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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For The Quarterly Period Ended September 30, 2005



Commission file number 000-51466



LOGO



WORLDSPACE, INC.

(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 52-1732881                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)



8515 Georgia Avenue,
Silver Spring, MD 20910

(Address of principal executive offices) (Zip code)



301-960-1200

(Registrants telephone number, including area code)



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



Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x



Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.



|                                      |  |                                     
|------------------------------------- |  | ------------------------------------
|(Class)                               |  | (Outstanding as of November 8, 2005)
|CLASS A COMMON STOCK, $0.01 PAR VALUE |  | 19,321,332                          
|                                      | 
|CLASS B COMMON STOCK, $0.01 PAR VALUE |  | 17,426,443                          



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WORLDSPACE, INC. AND SUBSIDIARIES



INDEX



|                              |  |                                                                                                                             |  |     
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                             |  | Page
|PART I FINANCIAL INFORMATION |  |                                                                                                                            
|                              |  |                                                                                                                            
|Item 1.                       |  | Financial Statements (UNAUDITED)                                                                                            |  |     
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Statements of Operations for the three-month and nine-monthperiods ended September 30, 2005 and 2004 |  | 3   
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004                                        |  | 4   
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2005 and 2004                |  | 5   
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Statement of Stockholders Equity for the nine-month period ended September 30, 2005                  |  | 6   
|                              |  |                                                                                                                            
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                              |  | 7   
|                              |  |                                                                                                                            
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                       |  | 14  
|                              |  |                                                                                                                            
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                  |  | 27  
|                              |  |                                                                                                                            
|Item 4.                       |  | Controls and Procedures                                                                                                     |  | 28  
|                              | 
|PART II OTHER INFORMATION    |  |                                                                                                                            
|                              |  |                                                                                                                            
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                 |  | 29  
|                              |  |                                                                                                                            
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                         |  | 29  
|                              |  |                                                                                                                            
|Item 6.                       |  | Exhibits                                                                                                                    |  | 30  



EXPLANATORY NOTE



This quarterly report is filed by WorldSpace, Inc. (the
Company). Unless the context requires otherwise, the terms we, our and us refer to the Company and its subsidiaries.



This quarterly report and all other reports and amendments filed by us with the SEC can be accessed, free of charge, through
our website at http://investor.worldspace.com on the same day that they are electronically filed with the SEC.



2



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PART I. FINANCIAL INFORMATION



|Item 1: | Financial Statements
|------- | --------------------



WORLDSPACE, INC. AND SUBSIDIARIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three-Months and Nine-Months ended September 30, 2005 and
2004



|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|-------------------------------------------------------------------- |  | ----------------------------------------------- | ---------- | - | ------------------------------ | - | --------- | ---- |  | - | ---------- | - |  | - | --------- | -
|                                                                     |  | Three Months endedSeptember 30,                 |            |   | Nine Months endedSeptember 30, |  
|                                                                     |  | 2005                                            |            |   | 2004                           |   |           | 2005 |  |   | 2004       |  
|                                                                     |  | (in thousands, except share and per share data) |           
|Revenue                                                              |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Subscription revenue                                                 |  | $                                               | 959        |   |                                | $ | 289       |      |  | $ | 2,554      |   |  | $ | 599       |  
|Equipment revenue                                                    |  |                                                 | 670        |   |                                |   | 288       |      |  |   | 1,646      |   |  |   | 1,510     |  
|Other revenue                                                        |  |                                                 | 724        |   |                                |   | 979       |      |  |   | 3,035      |   |  |   | 4,200     |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Total Revenue                                                        |  |                                                 | 2,353      |   |                                |   | 1,556     |      |  |   | 7,235      |   |  |   | 6,309     |  
|                                                                     |  |                                                 |            |  
|Operating Expenses                                                   |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Cost of Services (excludes depreciation, shown separately below)     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Satellite and transmission, programming and other                    |  |                                                 | 5,028      |   |                                |   | 2,846     |      |  |   | 11,898     |   |  |   | 9,366     |  
|Cost of equipment                                                    |  |                                                 | 998        |   |                                |   | 410       |      |  |   | 2,022      |   |  |   | 1,425     |  
|Selling, general and administrative                                  |  |                                                 | 17,571     |   |                                |   | 8,474     |      |  |   | 39,172     |   |  |   | 21,739    |  
|Stock-based compensation (1)                                         |  |                                                 | 9,258      |   |                                |   | 810       |      |  |   | 10,246     |   |  |   | 2,499     |  
|Depreciation and amortization                                        |  |                                                 | 14,732     |   |                                |   | 14,681    |      |  |   | 44,136     |   |  |   | 45,022    |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Total Operating Expenses                                             |  |                                                 | 47,587     |   |                                |   | 27,221    |      |  |   | 107,474    |   |  |   | 80,051    |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Loss from Operations                                                 |  |                                                 | (45,234    | ) |                                |   | (25,665   | )    |  |   | (100,239   | ) |  |   | (73,742   | )
|                                                                     |  |                                                 |            |  
|Other Income (Expense)                                               |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Gain on extinguishment of debt                                       |  |                                                 |           |   |                                |   |          |      |  |   | 14,130     |   |  |   |          |  
|Interest income                                                      |  |                                                 | 2,044      |   |                                |   | 109       |      |  |   | 3,647      |   |  |   | 323       |  
|Interest expense                                                     |  |                                                 | (2,336     | ) |                                |   | (30,611   | )    |  |   | (7,498     | ) |  |   | (85,389   | )
|Other                                                                |  |                                                 | 1,389      |   |                                |   | (1,107    | )    |  |   | 2,312      |   |  |   | (414      | )
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Total Other Income (Expense)                                         |  |                                                 | 1,097      |   |                                |   | (31,609   | )    |  |   | 12,591     |   |  |   | (85,480   | )
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Loss Before Income Taxes                                             |  |                                                 | (44,137    | ) |                                |   | (57,274   | )    |  |   | (87,648    | ) |  |   | (159,222  | )
|Income Tax Benefit                                                   |  |                                                 | 28,719     |   |                                |   |          |      |  |   | 40,961     |   |  |   |          |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Net Loss                                                             |  | $                                               | (15,418    | ) |                                | $ | (57,274   | )    |  | $ | (46,687    | ) |  | $ | (159,222  | )
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Loss per sharebasic and diluted                                     |  | $                                               | (0.48      | ) |                                | $ | (9.90     | )    |  | $ | (1.78      | ) |  | $ | (27.52    | )
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Weighted Average Number of Shares Outstanding                        |  |                                                 | 32,024,046 |   |                                |   | 5,784,868 |      |  |   | 26,159,693 |   |  |   | 5,784,868 |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|(1)    Allocation of stock based compensation to operating expenses: | 
|Satellite, transmission, programming and other                       |  | $                                               | 9,148      |   |                                | $ | 12        |      |  | $ | 10,136     |   |  | $ | 38        |  
|Selling, general and administrative                                  |  | $                                               | 110        |   |                                | $ | 798       |      |  | $ | 110        |   |  | $ | 2,461     |  



See accompanying notes
to unaudited condensed consolidated financial statements.



