  |                               | -      |   |                   |   | 57     |   |  |   | (984    | ) |  |   |         |  
|Total, year ended December 31, 2003                 |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  | $ | (27,950 | )
|                                                    |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  |   |         |  
|Issuance of MSV Class A Preferred Units             |  | -               |  |                  | - |               | 2,735,317            |        |   | 17,633                                     |   |  |                               | -      |   |                   |   | -      |   |  |   | 17,633  |   |  |   |         |  
|Conversion of Notes                                 |  | -               |  |                  | - |               | 9,911,234            |        |   | 84,922                                     |   |  |                               | -      |   |                   |   | -      |   |  |   | 84,922  |   |  |   |         |  
|Issuance of MSV Common Units                        |  | -               |  |                  | - |               | 4,923,599            |        |   | 145,000                                    |   |  |                               | -      |   |                   |   | -      |   |  |   | 145,000 |   |  |   |         |  
|Issuance of stock options                           |  | -               |  |                  | - |               | -                    |        |   | 4,680                                      |   |  |                               | (4,680 | ) |                   |   | -      |   |  |   | -       |   |  |   |         |  
|Amortization of deferred compensation               |  | -               |  |                  | - |               | -                    |        |   | -                                          |   |  |                               | 495    |   |                   |   | -      |   |  |   | 495     |   |  |   |         |  
|Distribution of warrant in subsidiary               |  | -               |  |                  | - |               | -                    |        |   | (96                                        | ) |  |                               | -      |   |                   |   | -      |   |  |   | (96     | ) |  |   |         |  
|Net loss                                            |  | -               |  |                  | - |               | -                    |        |   | (33,455                                    | ) |  |                               | -      |   |                   |   | -      |   |  |   | (33,455 | ) |  | $ | (33,455 | )
|Change in market value of derivative instruments    |  | -               |  |                  | - |               | -                    |        |   | -                                          |   |  |                               | -      |   |                   |   | (45    | ) |  |   | (45     | ) |  |   | (45     | )
|Foreign currency translation adjustment             |  | -               |  |                  | - |               | -                    |        |   | -                                          |   |  |                               | -      |   |                   |   | (506   | ) |  |   | (506    | ) |  |   | (506    | )
|                                                    |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  |   |         |  
|Balance, year ended December 31, 2004               |  | -               |  |                  | - |               | 34,786,833           |        |   | 217,643                                    |   |  |                               | (4,185 | ) |                   |   | (494   | ) |  |   | 212,964 |   |  |   |         |  
|Total, year ended December 31, 2004                 |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  | $ | (34,006 | )
|                                                    |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  |   |         |  
|Issuance of stock options                           |  | -               |  |                  | - |               | -                    |        |   | 8,717                                      |   |  |                               | (8,717 | ) |                   |   | -      |   |  |   | -       |   |  |   |         |  
|Amortization of deferred compensation               |  | -               |  |                  | - |               | -                    |        |   | -                                          |   |  |                               | 8,369  |   |                   |   | -      |   |  |   | 8,369   |   |  |   |         |  
|Distribution to unit holders for TerreStar Networks |  | -               |  |                  | - |               | -                    |        |   | 869                                        |   |  |                               | 113    |   |                   |   | -      |   |  |   | 982     |   |  |   |         |  
|Exercise of employee options                        |  | -               |  |                  | - |               | 86,852               |        |   | 529                                        |   |  |                               | -      |   |                   |   |        |   |  |   | 529     |   |  |   |         |  
|Net loss                                            |  | -               |  |                  | - |               | -                    |        |   | (40,955                                    | ) |  |                               | -      |   |                   |   | -      |   |  |   | (40,955 | ) |  | $ | (40,955 | )
|Change in market value of derivative instruments    |  | -               |  |                  | - |               | -                    |        |   | -                                          |   |  |                               | -      |   |                   |   | (37    | ) |  |   | (37     | ) |  |   | (37     | )
|Foreign currency translation adjustment             |  | -               |  |                  | - |               | -                    |        |   | -                                          |   |  |                               | -      |   |                   |   | (592   | ) |  |   | (592    | ) |  |   | (592    | )
|                                                    |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2005                          |  | -               |  | $                | - |               | 34,873,685           |        | $ | 186,803                                    |   |  | $                             | (4,420 | ) |                   | $ | (1,123 | ) |  | $ | 181,260 |   |  |   |         |  
|                                                    |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  |   |         |  
|Total, year ended December 31, 2005                 |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  | $ | (41,584 | )
|                                                    |  |                 |  |                  |   |               |                      |        |   |                                            |   |  |                               |        |   |                   |   |        |   |  |   |         |   |  |   |         |  



See accompanying notes.



5



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Mobile Satellite Ventures LP



Consolidated Statements of Cash Flows

(In Thousands)