3



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WORLDSPACE, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2005 and December 31, 2004



|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                                                                                                                                       |  | September 30,2005                |            |   | December 31,2004 |  
|                                                                                                                                                                                                                       |  | Unaudited                        |            |   |                  |  
|                                                                                                                                                                                                                       |  | (in thousands, exceptshare data) |           
|Assets                                                                                                                                                                                                                 |  |                                  |            |   |                  |   |            |  
|Current Assets                                                                                                                                                                                                         |  |                                  |            |   |                  |   |            |  
|Cash and cash equivalents                                                                                                                                                                                              |  | $                                | 63,047     |   |                  | $ | 154,362    |  
|Marketable Securities                                                                                                                                                                                                  |  |                                  | 233,434    |   |                  |   |           |  
|Accounts receivable, net                                                                                                                                                                                               |  |                                  | 2,009      |   |                  |   | 1,738      |  
|Prepaid expenses                                                                                                                                                                                                       |  |                                  | 6,220      |   |                  |   | 1,750      |  
|Inventory, net                                                                                                                                                                                                         |  |                                  | 4,588      |   |                  |   | 1,644      |  
|Other current assets                                                                                                                                                                                                   |  |                                  | 3,445      |   |                  |   | 1,190      |  
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|Total Current Assets                                                                                                                                                                                                   |  |                                  | 312,743    |   |                  |   | 160,684    |  
|                                                                                                                                                                                                                       |  |                                 
|Restricted Cash and Investments                                                                                                                                                                                        |  |                                  | 8,674      |   |                  |   | 1,775      |  
|Property and Equipment, net                                                                                                                                                                                            |  |                                  | 14,385     |   |                  |   | 11,431     |  
|Satellites and Related Systems, net                                                                                                                                                                                    |  |                                  | 413,675    |   |                  |   | 459,426    |  
|Deferred Financing Costs, net                                                                                                                                                                                          |  |                                  | 14,047     |   |                  |   | 14,724     |  
|Other Assets                                                                                                                                                                                                           |  |                                  | 1,185      |   |                  |   | 1,047      |  
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|Total Assets                                                                                                                                                                                                           |  | $                                | 764,709    |   |                  | $ | 649,087    |  
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|Liabilities and Shareholders Deficit                                                                                                                                                                                  |  |                                  |            |   |                  |   |            |  
|Current Liabilities                                                                                                                                                                                                    |  |                                  |            |   |                  |   |            |  
|Accounts payable                                                                                                                                                                                                       |  | $                                | 17,381     |   |                  | $ | 54,496     |  
|Accrued expenses                                                                                                                                                                                                       |  |                                  | 13,260     |   |                  |   | 14,380     |  
|Income taxes payable                                                                                                                                                                                                   |  |                                  | 20,000     |   |                  |   | 20,000     |  
|Accrued purchase commitment                                                                                                                                                                                            |  |                                  | 12,240     |   |                  |   | 13,258     |  
|Accrued interest                                                                                                                                                                                                       |  |                                  |           |   |                  |   | 10,801     |  
|Deferred tax liability                                                                                                                                                                                                 |  |                                  | 1,207      |   |                  |   | 1,403      |  
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|Total Current Liabilities                                                                                                                                                                                              |  |                                  | 64,088     |   |                  |   | 114,338    |  
|                                                                                                                                                                                                                       |  |                                 
|Long-term Debt                                                                                                                                                                                                         |  |                                  | 155,000    |   |                  |   | 155,000    |  
|Deferred Tax Liability                                                                                                                                                                                                 |  |                                  | 205,104    |   |                  |   | 245,869    |  
|Other Liabilities                                                                                                                                                                                                      |  |                                  | 1,750      |   |                  |   | 9,111      |  
|Contingent Royalty Obligation                                                                                                                                                                                          |  |                                  | 1,814,175  |   |                  |   | 1,814,175  |  
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|Total Liabilities                                                                                                                                                                                                      |  |                                  | 2,240,117  |   |                  |   | 2,338,493  |  
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|Commitments and Contingencies                                                                                                                                                                                          |  |                                  |            |   |                  |   |            |  
|Shareholders Deficit                                                                                                                                                                                                  |  |                                  |            |   |                  |   |            |  
|Preferred Stock, $.01 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2005                                                                                               |  |                                  |           |   |                  |   |           |  
|Class A Common stock, $.01 par value; 200,000,000 shares and 100,000,000 shares authorized; 19,180,707 shares and 2,797,368 shares issued
and outstanding as of September 30, 2005 and December 31, 2004, respectively |  |                                  | 192        |   |                  |   | 28         |  
|Class B Common stock, $.01 par value; 75,000,000 shares authorized; 17,426,443 shares and 20,413,949 shares, issued and outstanding, as of
September 30, 2005 and December 31, 2004, respectively                      |  |                                  | 174        |   |                  |   | 204        |  
|Additional paid-in capital                                                                                                                                                                                             |  |                                  | 712,871    |   |                  |   | 425,247    |  
|Deferred compensation                                                                                                                                                                                                  |  |                                  | (27,885    | ) |                  |   | (1,085     | )
|Accumulated other comprehensive loss                                                                                                                                                                                   |  |                                  | (627       | ) |                  |   | (354       | )
|Accumulated deficit                                                                                                                                                                                                    |  |                                  | (2,160,133 | ) |                  |   | (2,113,446 | )
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|Total Shareholders Deficit                                                                                                                                                                                            |  |                                  | (1,475,408 | ) |                  |   | (1,689,406 | )
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  
|Total Liabilities and Shareholders Deficit                                                                                                                                                                            |  | $                                | 764,709    |   |                  | $ | 649,087    |  
|                                                                                                                                                                                                                       |  |                                  |            |   |                  |   |            |  



See accompanying notes
to unaudited condensed consolidated financial statements.



4



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WORLDSPACE, INC. AND SUBSIDIARIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months ended September 30, 2005 and 2004



|                                                                            |  |                                |          |   |      |   |          |  
|--------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                            |  | Nine months endedSeptember 30, |         
|                                                                            |  | 2005                           |          |   | 2004 |  
|                                                                            |  | (in thousands)                 |         
|Cash Flows from Operating Activities                                        |  |                                |          |   |      |   |          |  
|Net loss                                                                    |  | $                              | (46,687  | ) |      | $ | (159,222 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                |          |   |      |   |          |  
|Depreciation and amortization                                               |  |                                | 44,136   |   |      |   | 45,022   |  
|Loss on disposal of fixed assets                                            |  |                                | 6,291    |   |      |   | 651      |  
|Amortization of deferred financing costs                                    |  |                                | 677      |   |      |   | 3,025    |  
|Amortization of debt discount                                               |  |                                |         |   |      |   | 20,199   |  
|Adjustment to cost basis of satellite and related systems                   |  |                                | 5,834    |   |      |   |         |  
|Stock-based compensation                                                    |  |                                | 10,246   |   |      |   | 2,499    |  
|Deferred tax expense                                                        |  |                                | (40,961  | ) |      |   |         |  
|Other                                                                       |  |                                | (411     | ) |      |   | 925      |  
|Changes in assets and liabilities:                                          |  |                                |          |   |      |   |          |  
|Accounts receivable and other assets                                        |  |                                | (9,940   | ) |      |   | 1,128    |  
|Accounts payable and accrued expenses                                       |  |                                | (38,235  | ) |      |   | 2,248    |  
|Accrued interest                                                            |  |                                | (10,801  | ) |      |   | 61,487   |  
|Other liabilities                                                           |  |                                | (8,379   | ) |      |   | 512      |  
|                                                                            |  |                                |          |   |      |   |          |  
|Net Cash Used in Operating Activities                                       |  |                                | (88,230  | ) |      |   | (21,526  | )
|                                                                            |  |                                |          |   |      |   |          |  
|Cash Flows from Investing Activities                                        |  |                                |          |   |      |   |          |  
|Purchase of property and equipment, net                                     |  |                                | (11,500  | ) |      |   | (245     | )
|Purchase of marketable securities                                           |  |                                | (579,759 | ) |      |   |         |  
|Sale/Maturities of marketable securities                                    |  |                                | 346,325  |   |      |   |         |  
|Purchase of satellite and related systems                                   |  |                                | (1,964   | ) |      |   |         |  
|                                                                            |  |                                |          |   |      |   |          |  
|Net Cash Used in Investing Activities                                       |  |                                | (246,898 | ) |      |   | (245     | )
|                                                                            |  |                                |          |   |      |   |          |  
|Cash Flows from Financing Activities                                        |  |                                |          |   |      |   |          |  
|Proceeds from short-term borrowings and notes payable                       |  |                                |         |   |      |   | 21,355   |  
|Proceeds from sale of common stock                                          |  |                                | 266,892  |   |      |   |         |  
|Costs incurred for sale of common stock                                     |  |                                | (23,180  | ) |      |   |         |  
|Proceeds from the conversion of long-term debt                              |  |                                | 7,000    |   |      |   |         |  
|Decrease (Increase) in restricted cash, net                                 |  |                                | (6,899   | ) |      |   | 28       |  
|                                                                            |  |                                |          |   |      |   |          |  
|Net Cash Provided by Financing Activities                                   |  |                                | 243,813  |   |      |   | 21,383   |  
|                                                                            |  |                                |          |   |      |   |          |  
|Net decrease in Cash and Cash Equivalents                                   |  |                                | (91,315  | ) |      |   | (388     | )
|Cash and Cash Equivalents,beginning of period                               |  |                                | 154,362  |   |      |   | 1,740    |  
|                                                                            |  |                                |          |   |      |   |          |  
|Cash and Cash Equivalents,end of period                                     |  | $                              | 63,047   |   |      | $ | 1,352    |  
|                                                                            |  |                                |          |   |      |   |          |  
|Supplemental Disclosure of Cash Flow Information                            |  |                                |          |   |      |   |          |  
|Cash paid for interest                                                      |  | $                              | 5,818    |   |      | $ |         |  



See accompanying notes
to unaudited condensed consolidated financial statements.



5



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WORLDSPACE, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(UNAUDITED)

Nine Months ended September 30, 2005



|                                        |  |                                              |  |         |                           |        |                        |   |        |              |     |   |                      |   |         |       |   |         |                     |  |   |      |   |  |   |            |   |  |   |            |   |  |         |  
|--------------------------------------- |  | -------------------------------------------- |  | ------- | ------------------------- | ------ | ---------------------- | - | ------ | ------------ | --- | - | -------------------- | - | ------- | ----- | - | ------- | ------------------- |  | - | ---- | - |  | - | ---------- | - |  | - | ---------- | - |  | ------- | -
|                                        |  | Common Stock                                 |  |         | Additional Paid-inCapital |        | DeferredComp--ensation |   |        | AOCI ¶(Loss) |     |   | Accumul--atedDeficit |   |         | Total |   |         | Compre--hensiveLoss | 
|                                        |  | Class A                                      |  | Class B |                           |        |                        |   |        |              |    
|                                        |  | Shares                                       |  | Amount  |                           | Shares |                        |   | Amount |              |     |   |                      |   |         |      
|                                        |  | (In thousands, except for share information) | 
|Balance, December 31, 2004              |  | 2,797,368                                    |  | $       | 28                        |        | 20,413,949             |   |        | $            | 204 |   |                      | $ | 425,247 |       | $ | (1,085  | )                   |  | $ | (354 | ) |  | $ | (2,113,446 | ) |  | $ | (1,689,406 | ) |  |         |  
|Conversion of common stock              |  | 2,987,506                                    |  |         | 30                        |        | (2,987,506             | ) |        |              | (30 | ) |                      |   |        |       |   |        |                     |  |   |     |   |  |   |           |   |  |   |           |   |  |         |  
|Issuance of common stock (IPO)          |  | 11,500,000                                   |  |         | 115                       |        |                       |   |        |              |    |   |                      |   | 220,748 |       |   |        |                     |  |   |     |   |  |   |           |   |  |   | 220,863    |   |  |         |  
|XM satellite radio private placement    |  | 1,562,500                                    |  |         | 16                        |        |                       |   |        |              |    |   |                      |   | 22,441  |       |   |        |                     |  |   |     |   |  |   |           |   |  |   | 22,457     |   |  |         |  
|Debt conversion                         |  | 333,333                                      |  |         | 3                         |        |                       |   |        |              |    |   |                      |   | 6,997   |       |   |        |                     |  |   |     |   |  |   |           |   |  |   | 7,000      |   |  |         |  
|Warrants issued to consultant           |  |                                             |  |         |                          |        |                       |   |        |              |    |   |                      |   | 393     |       |   |        |                     |  |   |     |   |  |   |           |   |  |   | 393        |   |  |         |  
|Employee stock based compensation       |  |                                             |  |         |                          |        |                       |   |        |              |    |   |                      |   | 37,045  |       |   | (26,800 | )                   |  |   |     |   |  |   |           |   |  |   | 10,245     |   |  |         |  
|Foreign currency translation adj.       |  |                                             |  |         |                          |        |                       |   |        |              |    |   |                      |   |        |       |   |        |                     |  |   | (273 | ) |  |   |           |   |  |   | (273       | ) |  | (273    | )
|Net loss                                |  |                                              |  |         |                           |        |                        |   |        |              |     |   |                      |   |         |       |   |         |                     |  |   |      |   |  |   | (46,687    | ) |  |   | (46,687    | ) |  | (46,687 | )
|                                        |  |                                              |  |         |                           |        |                        |   |        |              |     |   |                      |   |         |       |   |         |                     |  |   |      |   |  |   |            |   |  |   |            |   |  |         |  
|Comprehensive Loss                      |  |                                              |  |         |                           |        |                        |   |        |              |     |   |                      |   |         |       |   |         |                     |  |   |      |   |  |   |            |   |  |   |            |   |  | (46,960 | )
|                                        |  |                                              |  |         |                           |        |                        |   |        |              |     |   |                      |   |         |       |   |         |                     |  |   |      |   |  |   |            |   |  |   |            |   |  |         |  
|Balance, September 30, 2005 (Unaudited) |  | 19,180,707                                   |  | $       | 192                       |        | 17,426,443             |   |        | $            | 174 |   |                      | $ | 712,871 |       | $ | (27,885 | )                   |  | $ | (627 | ) |  | $ | (2,160,133 | ) |  | $ | (1,475,408 | ) |  |         |  



¶ AOCI: Accumulated Other Comprehensive Income



6



---

WORLDSPACE, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(A) Organization



WorldSpace, Inc. (WSI) was
organized on July 29, 1990, and incorporated in the State of Maryland on November 5, 1990. WorldSpace, Inc. and Subsidiaries (the Company) is engaged in the design, development, construction, deployment and financing of a satellite-based
radio and data broadcasting service, which serves areas of the world where traditional broadcast media or internet services are limited. The Company, which operates in 10 countries, has one satellite in orbit over Africa, another over Asia and a
completed third satellite currently in storage. This third satellite can be used to replace either of the Companys two operational satellites or may also be modified and launched to provide DARS in Western Europe.



During March 2004, the Company began generating sales in India related to its
satellite-based radio and data broadcasting service and exited the development stage, as defined by Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises. In December 2004,
WorldSpace International Network, Inc. (WIN), a wholly owned subsidiary of the Company, was merged into WSI. Immediately following the merger, WSI was merged into a newly created company of the same name incorporated in the State of Delaware.



(B) Principles of Consolidation and Basis of Presentation



The accompanying consolidated financial statements include the accounts
of WorldSpace, Inc. and its majority and wholly-owned controlled subsidiaries. The equity method of accounting is used to account for investments in enterprises over which the Company has significant influence, but of which it has less than 50
percent ownership. All significant intercompany transactions and balances have been eliminated in consolidation.