|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                          |  | Year ended December 31 |        
|                                                                                          |  | 2003                   |         |   | 2004 |   |         | 2005 | 
|Operating activities                                                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Net loss                                                                                  |  | $                      | (28,000 | ) |      | $ | (33,455 | )    |  | $ | (40,955 | )
|Loss from TerreStar Networks discontinued operations                                      |  |                        | 4,328   |   |      |   | 1,939   |      |  |   | 9,553   |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Loss from continuing operations                                                           |  |                        | (23,672 | ) |      |   | (31,516 | )    |  |   | (31,402 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                        |         |   |      |   |         |      |  |   |         |  
|TerreStar Networks discontinued operations                                                |  |                        | (1,755  | ) |      |   | (7,236  | )    |  |   | 113     |  
|Cumulative effect of change in accounting principle                                       |  |                        | -       |   |      |   | -       |      |  |   | (724    | )
|Depreciation and amortization                                                             |  |                        | 17,928  |   |      |   | 18,439  |      |  |   | 16,109  |  
|Equity in losses of MSV Canada                                                            |  |                        | 1,030   |   |      |   | 275     |      |  |   | -       |  
|Amortization of deferred compensation                                                     |  |                        | -       |   |      |   | 495     |      |  |   | 8,369   |  
|Changes in operating assets and liabilities:                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                       |  |                        | (1,062  | ) |      |   | 917     |      |  |   | 53      |  
|Management fee due from TerreStar Networks                                                |  |                        | -       |   |      |   | -       |      |  |   | (769    | )
|Inventory                                                                                 |  |                        | 712     |   |      |   | 708     |      |  |   | (12     | )
|Prepaid expenses and other assets                                                         |  |                        | (938    | ) |      |   | 333     |      |  |   | (3,478  | )
|Accounts payable and accrued expenses                                                     |  |                        | 307     |   |      |   | 2,765   |      |  |   | 672     |  
|Other current liabilities                                                                 |  |                        | (752    | ) |      |   | (120    | )    |  |   | 9       |  
|Accrued interest                                                                          |  |                        | 7,385   |   |      |   | (12,589 | )    |  |   | -       |  
|Deferred revenue                                                                          |  |                        | 1,274   |   |      |   | (2,677  | )    |  |   | (988    | )
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) operating activities                                       |  |                        | 457     |   |      |   | (30,206 | )    |  |   | (12,048 | )
|Investing activities                                                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Purchase of Motient Satellite business, net of cash acquired                              |  |                        | (2,200  | ) |      |   | -       |      |  |   | -       |  
|Purchase of property and equipment                                                        |  |                        | (967    | ) |      |   | (344    | )    |  |   | (294    | )
|Purchase of intangible assets and other assets                                            |  |                        | -       |   |      |   | (500    | )    |  |   | -       |  
|Restricted cash                                                                           |  |                        | 579     |   |      |   | (1      | )    |  |   | (6,134  | )
|Purchase of investments                                                                   |  |                        | -       |   |      |   | -       |      |  |   | (52,278 | )
|Investing activities of TerreStar Networks discontinued operations                        |  |                        | (1,944  | ) |      |   | (3,791  | )    |  |   | -       |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                     |  |                        | (4,532  | ) |      |   | (4,636  | )    |  |   | (58,706 | )
|Financing activities                                                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Proceeds from issuance of Class A Preferred Units                                         |  |                        | 3,700   |   |      |   | 17,633  |      |  |   | -       |  
|Proceeds from issuance of Common Units                                                    |  |                        | -       |   |      |   | 145,000 |      |  |   | 529     |  
|Principal payment on notes payable to investors                                           |  |                        | (1,575  | ) |      |   | (2,370  | )    |  |   | -       |  
|Principal payment on vendor note payable                                                  |  |                        | -       |   |      |   | -       |      |  |   | (206    | )
|Financing activities of TerreStar Networks discontinued operations                        |  |                        | -       |   |      |   | 4       |      |  |   | -       |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                                 |  |                        | 2,125   |   |      |   | 160,267 |      |  |   | 323     |  
|Effect of exchange rates on cash and cash equivalents                                     |  |                        | 134     |   |      |   | (66     | )    |  |   | 1,232   |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents                                      |  |                        | (1,816  | ) |      |   | 125,359 |      |  |   | (69,199 | )
|Cash and cash equivalents, beginning of period                                            |  |                        | 5,581   |   |      |   | 3,765   |      |  |   | 129,124 |  
|Cash and cash equivalents, end of period                                                  |  | $                      | 3,765   |   |      | $ | 129,124 |      |  | $ | 59,925  |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Supplemental information                                                                  |  |                        |         |   |      |   |         |      |  |   |         |  
|Cash paid for interest                                                                    |  | $                      | 2,125   |   |      | $ | 21,395  |      |  | $ | 102     |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Distribution of TerreStar Networks                                                        |  | $                      | -       |   |      | $ | -       |      |  | $ | 869     |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Non-cash financing information                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|Equipment obtained through issuance of vendor note                                        |  | $                      | 1,029   |   |      | $ | -       |      |  | $ | -       |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Conversion of Notes                                                                       |  | $                      | -       |   |      | $ | 84,922  |      |  | $ | -       |  
|                                                                                          |  |                        |         |   |      |   |         |      |  |   |         |  



See accompanying notes.



6



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements

December 31, 2005



1. Organization and Business



Mobile Satellite Venture LPs predecessor company, Motient Satellite Ventures LLC, was
organized as a limited liability company pursuant to the Delaware Limited Liability Company Act on June 16, 2000, by TerreStar Corporation (formerly Motient Corporation). On December 19, 2000, Motient Satellite Ventures LLC changed its
name to Mobile Satellite Ventures LLC (MSV LLC). On November 26, 2001, MSV LLC was converted into a limited partnership, Mobile Satellite Ventures LP (MSV or the Company), subject to the laws of the state of Delaware. Concurrent with such
conversion, the Company acquired certain assets and liabilities of the Motient and TMI Communications LP (TMI) satellite businesses. 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 a 331/3% equity interest in Mobile Satellite Ventures Holdings (Canada) Inc. (MSV Canada Holdings). In February 2002, the Company established TerreStar Networks Inc. (TerreStar Networks), a wholly
owned subsidiary, to develop business opportunities related to the planned receipt of certain licenses in the S-band radio frequency band (see Note 10). On May 11, 2005, holders of the Companys Limited Partnership units exercised
previously distributed rights to acquire all of the shares of TerreStar Networks owned by the Company. As a result of this transaction, TerreStar Networks is no longer a subsidiary of the Company. The assets and liabilities and operating performance
of the TerreStar Networks business are classified as TerreStar Networks discontinued operations in the accompanying consolidated financial statements (see Note 10).



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 Companys ability to raise additional debt and equity financing and the ultimate profitability of the Companys proposed next generation integrated network. The
Company will require substantial additional capital resources to construct its next generation integrated network.



The Companys current operating assumptions and projections, which reflect managements best estimate of future revenue, capital commitments,
and operating expenses, indicate that anticipated operating expenditures through 2006 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. If the Companys cash requirements are more than projected, the Company may require additional financing.



The type, timing, 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 as of December 31, 2004 and 2005,
and for the years ended December 31, 2003 and 2004, include the accounts of the Company and its majority owned subsidiaries prepared in accordance with accounting principles generally accepted in the United States (GAAP). The consolidated
financial statements as of December 31, 2005 include the accounts of the Company and its majority-owned



7



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



subsidiaries and all variable interest entities for which the Company is the primary beneficiary, in accordance with GAAP. All intercompany accounts are
eliminated upon consolidation.



Use of Estimates



The preparation of financial statements in conformity with GAAP 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, accrued expenses, and the fair value of the Companys partnership units for purposes of accounting for options. Actual results could differ from those estimates.



Cash and Cash Equivalents



Cash and cash equivalents include investments such as money market accounts with an original maturity of three months or less.



Investments



The Companys investments are all either United States Treasury securities or obligations of United States government
agencies, with original maturities of not more than 12 months. All of the Companys investments are considered held-to-maturity and are reported at amortized cost. The following is a summary of our held-to-maturity securities (in thousands):



|                                       |  |                 |        |  
|-------------------------------------- |  | --------------- | ------ | -
|                                       |  | December 312005 |       
|Amortized cost and net carrying amount |  | $               | 52,278 |  
|Gross unrealized loss                  |  |                 | (57    | )
|                                       |  |                 |        |  
|Estimated fair value                   |  | $               | 52,221 |  
|                                       |  |                 |        |  



Restricted Cash



In connection with the purchase of the satellite business in 2001, the
Company retained a portion of the purchase price, which was restricted to pay TerreStar Corporation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 TerreStar Corporation under a transition services agreement. During the year ended December 31, 2003, approximately $531,000 was used to satisfy TerreStar Corporations obligations under its sublease with the
Company, and approximately $51,000 was remitted to TerreStar Corporation for services provided to MSV. As of December 31, 2004, the restricted cash balance for this purpose was $74,000. During March, 2005, all obligations under this transition
services agreement were satisfied and all remaining funds were released to TerreStar Corporation and MSV.



On January 10, 2005, and on May 23, 2005, the Federal Communication Commissions (FCC) International Bureau authorized MSV to launch and
operate new L-Band mobile satellite services (MSS) systems that will occupy orbital locations that are in addition to the Companys existing orbital slots, and satellites. The International Bureau requires all grants for new systems to be
supported by a performance bond. In accordance with this requirement, the Company secured a five-year, $3.0 million bond for each satellite system. The bonds



8



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



are fully collateralized by a $3.0 million letter of credit for each bond, secured by $6.0 million cash on deposit, which is reflected as
restricted cash in the accompanying consolidated balance sheet as of December 31, 2005.