The balance sheet and operating results of the Companys foreign operations are consolidated using the local currencies of the countries in which
they are located as the functional currency. The balance sheet accounts are translated at exchange rates in effect at the end of the period, and income statement accounts are translated at average exchange rates during the period. The resulting
translation gains and losses are included as a separate component of stockholders equity. Foreign currency transaction gains and losses are included in the Companys income statement in the period in which they occur.



In the Companys opinion, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only normal recurring entries, necessary for a fair presentation of the consolidated financial position of WorldSpace, Inc. and its subsidiaries as of September 30, 2005;
the results of operations for the three and nine month periods ended September 30, 2005 and 2004; and cash flows for the nine months ended September 30, 2005 and 2004. Certain reclassifications have been made to the 2004 financial
statements to conform to the 2005 presentation.



The Company
has determined that all of its investments are marketable securities to be classified as Held-to-Maturity. Held-to-Maturity securities are recorded at amortized cost. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included in the Interest income line item on the accompanying consolidated statements of operations. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as held-to-maturity are included in the Interest income line item on the consolidated statements of operations. We invest in highly-liquid, short-term marketable
securities. As of September 30, 2005 the weighted average maturity of the marketable securities portfolio was 12 days. The unrealized gains/losses on the marketable securities, if accounted, would be reported in the stockholders equity in
the accompanying consolidated balance sheets under the caption Accumulated Other Comprehensive Income to an extent of $10,000.



7



---

WORLDSPACE, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



These financial statements have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted
pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Registration Statement on Form S-1 and declared effective by the SEC on
August 3, 2005. (See Note C, Initial Public Offering).



(C) Initial
Public Offering



On August 3, 2005, the
Companys initial public offering of 11.8 million shares of its Class A Common Stock became effective. The Company and a stockholder sold 11.5 million shares and 0.3 million shares, respectively. The Companys net
proceeds from the initial public offering after deducting the underwriter discounts and commissions and estimated offering expenses was approximately $221 million. The Company intends to use the proceeds of this offering to implement its India
business plan, including service launch in key cities, marketing expenses related to subscriber acquisitions and build-out of a terrestrial repeater network; business development activities in China, Western Europe and other selected markets within
its broadcast coverage area; and general, administrative, corporate and working capital expenses. Pending such use, the proceeds have been invested in short-term marketable securities.



(D) Stock-Based Compensation



At September 30, 2005, the Company has a stock-based employee compensation plan. The Company accounts for the plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company has adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based
CompensationTransition and DisclosureAn Amendment of FASB Statement No. 123. The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                |  |                                   |         |   |                                |   |         |      |  |   |         |   |  |   |          |  
|--------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                                                |  | Three Months endedSeptember 30,   |         |   | Nine Months endedSeptember 30, |  
|                                                                                                                |  | 2005                              |         |   | 2004                           |   |         | 2005 |  |   | 2004    |  
|                                                                                                                |  | (in thousands, except share data) |        
|Net loss as reported                                                                                            |  | $                                 | (15,418 | ) |                                | $ | (57,274 | )    |  | $ | (46,687 | ) |  | $ | (159,222 | )
|Add: stock-based employee compensation expense included in reported net loss                                    |  |                                   | 98      |   |                                |   | 810     |      |  |   | 1,085   |   |  |   | 2,499    |  
|Deduct: total stock-based employee compensation expense determined under fair value-based method for all awards |  |                                   | (104    | ) |                                |   | (8,347  | )    |  |   | (1,183  | ) |  |   | (25,139  | )
|                                                                                                                |  |                                   |         |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Proforma net loss                                                                                               |  | $                                 | (15,424 | ) |                                | $ | (64,811 | )    |  | $ | (46,785 | ) |  | $ | (181,862 | )
|                                                                                                                |  |                                   |         |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Net loss per share as reportedbasic and diluted                                                                |  | $                                 | (0.48   | ) |                                | $ | (9.90   | )    |  | $ | (1.78   | ) |  | $ | (27.52   | )
|Proforma net loss per sharebasic and diluted                                                                   |  | $                                 | (0.48   | ) |                                | $ | (11.20  | )    |  | $ | (1.79   | ) |  | $ | (31.44   | )



Additionally, the
Company issued 187,500 warrants to a consultant during 2003 in exchange for investment banking services received. The warrants have an exercise price of $1.60 per share and a contractual period of 10 years. Following the successful completion of the
Companys December 31, 2004 convertible note financing, 156,250 of the warrants vested and became exercisable. The remaining 31,250 warrants vested and became exercisable following the SEC declared effectiveness of the Companys
initial public offering on August 3, 2005 (See Note C, Initial Public Offering). The fair value of the warrants on September 30, 2005, as determined by the Black-Scholes option pricing model, were $2.5 million and $2.1 million and are
recorded in deferred financing



8



---

WORLDSPACE, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



costs in the accompanying balance sheets at September 30, 2005 and December 31, 2004, respectively, as these costs were direct and incremental to
the financing.



In accordance with SFAS No. 123 (Revised
2004), Share Based Payment (SFAS No. 123R) and the Securities and Exchange Commissions rule amending the compliance dates of SFAS No. 123R, we will begin to recognize compensation expense for equity-based
compensation using the fair value method in 2006, as discussed in Note K, Recent Accounting Pronouncements.



2005 Incentive Award Plan



On July 7, 2005, the Companys shareholders approved the 2005 Incentive Award Plan (The Plan). The Plan provides for the grant of up to 5,625,000 shares of our Class A Common Stock for stock
based awards to employees, consultants and directors of the Company and its subsidiaries and affiliates. The Company granted employees restricted stock awards, effective August 3, 2005. The stock award program offers employees the opportunity
to earn shares of our stock over time, rather than options that give employees the right to buy stock at a pre-determined price. For the period ended September 30, 2005 the Company issued 1,764,052 restricted stock units to its employees. These
stock units have vesting periods ranging between six months and three years. The Company recorded deferred stock compensation of $37.0 million, effective August 3, 2005, of which an expense of $9.2 million was recorded for the three-month
period ended September 30, 2005.



(E) Debt



Long-Term Debt



Long-term debt at September 30, 2005 and December 31, 2004 consisted of the following (in thousands):



|                             |  |                   |         |                  |   |        
|---------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                             |  | September 30,2005 |         | December 31,2004
|Convertible promissory notes |  | $                 | 155,000 |                  | $ | 155,000
|                             |  |                   |         |                  |   |        



The convertible
promissory notes mature on December 31, 2014, and are convertible into reserved Class A shares of the Companys common stock at the lesser of $13.52 per share or 90 percent of the price of the Companys initial public offering
common share, subject to certain adjustments as defined in the promissory note agreements. In accordance with Emerging Issues Task Force 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, the Company may record additional interest expense upon conversion of the debt. Interest payments are due quarterly beginning March 31, 2005. The related registration rights agreement provides that beginning 180 days
after an IPO of the Companys common stock, declared effective by the Securities and Exchange Commission (SEC) on August 3, 2005, the investors have the right to demand that the Company file up to three registration statements with the SEC
at any time during the period defined in the related registration rights agreement, in order to sell some or all of the Class A Common Stock received upon any conversion of the convertible promissory notes. If a registration statement is not
filed by the Company with the SEC by the applicable deadline, a penalty of up to 3 percent of the aggregate purchase price of the promissory notes will be imposed. Additionally, three years following the effective date of the issuance of the
convertible promissory notes, the investors may require the Company to redeem the unpaid principal and accrued interest.



Line-of-Credit



WorldSpace India Private Limited, a wholly owned subsidiary of the Company, has a $1,000,000 line-of-credit to purchase inventory. The Company and one
director of WorldSpace India Private Limited have



9



---

WORLDSPACE, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



guaranteed the debt. Substantially the entire inventory is collateralized to secure the debt. As of September 30, 2005 and December 31, 2004,
$920,000 and $229,000 respectively, was outstanding and is included in accounts payable on the accompanying Balance Sheets.



(F) Provision for Income Taxes



The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences
between the financial statement and the tax basis of assets and liabilities, using enacted tax rates for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized. Income tax expense is the sum of taxes payable for the period and the change during the period in deferred tax assets and liabilities.



During September, 2005 the Company relocated its corporate headquarters from the District of Columbia to Montgomery County,
MD. Due to the change in state tax jurisdictions, the corporate effective tax rate decreased by approximately 2%. As a result of this change, the deferred tax liabilities were reduced by approximately $11.6 million and the Company recorded an
increase in the tax benefit for the quarter of an equal amount.



(G) Net
Loss Per Share



The Company computes net loss per share in
accordance with SFAS No. 128, Earnings Per Share and SEC Staff Accounting Bulletin No. 98 (SAB 98). Basic loss per share is computed by dividing net loss by the weighted-average number of outstanding shares of common
stock. Diluted loss per share is computed by dividing net loss by the weighted-average number of shares adjusted for the potential dilution that could occur if stock options, warrants and other convertible securities were exercised or converted into
common stock.



For the three and nine month periods ended
September 30, 2005 and 2004, options, warrants and other convertible securities to purchase approximately 31.4 and 18.2 million shares of common stock, respectively, were outstanding, but not included in the computation of diluted earnings
per share, because the effect would be anti-dilutive.



(H) Commitments and
Contingencies



Leases



The Company leases office space under non-cancelable operating leases that
expire through 2016. As of September 30, 2005 minimum annual rental commitments under these leases, including the amendments discussed in the following paragraph, through December 2009 are:



|                      |  |                |       
|--------------------- |  | -------------- | ------
|                      |  | (in thousands)
|October-December 2005 |  | $              | 617   
|2006                  |  |                | 2,945 
|2007                  |  |                | 3,191 
|2008                  |  |                | 2,902 
|2009                  |  |                | 2,917 
|Thereafter            |  |                | 17,039
|                      |  |                |       
|                      |  | $              | 29,611
|                      |  |                |       



10



---

WORLDSPACE, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



On November 11, 2004, the Companys Washington D.C. Headquarters office lease was amended
whereby the Company forfeited $1.9 million of its security deposit that was recorded as selling, general and administrative expense in 2004, for the right, at its option, to vacate the premises during the first six months of 2005. The agreement was
subsequently extended through September 30, 2005. As a result of its headquarters relocation, the Company wrote off its Washington D.C. (old headquarters) deferred lease obligations and leasehold improvements. The Company recorded a one-time
net benefit of $1.5 million under Other Income (Expense)Other section of the Condensed Consolidated Statement of Operations.



On October 21, 2005, the Companys Silver Spring Headquarters office lease was amended whereby the Company leased an additional 20,130 sq. ft.
on the 6thand 7thfloors to accommodate current and future employee growth. The schedule listed above includes minimum payments under this amendment of $5.0 million.



Litigation, Claims and Income Taxes



The Company is subject to various claims and assessments. In the opinion of
management, these matters will not have a material adverse impact on the Companys financial position or results of operations. In evaluating the exposure associated with various tax filing positions, the Company accrues charges for probable
exposures. Based on annual evaluations of tax positions, the Company believes it has appropriately accrued for probable exposures.



Design and Production Agreement



The Company is committed to purchasing 722,445 satellite radio receiver chipsets for approximately $17.3 million at September 30, 2005. The Company
has recorded a liability equal to the excess of the aggregate purchase price over the expected sales price, of $12.2 million and $13.2 million at September 30, 2005 and December 31, 2004, respectively, as accrued purchase commitment in the
accompanying consolidated balance sheets. The difference between the liability at September 30, 2005 and December 31, 2004 is the result of the purchase of 4,000 chipsets by one of the Companys licensed receiver manufacturers and due
to changes in the exchange rates of foreign currencies.



(I) Contingent
Royalty Obligation



Effective December 31, 2004 the
Company restructured $1,553 million of notes payable and advances. Under the terms of the agreements, the ongoing obligations of the Company to the lender were set forth in a separate royalty arrangement (Royalty Agreement), under which the Company
is required to pay the lender 10 percent of earnings before interest, taxes, depreciation, and amortization, if any, for each year through 2015 in exchange for the lender releasing all claims. The Company is subject to certain covenants regarding
the disposition of assets, liquidation of the Company, reporting, and distributions or payments to certain current shareholders. The Royalty Agreement also requires the Company to have a segregated reserve, to be funded each quarter in any year in
which payment under the Royalty Agreement is projected, at the rate of 25 percent of the estimated annual payment. In addition, 80 percent of the annual payment is required to be made within 60 days after year-end, and the remaining portion within
180 days following year-end. Even though management is satisfied that the debt may not be reinstated, in accordance with SFAS No. 15, Accounting by Debtors and Creditors for Trouble Debt Restructuring,the debt restructuring is not
considered an extinguishment of debt because the future payments under the agreement are indeterminate. Accordingly, the carrying value of the debt and accrued interest of $1,814 million is shown as a contingent royalty obligation on the
accompanying balance sheets.



11



---

WORLDSPACE, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



(J) Equity



Common Stock



On June 23, 2005, 2,987,506 shares of Class B Common Stock were converted, on a one-for-one basis, into shares of Class A Common Stock.



On July 7, 2005, the Companys Shareholders approved a 1.6 to 1.0
reverse stock split of the Companys outstanding shares of Class A and Class B Common Stock and an amendment to the Companys Certificate of Incorporation increasing the authorized shares of Class A Common Stock to
200 million shares, on a post-split basis. As a result of the reverse stock split, per share amounts have been adjusted.



XM Satellite Radio Transaction



On July 18, 2005, the Company sold to XM Satellite Radio Holdings, Inc. (XM) 1,562,500 shares of its Class A Common Stock for $22.5
million, net of $2.5 million fees associated with this transaction. The Company also issued to XM, a warrant to purchase an aggregate number of shares of Class A Common Stock equal to $37.5 million. In connection with the transaction, the
Company appointed to its Board of Directors the Chairman of XMs Board of Directors.



Alcatel Settlement



As a result of the Companys completion of its initial public offering, the Company issued 333,333 shares of its Class A Common Stock on August 3, 2005 and paid $2 million, in cash, on August 16, 2005, in settlement of
the Companys $9 million obligation.



(K) Recent Accounting
Pronouncements



In December 2004, the FASB issued revised
SFAS No. 123R, Share-Based Payment. SFAS No. 123R sets accounting requirements for share-based compensation to employees and requires companies to recognize, in the income statement, the grant-date fair value of stock options and
other equity-based compensation. SFAS No. 123R will be effective beginning January 1, 2006. The Companys adoption of SFAS No. 123R is not expected to have a material impact on its financial position or results of operations.



Also in December 2004, the FASB issued SFAS No. 153,
Exchanges of Non-monetary AssetsAn Amendment of APB Opinion No. 29. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 is to be applied prospectively for non-monetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Companys
adoption of SFAS No. 153 is not expected to have a material impact on its financial position or results of operations.