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 has occurred.



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 ten years. The Company capitalized $1.8 million related to a ground station to which it does not yet hold
legal title. Title will pass to the Company upon completion of all payments for that equipment under the related vendor note payable (see Note 5). As of December 31, 2005 the cost, net of accumulated depreciation related to this equipment,
was $1.4 million. During the year ended December 31, 2004, MSV initiated inclined orbit of the MSAT-2 satellite, effectively extending its fuel life. In March 2005, the Company completed a formal evaluation of the impact of this
action and concluded that the satellites useful life had been extended by approximately five years to December 2010. The depreciable life of this satellite was extended by five years on a prospective basis. This change in estimate
decreased the net loss for the year ended December 31, 2005, by approximately $4.1 million.



Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the remaining lease term.



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 related to the continuing operations of the Company in the years ended December 31,
2003, 2004, or 2005. 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 may be
reduced in the future.



Goodwill



SFAS No. 142, Goodwill and Other Intangible Assets, 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. The



9



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



Company performs its annual impairment test on December 31 or when certain triggering events occur. No impairment charges were recorded in the years
ended December 31, 2003, 2004, or 2005.



Concentrations of Credit Risk



Financial instruments that potentially subject the
Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable. The Company maintained cash balances at financial institutions that exceeded federally insured limits as of
December 31, 2004 and 2005. 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. The
Company performs ongoing evaluations 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 potentially uncollectible.



The Companys significant customers, as measured by percentage of total
revenues, were as follows:



|           |  |                        |   |  |      |   |  |      |  
|---------- |  | ---------------------- | - |  | ---- | - |  | ---- | -
|           |  | Year ended December 31 |  
|           |  | 2003                   |   |  | 2004 |   |  | 2005 |  
|Customer A |  | 12                     | % |  |      | * |  |      | *
|Customer B |  | 11                     | % |  |      | * |  |      | *
|Customer C |  | 13                     | % |  | 14   | % |  | 12   | %



The Companys
significant customers, as measured by percentage of total accounts receivable, were as follows:



|           |  |             |   |  |      |  
|---------- |  | ----------- | - |  | ---- | -
|           |  | December 31 |  
|           |  | 2004        |   |  | 2005 |  
|Customer B |  | 12          | % |  |      | *
|Customer C |  | 12          | % |  |      | *
|Customer D |  | 11          | % |  |      | *

---

| | * | Customer did not represent more than 10% for the period presented.
| | - | ------------------------------------------------------------------



Fair Value of Financial Instruments



SFAS No. 107, Disclosure 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, investments, restricted cash, accounts receivable, accounts payable, and accrued expenses approximates their fair value because of the short-term maturity of these
instruments. The fair value of the vendor note payable approximates fair value as of December 31, 2005.



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 accounts for
employee stock-based compensation using the intrinsic value method as prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related



10



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



interpretations. The Company recognizes compensation expense on a straight-line basis over the vesting period. The Company accounts for stock-based
compensation awarded to non-employees as prescribed in SFAS No. 123.



The following illustrates the effect on net loss if the Company had applied the fair value method of SFAS No. 123 (in thousands):



|                                                                    |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                    |  | Year ended December 31 |        
|                                                                    |  | 2003                   |         |   | 2004 |   |         | 2005 | 
|Net loss, as reported                                               |  | $                      | (28,000 | ) |      | $ | (33,455 | )    |  | $ | (40,955 | )
|Add stock-based compensation included in reported net loss          |  |                        | -       |   |      |   | 495     |      |  |   | 8,482   |  
|Stock-based compensation expense determined under fair value method |  |                        | (1,080  | ) |      |   | (1,952  | )    |  |   | (10,709 | )
|                                                                    |  |                        |         |   |      |   |         |      |  |   |         |  
|Pro forma net loss                                                  |  | $                      | (29,080 | ) |      | $ | (34,912 | )    |  | $ | (43,182 | )
|                                                                    |  |                        |         |   |      |   |         |      |  |   |         |  



The weighted-average
fair value of unit options granted during the years ended December 31, 2003, 2004, and 2005 was $0.91, $4.61, and $11.11, respectively. The fair value of the options granted was estimated at the grant date using the Black-Scholes option-pricing
model with the following weighted-average assumptions:



|               |  |                        |   |  |      |   |  |      |  
|-------------- |  | ---------------------- | - |  | ---- | - |  | ---- | -
|               |  | Year ended December 31 |  
|               |  | 2003                   |   |  | 2004 |   |  | 2005 |  
|Expected life  |  | 5                      |   |  | 5    |   |  | 5    |  
|Risk-free rate |  | 3.16                   | % |  | 3.31 | % |  | 2.91 | %
|Volatility     |  | 0                      | % |  | 0    | % |  | 0    | %
|Dividend yield |  | 0                      | % |  | 0    | % |  | 0    | %



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. The Company records equipment sales upon
transfer of title and accordingly recognizes revenue upon shipment to the customer.



Next Generation Expenditures



The Company
classifies costs it incurs related to the financing, development and deployment of its next generation integrated network as next generation expenditures in the accompanying consolidated statements of operations in order to distinguish these costs
from the costs related to its existing satellite-only MSS. Next generation expenditures include costs associated with the Companys next generation integrated network as follows (in thousands):



|                                     |  |                        |       |      |   |       |  |   |       
|------------------------------------ |  | ---------------------- | ----- | ---- | - | ----- |  | - | ------
|                                     |  | Year ended December 31
|                                     |  | 2003                   |       | 2004 |   | 2005 
|Employee-related costs               |  | $                      | 2,270 |      | $ | 3,425 |  | $ | 6,918 
|Research and development expenses    |  |                        | -     |      |   | 769   |  |   | 5,010 
|Professional and consulting expenses |  |                        | 833   |      |   | 2,663 |  |   | 3,941 
|Legal and regulatory fees            |  |                        | 944   |      |   | 1,053 |  |   | 1,413 
|Patent costs and fees                |  |                        | 221   |      |   | 683   |  |   | 1,234 
|                                     |  |                        |       |      |   |       |  |   |       
|Total next generation expenditures   |  | $                      | 4,268 |      | $ | 8,593 |  | $ | 18,516
|                                     |  |                        |       |      |   |       |  |   |       



11



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



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. The Companys
Canadian subsidiary and MSV Canada are taxed as corporations in Canada, and as such, are subject to entity-level tax (see Note 11).



Foreign Currency and International Operations



The functional currency of the Companys Canadian subsidiary and MSV Canada is the Canadian dollar. The financial statements of these companies are
translated to United States dollars using period-end rates for assets and liabilities, and period-average rates for revenues and expenses. The impact of translation is included as a component of accumulated other comprehensive income in the
accompanying consolidated balance sheets. In addition, the Company realized foreign exchange transaction gains, which are a component of other income in the accompanying consolidated statements of operations. For the years ended December 31,
2003, 2004, and 2005, foreign exchange transaction gains were approximately $445,000, $41,000, and $23,000, respectively.



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 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 subsequently 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 of 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. As of
December 31, 2003, 2004, and 2005, the Company hedged portions of its forecasted expenses and equipment purchases, payable in Canadian dollars or Euros, totaling approximately $2.8 million, $923,000, and $1.2 million, respectively, by
entering into forward contracts and option contracts. In general, these 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. All derivatives
held by the Company satisfy the hedge criteria of SFAS No. 133. The Companys unrealized gains on these contracts were $81,000, $36,000, and $0 as of December 31, 2003, 2004, and 2005, respectively, which are reflected as a component
of accumulated other comprehensive income and an asset within prepaid expenses and other current assets in the accompanying consolidated balance sheets.



Comprehensive Income



Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner
sources. Other comprehensive income refers to revenue, expenses, gains and losses that under GAAP are included in comprehensive income, but excluded from net income. For the period presented, the elements within other comprehensive income, net of
tax, consisted of foreign currency translation adjustments and the changes in the market value and expiration of the Companys derivative instruments.



12



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



The components of accumulated other comprehensive income was as follows (in thousands):



|                                                          |  |             |      |   |      |   |        |  
|--------------------------------------------------------- |  | ----------- | ---- | - | ---- | - | ------ | -
|                                                          |  | December 31 |     
|                                                          |  | 2004        |      |   | 2005 |  
|Unrealized gain in market value of derivative instruments |  | $           | 37   |   |      | $ | -      |  
|Foreign currency translation adjustment                   |  |             | (531 | ) |      |   | (1,123 | )
|                                                          |  |             |      |   |      |   |        |  
|Accumulated other comprehensive loss                      |  | $           | (494 | ) |      | $ | (1,123 | )
|                                                          |  |             |      |   |      |   |        |  



Investments in MSV Canada and MSV
Canada Holdings



For the years ended December 31,
2003 and 2004, the Company accounted for its equity investments in MSV Canada and MSV Canada Holdings pursuant to the equity method of accounting. The carrying value of these investments was $0 at each balance sheet date. Because the Company is
obligated to provide working capital financial support to MSV Canada, and rights and services to MSV Canada, the Company recorded losses related to such funding as equity in losses of MSV Canada in the accompanying consolidated statements of
operations.



In January 2003, the FASB issued Financial
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entitiesan Interpretation of Accounting Research Bulletin No. 51. FIN 46 provides a new framework for identifying variable interest entities (VIEs) and
determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements.



In general, a VIE is a corporation, partnership, limited-liability corporation, trust, or any other legal structure used to conduct
activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that is unable to make significant
decisions about its activities, or (3) has a group of equity owners that does not have the obligation to absorb losses or the right to receive returns generated by its operations.



FIN 46 requires a VIE to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a
variable interest holder) is obligated to absorb a majority of the risk of loss from the VIEs activities, is entitled to receive a majority of the VIEs residual returns (if no party absorbs a majority of the VIEs losses), or both.
A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIEs assets, liabilities, and noncontrolling interests at fair value
and subsequently account for the VIE as if it were consolidated based on majority voting interest. FIN 46 also requires disclosures about VIEs that the variable interest holder is not required to consolidate but in which it has a significant
variable interest.



FIN 46 was effective immediately for VIEs
created after January 31, 2003, and was effective January 1, 2005, for VIEs created before February 1, 2003. The provisions of FIN 46, as revised, were adopted as of January 1, 2005, for the Companys interest in MSV Canada,
which was created prior to February 1, 2003.



The Company
determined that it is the primary beneficiary of MSV Canada as a result of its direct and indirect ownership interests in MSV Canada, its obligation to fund MSV Canada, and the rights and services and capacity agreements between the Company and MSV
Canada. The Company is obligated, by contract, to fund MSV Canada. This obligation continues indefinitely, but may terminate upon written agreement between the Company and MSV Canada, or upon one party becoming the beneficial owner of all of the
shares of MSV Canada.



13



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



In accordance with the transition provisions of FIN 46, the assets, liabilities, and noncontrolling interests of newly consolidated VIEs such as MSV Canada were initially recorded at the amounts at which they would
have been carried in the consolidated financial statements if FIN 46 had been effective when the Company first met the conditions to be the primary beneficiary of the VIE. The assets, as consolidated by MSV, of MSV Canada consist primarily of its
satellite, which has a carrying value of approximately $1.3 million at December 31, 2005 and is included in property, plant, and equipment in the Companys consolidated balance sheet. The consolidated liabilities of MSV Canada consist
primarily of its deferred revenue, which has a carrying value of approximately $1.4 million at December 31, 2005 and is included in deferred revenue in the Companys consolidated balance sheet.



The difference between the net amount added to the Companys
consolidated balance sheet related to MSV Canada and the Companys previously recognized interest in MSV Canada represented a gain of approximately $724,000 and was recognized as a cumulative effect of change in accounting principle during the
year ended December 31, 2005. The adoption of FIN 46 on January 1, 2005 also increased total assets by approximately $3.3 million and total liabilities by approximately $2.6 million. Prior periods were not restated. Had FIN 46
been applied retroactively, the impact on prior periods would not have been material. Neither the assets nor liabilities of MSV Canada have been reported in any of the Companys financial statements prior to January 1, 2005.



Recent Pronouncements



In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is a revision of SFAS
No. 123, supersedes APB Opinion No. 25, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values. The Company will be required to adopt SFAS No. 123(R) using the prospective method, as the Company used the minimum-value method for disclosure purposes. The new standard will be effective for
the Company for the year beginning January 1, 2006. As the Company currently accounts for share-based payments using the intrinsic value method as allowed by APB Opinion No. 25, the adoption of the fair value method under SFAS
No. 123(R) will have an impact on the Companys results of operations. However, the extent of impact of the adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted
in the future.



Reclassifications



Certain prior-year amounts have been reclassified to conform to the
current-year presentation.



3. Intangible Assets and Goodwill



The Companys intangible assets and goodwill arose
primarily as a result of the Companys 2001 acquisitions of the Motient and TMI satellite businesses. These transactions were accounted for using the purchase method of accounting. At the time of the acquisition, the Company allocated the
purchase price to the assets acquired and liabilities assumed based on their respective estimated fair values. In addition, under the terms of the purchase agreement, during 2003, the Company paid $2.2 million in contingent consideration to
Motient for the provision of services to a customer under a contract assumed by the Company. This payment was accounted for as contingent consideration and was included in the determination of the purchase price when paid to Motient.



14



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



The Companys identifiable intangible assets consist of the following (in thousands):



|                                      |  |             |         |   |      |   |         |  
|------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | -
|                                      |  | December 31 |        
|                                      |  | 2004        |         |   | 2005 |  
|Customer contracts                    |  | $           | 18,178  |   |      | $ | 18,219  |  
|Next generation intellectual property |  |             | 82,600  |   |      |   | 82,600  |  
|                                      |  |             |         |   |      |   |         |  
|                                      |  |             | 100,778 |   |      |   | 100,819 |  
|Accumulated amortization              |  |             | (29,272 | ) |      |   | (38,861 | )
|                                      |  |             |         |   |      |   |         |  
|Intangible assets, net                |  | $           | 71,506  |   |      | $ | 61,958  |  
|                                      |  |             |         |   |      |   |         |  



Customer contracts are
amortized over a period ranging from 4.5 to 5 years. Next generation intellectual property is amortized over periods ranging from 4.5 to 15 years. During the years ended December 31, 2003, 2004, and 2005, the Company recorded
approximately $9.4 million, $9.5 million, and $9.5 million, respectively, of amortization expense related to these intangible assets. The Companys next generation intellectual property consists of a combination of licenses and
contractual rights to various authorizations, various applications, certain technology, and certain other rights. The changes in the recorded balance of goodwill and customer contracts are primarily the result of the fluctuation of the exchange rate
between the United States dollar and Canadian dollar.