12



---

WORLDSPACE, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



(L) Geographic Areas



The following tables present summary operating information by geographic segment for the three and nine months ended September 30, 2005 and 2004:



|                        |  |                                 |       |      |                                |       |      |  |      |       |  |   |       |    
|----------------------- |  | ------------------------------- | ----- | ---- | ------------------------------ | ----- | ---- |  | ---- | ----- |  | - | ----- | ---
|                        |  | Geographical Area Data          |      
|                        |  | Three Months endedSeptember 30, |       |      | Nine Months endedSeptember 30, |      
|                        |  | 2005                            |       | 2004 |                                |       | 2005 |  | 2004 |      
|                        |  | (in thousands)                  |      
|Revenue                 |  |                                 |       |      |                                |       |      |  |      |       |  |   |       |    
|United States           |  | $                               | 996   |      | $                              | 674   | (2)  |  | $    | 3,083 |  | $ | 3,429 | (1)
|India                   |  |                                 | 593   |      |                                | 220   |      |  |      | 1,267 |  |   | 549   |    
|France                  |  |                                 | 212   |      |                                | 416   |      |  |      | 1,120 |  |   | 1,535 |    
|Kenya                   |  |                                 | 212   |      |                                | 119   |      |  |      | 640   |  |   | 593   |    
|South Africa            |  |                                 | 184   |      |                                |      |      |  |      | 685   |  |   |      |    
|Singapore               |  |                                 | 18    |      |                                | 33    |      |  |      | 43    |  |   | 60    |    
|Other foreign countries |  |                                 | 138   |      |                                | 94    |      |  |      | 397   |  |   | 143   |    
|                        |  |                                 |       |      |                                |       |      |  |      |       |  |   |       |    
|                        |  | $                               | 2,353 |      | $                              | 1,556 |      |  | $    | 7,235 |  | $ | 6,309 |    
|                        |  |                                 |       |      |                                |       |      |  |      |       |  |   |       |    

---

| | Customers from which 10 percent or more of revenue is derived.
| | --------------------------------------------------------------



|(1) | Includes $1.5 million from USAID
|--- | --------------------------------

|(2) | Includes $0.2 million from USAID
|--- | --------------------------------



Long-lived Segment Assets



|                  |  |                   |         |                  |   |        
|----------------- |  | ----------------- | ------- | ---------------- | - | -------
|                  |  | September 30,2005 |         | December 31,2004
|                  |  | (in thousands)   
|United States     |  | $                 | 425,059 |                  | $ | 469,283
|Foreign countries |  |                   | 3,001   |                  |   | 1,574  



Excludes deferred financing costs,
restricted cash and investments and investments in affiliates and other assets.



13



---

|Item 2: | Managements discussion and analysis of financial condition and results of operations
|------- | -------------------------------------------------------------------------------------



The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and
Notes thereto included herewith, and with our Managements Discussion and Analysis of Financial Condition and Results of Operations and audited consolidated financial statements and notes thereto for the three-year period ended
December 31, 2004, which are included in the Companys Form S-1 filed with the Securities and Exchange Commission on August 3, 2005.



Summary Operating Metrics



The key metrics we use to monitor our business growth and our operational results are: ending subscribers, Average Monthly Subscription Revenue Per
Subscriber (ARPU), Subscriber Acquisition Cost (SAC), Cost Per Gross Addition (CPGA) and EBITDA presented as follows:



|                         |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|------------------------ |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                         |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|                         |  | 2005                            |         |   | 2004                           |   |         | 2005 |  |   | 2004    |  
|Net Subscriber Additions |  |                                 | 11,141  |   |                                |   | 6,253   |      |  |   | 40,801  |   |  |   | 13,742  |  
|India                    |  |                                 | 7,737   |   |                                |   | 3,616   |      |  |   | 27,335  |   |  |   | 5,376   |  
|ROW (1)                  |  |                                 | 3,404   |   |                                |   | 2,637   |      |  |   | 13,466  |   |  |   | 8,366   |  
|                         |  |                                 |         |  
|Total EOP Subs           |  |                                 | 75,071  |   |                                |   | 18,725  |      |  |   | 75,071  |   |  |   | 18,725  |  
|India                    |  |                                 | 35,670  |   |                                |   | 5,376   |      |  |   | 35,670  |   |  |   | 5,376   |  
|ROW (1)                  |  |                                 | 39,401  |   |                                |   | 13,349  |      |  |   | 39,401  |   |  |   | 13,349  |  
|                         |  |                                 |         |  
|ARPU (2)                 |  | $                               | 4.43    |   |                                | $ | 6.00    |      |  | $ | 4.83    |   |  | $ | 6.46    |  
|ARPU (India)             |  |                                 | 2.73    |   |                                |   | 2.12    |      |  |   | 2.56    |   |  |   | 1.89    |  
|ARPU (ROW) (1)           |  |                                 | 5.86    |   |                                |   | 6.61    |      |  |   | 6.49    |   |  |   | 6.84    |  
|                         |  |                                 |         |  
|SAC (3)                  |  | $                               | 27      |   |                                | $ | 1       |      |  | $ | 11      |   |  | $ | 2       |  
|SAC(India)               |  |                                 | 38      |   |                                |   | 9       |      |  |   | 23      |   |  |   | 19      |  
|SAC(ROW) (1)             |  |                                 | 5       |   |                                |   | 0       |      |  |   | 0       |   |  |   | 0       |  
|                         |  |                                 |         |  
|CPGA (4)                 |  | $                               | 407     |   |                                | $ | 128     |      |  | $ | 200     |   |  | $ | 122     |  
|CPGA(India)              |  |                                 | 508     |   |                                |   | 97      |      |  |   | 310     |   |  |   | 154     |  
|CPGA(ROW) (1)            |  |                                 | 202     |   |                                |   | 181     |      |  |   | 78      |   |  |   | 111     |  
|                         |  |                                 |         |  
|EBITDA (5)               |  | $                               | (29,113 | ) |                                | $ | (12,091 | )    |  | $ | (39,661 | ) |  | $ | (29,134 | )

---

|(1) | ROWRest of World: All other operating regions excluding India.
|--- | ---------------------------------------------------------------

|(2) | Average Monthly Subscription Revenue Per Subscriber (ARPU)Please see definition and further discussion under Average Monthly Subscription Revenue Per Subscriber on
page 15.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | SACPlease see definition and further discussion under Subscriber Acquisition Cost on page 17.
|--- | ----------------------------------------------------------------------------------------------

|(4) | CPGAPlease see definition and further discussion under Cost Per Gross Addition on page 18.
|--- | -------------------------------------------------------------------------------------------

|(5) | EBITDAWe refer to net loss before interest income, interest expense, income taxes, depreciation and amortization as EBITDA. EBITDA is not a measure of financial
performance under generally accepted accounting principles. We believe EBITDA is often a useful measure of a companys operating performance and is a significant basis used by our management to measure the operating performance of our business.
Because we have funded and completed the build-out of our system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest expense. EBITDA,
which excludes this information, provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of the bases for
comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating loss or cash flow from operating activities, as those terms
are defined under generally accepted accounting principles and should not be considered as an alternative to those measurements as an indicator of our performance.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