Future
amortization of intangible assets is as follows as of December 31, 2005 (in thousands):



|           |  |   |       
|---------- |  | - | ------
|2006       |  | $ | 7,512 
|2007       |  |   | 5,585 
|2008       |  |   | 5,585 
|2009       |  |   | 5,474 
|2010       |  |   | 5,474 
|Thereafter |  |   | 32,328
|           |  |   |       
|           |  | $ | 61,958
|           |  |   |       



4. Balance Sheet Details



Property and equipment consisted of the following (in
thousands):



|                               |  |             |         |   |      |   |         |  
|------------------------------ |  | ----------- | ------- | - | ---- | - | ------- | -
|                               |  | December 31 |        
|                               |  | 2004        |         |   | 2005 |  
|Space and ground segments      |  | $           | 40,578  |   |      | $ | 48,510  |  
|Office equipment and furniture |  |             | 927     |   |      |   | 958     |  
|Leasehold improvements         |  |             | 435     |   |      |   | 493     |  
|                               |  |             |         |   |      |   |         |  
|                               |  |             | 41,940  |   |      |   | 49,961  |  
|Accumulated depreciation       |  |             | (27,886 | ) |      |   | (39,361 | )
|                               |  |             |         |   |      |   |         |  
|Property and equipment, net    |  | $           | 14,054  |   |      | $ | 10,600  |  
|                               |  |             |         |   |      |   |         |  



15



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



Accounts payable and accrued expenses consisted of the following (in thousands):



|                                            |  |             |       |      |   |      
|------------------------------------------- |  | ----------- | ----- | ---- | - | -----
|                                            |  | December 31
|                                            |  | 2004        |       | 2005
|Accounts payable                            |  | $           | 2,448 |      | $ | 2,342
|Accrued expenses                            |  |             | 1,369 |      |   | 1,738
|Accrued compensation and benefits           |  |             | 2,012 |      |   | 2,502
|Accrued interest                            |  |             | 342   |      |   | 392  
|                                            |  |             |       |      |   |      
|Total accounts payable and accrued expenses |  | $           | 6,171 |      | $ | 6,974
|                                            |  |             |       |      |   |      



5. Long-Term Debt



Notes Payable



In November 2001, the Company issued $55.0 million of Convertible Notes and $26.5 million of Non-Convertible
Notes (collectively, the Notes) to finance the acquisitions of the Motient and TMI satellite businesses. In August 2002, the Company issued an additional $3.0 million of Convertible Notes. The Notes were scheduled to mature on
November 26, 2006, and bore interest at 10% per annum, compounded semiannually and payable at maturity. 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.



In April 2004, the Company made payments totaling approximately $2.4 million for principal and $2.6 million for accrued interest, on the Non-Convertible Notes. In November 2004, $25.9 million of Non-Convertible
Notes and accrued interest were exchanged for 878,115 Common Units of MSV. The principal balance of $22.6 million and accrued interest of $3.3 million were exchanged for 765,843 and 112,272 Common Units, respectively, and approximately
$56,000 of accrued interest was paid in cash.



At the same
time, $58.0 million of Convertible Notes were converted into 8,997,074 Class A Preferred Units at a rate of $6.45 per unit. At the date of the transaction, accrued interest on the Convertible Notes was approximately $19.2 million, of
which $18.2 million was paid in cash and $1.0 million was exchanged for 36,045 Common Units (see Note 6). At the completion of this transaction, all outstanding principal and interest obligations on the Notes were extinguished.



Vendor Note 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 $1.0 million at an interest rate of 9.5%.
Future payments on the Vendor note payable as of December 31, 2005, are as follows (in thousands):



|                                         |  |   |      |  
|---------------------------------------- |  | - | ---- | -
|2006                                     |  | $ | 279  |  
|2007                                     |  |   | 279  |  
|2008                                     |  |   | 233  |  
|Total future payments                    |  |   | 791  |  
|Less: interest                           |  |   | (96  | )
|Principal portion                        |  |   | 695  |  
|Less: current portion                    |  |   | (225 | )
|                                         |  |   |      |  
|Long-term portion of vendor note payable |  | $ | 470  |  
|                                         |  |   |      |  



16



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



6. Partners Equity



Pursuant to the
Limited Partnership Agreement of the Company, the partners interests in the Company consisted of MSV Common Units and MSV 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 limited partners in proportion to their fully diluted interests in the Company.



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. 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:



| |  | First, to creditors of the Company, including partners, in the order provided by law
|- |  | ------------------------------------------------------------------------------------



| |  | Thereafter, to the partners in the same order as other distributions
|- |  | --------------------------------------------------------------------



The Class A Preferred Units and Common Units had many of the same rights and privileges, except the Class A Preferred Units had
preference over the Common Units in receiving proceeds resulting from a distribution of assets in certain circumstances.



In August 2003, the Company received $3.7 million in exchange for the issuance of 573,951 Class A Preferred Units at $6.45 per unit. In
March 2004, the Company received $17.6 million in exchange for the issuance in April 2004 of 2,735,317 Class A Preferred Units. In November 2004, the Companys limited partnership agreement was amended to eliminate the
distinction between Class A Preferred and Common Units; all Class A Preferred Units were converted to Common Units. Also in November 2004, the Company received $145.0 million in proceeds from its existing investors in exchange
for the issuance of 4,923,599 Common Units. Concurrently, $25.9 million of Non-Convertible Notes and accrued interest was exchanged for 878,115 Common Units. The principal balance of $22.6 million and accrued interest of $3.3 million
were exchanged for 765,843 and 112,272 Common Units, respectively, and approximately $56,000 of accrued interest were paid in cash. Additionally, $58.0 million of Convertible Notes were converted into 8,997,074 Common Units in accordance with
their terms. At the date of the transaction, accrued interest on the Convertible Notes was approximately $19.2 million, of which $18.2 million was paid in cash and $1.0 million was exchanged for 36,045 Common Units.



7. Unit and Stock Option Plan



In December 2001, the Company adopted a unit option incentive plan
(Unit Option Incentive Plan), which allows for the granting of options and other unit based awards to employees and directors upon approval by the Board of Directors. Options to acquire units generally vest over a three-year period and have a
10-year life. As of February 2006, the total options or other unit based awards available for grant were 6.5 million.



Beginning in July 2004, the Company granted options with exercise prices at less than the estimated fair market value of the related units on the
options grant date, for which the intrinsic value is recorded as deferred compensation. The deferred compensation is amortized over the options vesting period.