---

|                                               |  |                                 |         |   |      |   |          |  
|---------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | -------- | -
|                                               |  | Three Months endedSeptember 30, |        
|                                               |  | 2005                            |         |   | 2004 |  
|Reconciliation of Net Loss to EBITDA           |  |                                 |         |   |      |   |          |  
|Net Loss as reported                           |  | $                               | (15,418 | ) |      | $ | (57,274  | )
|Addback non-EBITDA items included in net loss: |  |                                 |         |   |      |   |          |  
|Interest income                                |  |                                 | (2,044  | ) |      |   | (109     | )
|Interest expense                               |  |                                 | 2,336   |   |      |   | 30,611   |  
|Depreciation & amortization                    |  |                                 | 14,732  |   |      |   | 14,681   |  
|Provision for deferred income taxes benefit    |  |                                 | (28,719 | ) |      |   |         |  
|                                               |  |                                 |         |   |      |   |          |  
|EBITDA                                         |  | $                               | (29,113 | ) |      | $ | (12,091  | )
|                                               |  |                                 |         |   |      |   |          |  
|                                               | 
|                                               |  | Nine Months endedSeptember 30,  |        
|                                               |  | 2005                            |         |   | 2004 |  
|Reconciliation of Net Loss to EBITDA           |  |                                 |         |   |      |   |          |  
|Net Loss as reported                           |  | $                               | (46,687 | ) |      | $ | (159,222 | )
|Addback non-EBITDA items included in net loss: |  |                                 |         |   |      |   |          |  
|Interest income                                |  |                                 | (3,647  | ) |      |   | (323     | )
|Interest expense                               |  |                                 | 7,498   |   |      |   | 85,389   |  
|Depreciation & amortization                    |  |                                 | 44,136  |   |      |   | 45,022   |  
|Provision for deferred income taxes benefit    |  |                                 | (40,961 | ) |      |   |         |  
|                                               |  |                                 |         |   |      |   |          |  
|EBITDA                                         |  | $                               | (39,661 | ) |      | $ | (29,134  | )
|                                               |  |                                 |         |   |      |   |          |  



15



---

Results of Operations



Three-Months and Nine-Months ended September 30, 2005 and 2004



|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|-------------------------------------------------------------------- |  | ----------------------------------------------- | ---------- | - | ------------------------------ | - | --------- | ---- |  | - | ---------- | - |  | - | --------- | -
|                                                                     |  | Three Months endedSeptember 30,                 |            |   | Nine Months endedSeptember 30, |  
|                                                                     |  | 2005                                            |            |   | 2004                           |   |           | 2005 |  |   | 2004       |  
|                                                                     |  | (in thousands, except share and per share data) |           
|Revenue                                                              |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Subscription revenue                                                 |  | $                                               | 959        |   |                                | $ | 289       |      |  | $ | 2,554      |   |  | $ | 599       |  
|Equipment revenue                                                    |  |                                                 | 670        |   |                                |   | 288       |      |  |   | 1,646      |   |  |   | 1,510     |  
|Other revenue                                                        |  |                                                 | 724        |   |                                |   | 979       |      |  |   | 3,035      |   |  |   | 4,200     |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Total Revenue                                                        |  |                                                 | 2,353      |   |                                |   | 1,556     |      |  |   | 7,235      |   |  |   | 6,309     |  
|                                                                     |  |                                                 |            |  
|Operating Expenses                                                   |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Cost of Services (excludes depreciation, shown separately below)     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Satellite and transmission, programming and other                    |  |                                                 | 5,028      |   |                                |   | 2,846     |      |  |   | 11,898     |   |  |   | 9,366     |  
|Cost of equipment                                                    |  |                                                 | 998        |   |                                |   | 410       |      |  |   | 2,022      |   |  |   | 1,425     |  
|Selling, general and administrative                                  |  |                                                 | 17,571     |   |                                |   | 8,474     |      |  |   | 39,172     |   |  |   | 21,739    |  
|Stock-based compensation (1)                                         |  |                                                 | 9,258      |   |                                |   | 810       |      |  |   | 10,246     |   |  |   | 2,499     |  
|Depreciation and amortization                                        |  |                                                 | 14,732     |   |                                |   | 14,681    |      |  |   | 44,136     |   |  |   | 45,022    |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Total Operating Expenses                                             |  |                                                 | 47,587     |   |                                |   | 27,221    |      |  |   | 107,474    |   |  |   | 80,051    |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Loss from Operations                                                 |  |                                                 | (45,234    | ) |                                |   | (25,665   | )    |  |   | (100,239   | ) |  |   | (73,742   | )
|                                                                     |  |                                                 |            |  
|Other Income (Expense)                                               |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Gain on extinguishment of debt                                       |  |                                                 |           |   |                                |   |          |      |  |   | 14,130     |   |  |   |          |  
|Interest income                                                      |  |                                                 | 2,044      |   |                                |   | 109       |      |  |   | 3,647      |   |  |   | 323       |  
|Interest expense                                                     |  |                                                 | (2,336     | ) |                                |   | (30,611   | )    |  |   | (7,498     | ) |  |   | (85,389   | )
|Other                                                                |  |                                                 | 1,389      |   |                                |   | (1,107    | )    |  |   | 2,312      |   |  |   | (414      | )
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Total Other Income (Expense)                                         |  |                                                 | 1,097      |   |                                |   | (31,609   | )    |  |   | 12,591     |   |  |   | (85,480   | )
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Loss Before Income Taxes                                             |  |                                                 | (44,137    | ) |                                |   | (57,274   | )    |  |   | (87,648    | ) |  |   | (159,222  | )
|Income Tax Benefit                                                   |  |                                                 | 28,719     |   |                                |   |          |      |  |   | 40,961     |   |  |   |          |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Net Loss                                                             |  | $                                               | (15,418    | ) |                                | $ | (57,274   | )    |  | $ | (46,687    | ) |  | $ | (159,222  | )
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Loss per sharebasic and diluted                                     |  | $                                               | (0.48      | ) |                                | $ | (9.90     | )    |  | $ | (1.78      | ) |  | $ | (27.52    | )
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Weighted Average Number of Shares Outstanding                        |  |                                                 | 32,024,046 |   |                                |   | 5,784,868 |      |  |   | 26,159,693 |   |  |   | 5,784,868 |  
|                                                                     |  |                                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|(1)    Allocation of stock based compensation to operating expenses: | 
|Satellite, transmission, programming and other                       |  | $                                               | 9,148      |   |                                | $ | 12        |      |  | $ | 10,136     |   |  | $ | 38        |  
|Selling, general and administrative                                  |  | $                                               | 110        |   |                                | $ | 798       |      |  | $ | 110        |   |  | $ | 2,461     |  



16



---

Results of Operations



Three months ended September 30, 2005 compared with three months ended September 30, 2004



Revenue



Our total revenue consists of subscription fees, leasing of satellite capacity, government services, equipment sales, and other items such as advertising
and technology licensing. The mix of our revenue changed during 2004 as we emerged from development stage and launched subscription services in a limited manner. The table below presents our operating revenue for the three months ended
September 30, 2005 and 2004, together with the relevant percentage of total revenue represented by each revenue category.



|                    |  |                                  |       |  |      |   |  |   |       |  |      |  
|------------------- |  | -------------------------------- | ----- |  | ---- | - |  | - | ----- |  | ---- | -
|                    |  | Three months ended September 30, |      
|                    |  | 2005                             |       |  | 2004 |  
|                    |  | ($ in thousands)                 |      
|Revenue:            |  |                                  |       |  |      |   |  |   |       |  |      |  
|Subscription        |  | $                                | 959   |  | 40.8 | % |  | $ | 289   |  | 18.6 | %
|Capacity lease      |  |                                  | 147   |  | 6.2  |   |  |   | 375   |  | 24.1 |  
|Government services |  |                                  | 362   |  | 15.4 |   |  |   | 273   |  | 17.6 |  
|Equipment sales     |  |                                  | 625   |  | 26.6 |   |  |   | 283   |  | 18.2 |  
|Other               |  |                                  | 260   |  | 11.0 |   |  |   | 336   |  | 21.5 |  
|                    |  |                                  |       |  |      |   |  |   |       |  |      |  
|Total revenue:      |  | $                                | 2,353 |  | 100  | % |  | $ | 1,556 |  | 100  | %
|                    |  |                                  |       |  |      |   |  |   |       |  |      |  



Total revenue for the
three months ended September 30, 2005 was $2.4 million, a 51.2% increase compared with $1.6 million for the three months ended September 30, 2004. This increase in total revenue was primarily due to increased revenue from subscribers to
our DARS service and equipment sales partially offset by a reduction in revenue from capacity leases.