17



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



Determining the fair value of units underlying employee options (Limited Investor Units) requires complex and subjective judgments. We utilized the market approach to estimate the fair value of Limited Investor Units
at each date on which options were granted. The market approach uses an analysis of the observable market price of equity instruments for companies with similar assets and businesses. We estimated the value of a Limited Investor Unit based on the
values implied for partnership units (Common Units) held by limited partners, which hold significant interests in the Company, and whose equity securities are publicly traded. In order to derive the amount of the publicly traded securitys
value attributable to the Common Units, we used the market approach to estimate the value of other equity investments and assets owned by the respective limited partner, and therefore included in the public equity value of those securities. We made
adjustments to account for the differences in volatility and liquidity between the publicly traded reference securities and a private Common Unit. We determined the estimated value of a Limited Investor Unit by making further adjustments to account
for differences in rights attributable to a Common Unit as compared to those of a Limited Investor Unit. There is inherent uncertainty in making these estimates.



During 2005, the Companys Compensation Committee of the Board of Directors determined that a Change of
Control of the Company, as defined in the Unit Option Incentive Plan, occurred. This interpretation was related to Motients acquisition, in February 2005, of MSV interests previously held by other MSV limited partners. This Change
of Control in turn triggered the acceleration of vesting of all of the Companys then outstanding options that were subject to accelerated vesting, and recognition as additional compensation expense of approximately $3.8 million of
previously deferred compensation expense associated with these options in the year ended December 31, 2005.



|                                         |  |                         |   |  |                                |      
|---------------------------------------- |  | ----------------------- | - |  | ------------------------------ | -----
|                                         |  | Options toAcquire Units |   |  | Weighted-AverageExercise Price
|Options outstanding at December 31, 2002 |  | 1,388,500               |   |  | $                              | 6.45 
|Granted                                  |  | 1,621,500               |   |  |                                | 6.45 
|Canceled                                 |  | (115,833                | ) |  |                                | 6.45 
|                                         |  |                         |   |  |                                |      
|Options outstanding at December 31, 2003 |  | 2,894,167               |   |  |                                | 6.45 
|Granted                                  |  | 1,497,750               |   |  |                                | 6.81 
|Canceled                                 |  | (78,334                 | ) |  |                                | 6.45 
|                                         |  |                         |   |  |                                |      
|Options outstanding at December 31, 2004 |  | 4,313,583               |   |  |                                | 6.58 
|Granted                                  |  | 866,000                 |   |  |                                | 22.43
|Canceled                                 |  | (110,333                | ) |  |                                | 8.95 
|Exercised                                |  | (82,045                 | ) |  |                                | 6.45 
|                                         |  |                         |   |  |                                |      
|Options outstanding at December 31, 2005 |  | 4,987,205               |   |  |                                | 9.49 
|                                         |  |                         |   |  |                                |      



At December 31,
2004 and 2005, 1,807,167 and 3,596,896 options, respectively, were exercisable. The following table summarizes the weighted-average option information as of December 31, 2005:



|                         |  |                   |  |                                |  |                                |       |                   |          
|------------------------ |  | ----------------- |  | ------------------------------ |  | ------------------------------ | ----- | ----------------- | ---------
|Range of Exercise Prices |  | NumberOutstanding |  | Weighted-AverageRemaining Life |  | Weighted-AverageExercise Price |       | NumberExercisable
|$6.45                    |  | 4,363,705         |  | 7.30                           |  | $                              | 6.45  |                   | 3,542,396
|$29.45                   |  | 592,500           |  | 9.43                           |  | $                              | 29.45 |                   | 54,500   
|$56.33                   |  | 31,000            |  | 9.92                           |  | $                              | 56.33 |                   | -        
|                         |  |                   |  |                                |  |                                |       |                   |          
|$6.45-$56.33             |  | 4,987,205         |  | 7.12                           |  | $                              | 9.49  |                   | 3,596,896
|                         |  |                   |  |                                |  |                                |       |                   |          



18



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



8. Related Party Transactions



During the
years ended December 31, 2003, 2004, and 2005, the Company incurred approximately $151,000, $1,000, and $0 of administrative expenses related primarily to services provided by Motient. In addition, the Company provided facilities-related
services to Motient of approximately $134,000 during the year ended December 31, 2003.



The Company has a rights and services agreement with MSV Canada, under which the Company provides various technical support and other 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 also 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. Prior to consolidating MSV Canada in 2005 (see Note 2), the capacity fee was included in the satellite operations cost in the accompanying
consolidated income statement. During the years ended December 31, 2003, 2004, and 2005, the capacity fee paid by the Company to MSV Canada was approximately $4.9 million, $5.8 million and $6.3 million, respectively. The rights
and services fee received by the Company from MSV Canada during the years ended December 31, 2003, 2004 and 2005 was $3.2 million, $3.6 million and $4.5 million, respectively.



During the years ended December 31, 2003, 2004, and 2005, the Company
incurred approximately $36,000, $193,000, and $159,000 respectively, of consulting expenses for services provided by a company controlled by a former limited partner and former member of the Companys general partners board of directors.
Certain of the Companys intellectual property was acquired by assignment from entities controlled by this former limited partner of the Company and former member of the Companys general partners board of directors. In certain
circumstances where the Company generates royalties from licensing its ancillary terrestrial component (ATC) intellectual property to third parties, the Company may be required to share a portion of such royalty payments with such person and/or
related entities.



During the years ended December 31,
2003, 2004 and 2005, the Company incurred approximately $, $2.5 million and $1.3 million, respectively, of expenses for services provided by Hughes Network Systems LLC. During the years ended December 31, 2003, 2004, and 2005,
the Company purchased certain services from Electronic System Products, Inc. of approximately $, $210,000, and $11,000, respectively. Hughes Network Systems LLC and Electronic System Products, Inc., were controlled by SkyTerra Communications,
Inc., which indirectly holds limited partnership units in the Company. SkyTerra Communications, Inc., is controlled by Apollo Advisors L.P., an investment company for which two of the directors of the Companys general partner are partners.



The Company leases office space from Telesat, an affiliate of
TMI (see Note 9). Under its lease agreement, the Company paid approximately $361,000, $429,000, and $507,000, during the years ended December 31, 2003, 2004, and 2005, respectively. The Company has entered into an operational services agreement
with Telesat to provide regular maintenance and tracking of space debris of the MSAT-1 satellite. The Company paid approximately $2.3 million, $2.4 million, and $1.9 million, respectively, in the years ended December 31, 2003, 2004, and 2005.
The Company has entered into an agreement with Telesat to obtain telemetry, tracking, and control services for its MSAT-2 satellite. 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. For



19



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



the years ended December 31, 2003, 2004, and 2005 the Company paid approximately $704,000, $1.1 million, and $1.1 million respectively. During the years
ended December 31, 2003, 2004, and 2005 the company paid Telesat approximately $66,000, $74,000, and $143,000 respectively for consulting services and $135,000, $130,000, and $135,000, respectively, for administrative support services.



The Company has entered into an agreement whereby it has
agreed to provide Infosat Communications Inc., (Infosat) a subsidiary of Telesat and an affiliate of TMI, with satellite services in Canada, a portion of which have been prepaid. As of December 31, 2004 and 2005, the balance of this
prepayment was approximately $21.0 million and $21.4 million, respectively. In the years ended December 31, 2003, 2004 and 2005, the Company provided approximately $1.7 million, $2.5 million and $2.3 million,
respectively, of services to Infosat pursuant to this agreement, of which $1.4 million, $2.1 million and $2.0 million was paid in cash, respectively, and $0.3 million, $0.4 million and $0.3 million, respectively was
applied against the prepayment.



The Companys vendor note
payable is held by a related party (see Note 5).



The
Companys transactions with TerreStar Networks are related party transactions (see Note 10).



9. Commitments and Contingencies



Leases



As of December 31, 2005, the
Company has non-cancelable operating leases, expiring through August 2008. Rental expense, net of sublease income, for the years ended December 31, 2003, 2004, and 2005, was approximately $1.1 million, $1.2 million, and
$1.3 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 (in thousands):



|     |  |   |      
|---- |  | - | -----
|2006 |  | $ | 1,303
|2007 |  |   | 1,303
|2008 |  |   | 958  
|     |  |   |      
|     |  | $ | 3,564
|     |  |   |      



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.



L-Band
Space-Based Network Contract



The Company has entered into
a firm-fixed price contract with Boeing Satellite Systems Inc. (Boeing) to construct a space-based network that consists of a space segment and ground segment. Boeing is responsible for the comprehensive design, development, construction,
manufacturing, testing, and installation of a space-based network, providing satellite launch support and other services related to mission operations and system training.



Under the terms of the contract, MSV will purchase up to three satellites with options for two additional satellites that must be exercised
no later than October 2008. Each satellite is contracted to have a mission life of 15 years with a portion of the contract value payable if certain performance incentives are met, paid over the intended 15-year operating life. Under the
Companys contract with Boeing, Boeing has a first lien on each



20



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



satellite and related work until title and risk of loss transfers to the Company upon launch (assuming the Company is then current in its payments under the
contract). Should the Company become subject to a bankruptcy proceeding before Boeings lien is released, any interest the Company has in the satellites would secure the Companys obligations to Boeing on a first priority basis.



Future maximum contractual payments under this contract,
including all potential performance incentives and related interest payments on the incentives, not including options, are as follows for the years ended December 31, including the performance incentives payable (in thousands):



|                  |  |   |          
|----------------- |  | - | ---------
|2006              |  | $ | 59,058   
|2007 through 2009 |  |   | 572,425  
|2010 through 2011 |  |   | 179,417  
|Thereafter        |  |   | 271,858  
|                  |  |   |          
|                  |  | $ | 1,082,758
|                  |  |   |          



If the Company elects
to terminate the contract in whole or in part, the Company will be subject to termination liability charges that are in excess of contractual payments made prior to the termination date. The additional termination charges vary based upon the portion
of the program being terminated and the state of completion of the terminated portion. In-part termination charges are spread over the remaining satellite payment milestones, while a full program termination charge is due upon termination.
Generally, these charges range from $3 million to $200 million, declining after 2007. The Company also has an option to defer certain contractual payments after full construction commences with any deferrals to be repaid in full prior to
satellite shipment.



Executive Employment Agreements



Certain executives have employment agreements that provide for severance and
other benefits, as well as acceleration of option vesting in certain circumstances following a Change of Control. The agreement for one executive entitles that executive to a severance payment equal to 1.5 times the executives prior-year
salary and bonus as well as acceleration of vesting for options currently held by the executive, should the executive terminate employment within the period defined in the agreement (originally six months following a change of control). Based on the
February 2005 change in control (see Note 7), this executive could terminate employment and trigger the severance and vesting portions of the executive agreement. The executive has not elected to terminate employment, and accordingly, no
amounts have been accrued or expensed in the accompanying consolidated financial statements for this contingency as of December 31, 2005 other than the compensation expense for the intrinsic value of the options that vested during the year
ended December 31, 2005.



On February 9, 2006 the
Compensation Committee of the Board of Directors approved a modification to the agreement to extend the executives ability to exercise this change in control provision to February 9, 2007. Under SFAS No.123(R), this modification triggers
the recognition of expense of approximately $4.4 million during the quarter ended March 31, 2006.



Other Agreements



In
September 2005, the Company entered into an agreement with a third-party that will provide the Company with rights to the use of certain intangible assets in future periods. The Company has prepaid approximately $3.0 million related to
this agreement, $2.8 million of which is included in other assets, and $150,000 included in prepaid expenses and other current assets as of December 31, 2005, in the accompanying



21



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



consolidated balance sheet. The Company has also agreed to provide additional annual payments of approximately $158,000 for the remainder of the contract.
The Company is amortizing the costs of the contract ratably over the 20-year term of the agreement.



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
recognizes a liability for these contingencies when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.



Regulatory Matters



During 2001, Motient applied to the Federal Communications Commission (FCC) to transfer licenses and authorizations related to its L-Band MSS system to
MSV. This transfer was approved in November 2001. In connection with this application, Motient sought FCC authority to launch and operate a next generation integrated network that will include the deployment of satellites and terrestrial base
stations operating in the same frequencies. In February 2003, the FCC adopted general rules based on the Companys proposal to develop a next generation integrated network, 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 order. 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 has signed a contract to construct and deploy more powerful satellites and has relevant regulatory authorizations for these satellites.



The Company believes that the ruling allows for significant commercial opportunity related to the Companys next
generation integrated network. Both proponents and opponents of ATC, including the Company, asked the FCC to reconsider the rules adopted in the February 2003 order. Opponents of the ruling advocated changes that could adversely impact the
Companys business plans. The Company also sought certain corrections and relaxations of technical standards that would further enhance the commercial viability of the next generation integrated network. The FCC issued an order on
reconsideration of the February 2003 order in February 2005. The FCC granted some of the corrections and relaxations of technical standards the Company has advocated and has rejected the requests for changes advocated by opponents of the
FCCs February 2003 order. Only Inmarsat Ventures Ltd. has filed a petition for reconsideration of the February 2005 order, which is currently pending. One terrestrial wireless carrier filed an appeal of the FCCs
February 2003 order with the United States Court of Appeals. This appeal has been withdrawn.



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. The FCCs International Bureau granted this authorization, in part, in November 2004 and deferred certain issues to the FCCs rule-making proceeding, which was resolved



22



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



in February 2005. One opponent of the Companys application has asked the FCC to review the Companys ATC authorization. This challenge is
pending. The Company has also filed an application to modify its ATC authorization. Only one party has filed comments in opposition to this application. This application is pending. The Company has also received authorization to construct, launch,
and operate two satellites from the FCC. MSV Canada has also received authorization from Industry Canada to construct, launch, and operate a satellite. MSV and MSV Canada must meet certain milestone dates for each of these satellites. In
January 2006, MSV entered into a contract with Boeing to construct these three satellites as required by the first FCC and Industry Canada milestone requirement for these satellite authorizations.



There can be no assurance that, following the conclusion of the rule-making
and the other legal challenges, the Company will have authority to operate a commercially viable next generation integrated network.



10. TerreStar Networks Discontinued Operations



In February 2002, the Company established TerreStar Networks, then a wholly owned subsidiary, to develop business opportunities related to the
proposed receipt of certain licenses in the S-band. TMI holds the approval issued by Industry Canada for an S-Band space station authorization and related spectrum licenses for the provision of MSS in the S-band as well as an authorization from the
FCC for the provision of MSS in the S-band. 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 authorization to an entity
that is eligible to hold the Canadian authorization and in which TerreStar Networks and/or TMI will have an interest, subject to obtaining the necessary Canadian regulatory approvals.



The operating losses and cash used by TerreStar Networks related to its activities to acquire rights to assets associated
with its proposed receipt of the S-band license. In addition, TerreStar Networks incurred costs related to its contract to construct a satellite system.



Distribution of TerreStar Networks Stock



On December 20, 2004, the Company issued rights (the Rights) to receive all of the 23,265,428 shares of TerreStar Networks Common Stock, which were
owned by the Company, to the limited partners of the Company, pro rata in accordance with each limited partners percentage ownership in the Company. In addition, in connection with this transaction, TerreStar Networks issued warrants to
purchase an aggregate of 666,972 shares of TerreStar Networks Common Stock to one of the Companys limited partners, which had an exercise price of $0.21491 per share, which were valued using the Black-Scholes pricing model.



On May 11, 2005, the limited partners of MSV exercised the Rights to
acquire shares of Common Stock of TerreStar Networks. As a result of this transaction, MSV divested its ownership interest in TerreStar Networks, thereby affecting a spin-off, which was recorded as a distribution to the limited partners at book
value in the accompanying consolidated statement of partners equity (deficit) in the year ended December 31, 2005. Immediately following the spin-off, a subsidiary of TerreStar Corporation invested $200 million in TerreStar Networks
and thereby gained a majority interest in TerreStar Networks. In May 2005, MSV and TerreStar Networks entered into a management services agreement whereby MSV agreed to provide certain services, to include technical and program management
efforts associated with ATC network development as well as administrative support required to accomplish these tasks. TerreStar Networks continues to be a related party, as TerreStar Corporation has a significant ownership interest in both the
Company and TerreStar Networks.



23



---

Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



Subsequent to the spin-off, as MSV no longer has an ownership interest in TerreStar Networks and is not the primary economic beneficiary of TerreStar Networks, the accompanying consolidated financial statements do not
include the assets or liabilities of TerreStar Networks, which were approximately $9.7 million and $10.4 million, respectively, on May 11, 2005. The assets of TerreStar Networks consisted primarily of intangible assets related to its
S-band spectrum and satellite construction in progress. The liabilities of TerreStar Networks consisted primarily of its obligations under the satellite construction contract and amounts payable to the Company. The accompanying consolidated
financial statements include the results of TerreStar Networks since its inception through May 11, 2005, which are presented as discontinued operations in the accompanying consolidated statements of operations and as TerreStar Networks assets
and liabilities, discontinued, in the accompanying December 31, 2004 consolidated balance sheet.



11. Income Taxes



The
Companys Canadian subsidiaries pay a Canadian provincial capital tax that is included in general and administrative expenses in the accompanying consolidated statements of operations. The components of net loss by country are as follows (in
thousands):



|               |  |                        |         |   |      |   |         |      |  |   |         |  
|-------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|               |  | Year ended December 31 |        
|               |  | 2003                   |         |   | 2004 |   |         | 2005 | 
|United States  |  | $                      | (23,760 | ) |      | $ | (30,228 | )    |  | $ | (37,795 | )
|Canadian       |  |                        | (4,240  | ) |      |   | (3,227  | )    |  |   | (3,160  | )
|               |  |                        |         |   |      |   |         |      |  |   |         |  
|Total net loss |  | $                      | (28,000 | ) |      | $ | (33,455 | )    |  | $ | (40,955 | )
|               |  |                        |         |   |      |   |         |      |  |   |         |  



Deferred income tax
balances related to the Canadian entities result principally from temporary differences in the recognition of certain revenue and expense items for financial and tax reporting purposes, as well as net operating loss (NOL) carry forwards from
operations as follows (in thousands):



|                                                             |  |             |        |   |      |   |        |  
|------------------------------------------------------------ |  | ----------- | ------ | - | ---- | - | ------ | -
|                                                             |  | December 31 |       
|                                                             |  | 2004        |        |   | 2005 |  
|Net operating losses                                         |  | $           | 6,968  |   |      | $ | 5,721  |  
|Net differences in the treatment of book and tax differences |  |             | 283    |   |      |   | 1,717  |  
|Valuation allowance                                          |  |             | (7,251 | ) |      |   | (7,438 | )
|                                                             |  |             |        |   |      |   |        |  
|Deferred tax assets, net                                     |  | $           | -      |   |      | $ | -      |  
|                                                             |  |             |        |   |      |   |        |  



The Companys
Canadian subsidiaries are taxed as corporations in Canada. As of December 31, 2005, the Company had approximately $15.8 million of losses available to be applied against future taxable income. These losses will begin to expire in 2008.



In assessing the realizability of future income tax assets,
management considers whether it is more likely than not that some or the entire future income tax asset will be realized. The ultimate realization of the future income tax asset is dependent on the generation of future taxable income during the
periods in which the NOL carry forwards are available. Management considers projected future taxable income, the scheduled reversal of future income tax liabilities, and available tax planning strategies that can be implemented by the Company in
making this assessment. Based on the level of historical taxable income and projections for future taxable income over the period in which the NOL carry forwards are available to reduce income taxes payable, management has established a full
valuation allowance against the Companys deferred tax assets.



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Mobile Satellite Ventures LP



Notes to Consolidated Financial Statements(Continued)

December 31, 2005



12. Retirement Plan



The Company has a
tax-deferred savings plan (the Plan) that qualifies under Section 401(k) of the Internal Revenue Code (IRC). United States employees are eligible to participate in the Plan upon employment and attainment of age 21. Such employees may contribute
a percentage of their income, subject to limitation of the IRC. The Plan contains provisions that allow the Company to make discretionary contributions and matching contributions. The Company made contributions of approximately $101,000, $171,000,
and $235,000 in the years ended December 31, 2003, 2004, and 2005 respectively. Employees vest immediately in the Companys contributions.



13. Subsequent Events



Leases



In
February 2006, the Company entered into an amended and restated operating lease agreement that provided for, among other things, an extension of term and expansion of its premises in Reston, Virginia. As a result of this amendment, the
Companys lease obligations as disclosed in Note 9 have increased by the following amounts (in thousands):



|           |  |   |      
|---------- |  | - | -----
|2006       |  | $ | 602  
|2007       |  |   | 743  
|2008       |  |   | 1,067
|2009       |  |   | 1,703
|2010       |  |   | 1,751
|Thereafter |  |   | 298  
|           |  |   |      
|           |  | $ | 6,164
|           |  |   |      



Grant of Restricted Units



On February 9, 2006, the Compensation Committee of
the Board of Directors approved the issuance of 50,000 Restricted Units (the Award) to an executive. The Award will vest over five years; 20,000 units will vest after the second anniversary of the grant date and 10,000 units will vest annually
thereafter, subject to certain acceleration provisions. As the Award vests, the Company is obligated to issue to the executive units (or successor equity) or pay in cash an amount equal to the fair value of the related MSV units or stock, depending
on the occurrence of certain events in the future. The Company intends to account for the Award under the provisions of SFAS No. 123(R), which will require the recognition of a liability and expense based on the fair value of the vested Award,
each reporting period.



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