Subscribers.



As of
September 30, 2005, we had 75,071 subscribers, compared with 18,725 subscribers at September 30, 2004. Our subscribers include 35,670 in India, and 39,401 in other regions under our coverage area. We expect to increase our subscribers
primarily in India as we continue to ramp up our sales and marketing activities, and continue to launch in key metro areas. We continued to augment our service presence in the third quarter of 2005, launching in New Delhi and Mumbai, and have
subsequently launched service in Ahmedabad, Kochi and Pune in October, 2005.



Subscription revenue.    Subscription revenue for the three months ended September 30, 2005 was approximately $1.0 million, an increase of 231.8% compared with $0.3 million, recorded in
the three months ended September 30, 2004. This increase in subscription revenues was primarily due to the increase in our paying subscribers from 18,725 for the three months ended September 30, 2004 to 75,071 subscribers for the three
months ended September 30, 2005.



Average Monthly
Subscription Revenue Per Subscriber(ARPU).



Blended ARPU
(India and ROW) was $4.43 for the three months ended September 30, 2005 compared with $6.00 for the three months ended September 30, 2004. ARPU from India was $2.73 for the three months ended September 30, 2005, compared with $2.12
for the three months ended September 30, 2004. ARPU is derived from the total of monthly earned subscription revenue (net of promotions and rebates) divided by the monthly average number of subscribers for the period reported. ARPU is a measure
of operational performance and not a measure of financial performance under generally accepted accounting principles. As expected, total blended ARPU has been decreasing in 2005 and we anticipate it will continue to do so as we increase our
subscriber base in India relative to other regions (with higher ARPUs). On July 7, 2005 we increased the annual subscription



17



---

pricing in India by fifty percent to Rs. 1,800 (approximately $40 per year or $3.34 per month) from Rs. 1,200 (approximately $27 per year or $2.30 per
month). The increase in the monthly subscription price took effect for all billing cycles on or after July 7, 2005. As a result, we expect that ARPU for India will continue to increase.



Capacity lease revenue.    Satellite capacity
lease revenue for the three months ended September 30, 2005 was $147,000, a decrease of 60.8% compared with $375,000, for the three months ended September 30, 2004. This decrease was a result of a reduction in the number of broadcasters
contracting to use our satellite capacity for their broadcasts as we shifted focus toward acquiring new subscribers and away from the capacity leasing business.



Government services revenue.    Government services revenue for the three months ended September 30, 2005 was $362,000,
an increase of 32.5% compared with $273,000, for the three months ended September 30, 2004. Government services revenues increased as a result of new contract acquisitions. Government services revenue included minimal equipment sales for the
three months ended September 30, 2005 and September 30, 2004.



Equipment sales revenue.    Equipment sales revenue was approximately $625,000 for the three months ended September 30, 2005, an increase of 121.1% compared with $283,000, for the three months ended
September 30, 2004. This increase was primarily due to increased unit sales of lower priced receivers in India. We sold a total of approximately 11,600 receivers in the three months ended September 30, 2005, compared with approximately
3,800 receivers sold in the three months ended September 30, 2004. A minimum number of receivers were sold by the government service unit in the three months ended September 30, 2004, and 2005.



Other revenue.    Other revenue, including
licensing revenue, for the three months ended September 30, 2005 was $260,000, a decrease of 22.9% compared with $336,000, in the three months ended September 30, 2004. This decrease was related to lower advertising barter revenue.



Cost of services



The table below presents our costs of services for the three months ended
September 30, 2005 and 2004, together with the percentages of total cost of services represented by each category.



|                                    |  |                                  |       |                 |       |   |  |   |                 |  |       |  
|----------------------------------- |  | -------------------------------- | ----- | --------------- | ----- | - |  | - | --------------- |  | ----- | -
|                                    |  | Three months ended September 30, |      
|                                    |  | 2005                             |       |                 | 2004  |  
|                                    |  |                                  |       | Percentof total |       |   |  |   | Percentof total | 
|                                    |  | ($ in thousands)                 |      
|Cost of services:                   |  |                                  |       |                
|Engineering & broadcast operations  |  | $                                | 3,579 |                 | 59.4  | % |  | $ | 2,026           |  | 62.2  | %
|Content & programming               |  |                                  | 1,141 |                 | 18.9  |   |  |   | 554             |  | 17.0  |  
|Customer care, billing & collection |  |                                  | 132   |                 | 2.2   |   |  |   | 125             |  | 3.9   |  
|Cost of equipment                   |  |                                  | 998   |                 | 16.6  |   |  |   | 410             |  | 12.6  |  
|Other cost of services              |  |                                  | 176   |                 | 2.9   |   |  |   | 141             |  | 4.3   |  
|                                    |  |                                  |       |                 |       |   |  |   |                 |  |       |  
|Total cost of services:             |  | $                                | 6,026 |                 | 100.0 | % |  | $ | 3,256           |  | 100.0 | %
|                                    |  |                                  |       |                 |       |   |  |   |                 |  |       |  



Total cost of services
for the three months ended September 30, 2005 was $6.0 million, an 85.1% increase compared with $3.3 million for the three months ended September 30, 2004. This increase was primarily due to an increase in the cost of
engineering & broadcast operations, content & programming & equipment.



Engineering and broadcast operations.    Engineering and broadcast expense, including the cost of operating our two satellites, ground control systems and telecommunications links as well as
our in-orbit



18



---

insurance, for the three months ended September 30, 2005 was $3.6 million, an increase of 76.7% compared with $2.0 million, for the three months ended
September 30, 2004. This increase was due primarily to an increase in in-orbit insurance as we renewed our policies on our AfriStar and AsiaStar satellites in April 2005.



Content and programming.    Content and programming expense, which includes content production,
music royalties and other content acquisition costs, for the three months ended September 30, 2005 was $1.1 million, an increase of 105.9% compared with $0.6 million for the three months ended September 30, 2004. This increase was
primarily due to increased production and content costs resulting from increased headcount and additional channels launched in India. We expect these costs to increase as we continue to add new channels to enhance our existing content line up.



Customer care, billing &
collection.    Customer care, billing and collections expense for the three months ended September 30, 2005 was $132,000, a 5.6% increase compared to $125,000 for the three months ended September 30, 2004. We
commenced our customer care, billing and collections in March 2004 to support the limited launch of our subscription services in India, and incurred start up expenses related to the service launch. Consequently our billing and collection expenses
have not increased substantially for the three months ended September 30, 2005, although these expenses are expected to increase as we continue to add subscribers throughout the rest of the year.



Cost of Equipment.    Cost of equipment for the
three months ended September 30, 2005 was $1.0 million, an increase of 143.4% compared with $0.4 million in the three months ended September 30, 2004. This increase was due to an increased number of low-cost receivers sold in India. The
number of receivers sold increased from approximately 3,800 in the three months ended September 30, 2004 to approximately 11,600 in the three months ended September 30, 2005.



Subscriber Acquisition Cost (SAC)



SAC is calculated by including the negative margins from equipment sales to end customers and excluding ongoing royalty
payments to retailers and distribution partners, and payments under revenue sharing arrangements to content providers divided by gross subscriber additions. SAC costs are reported under Cost of equipment, net of Equipment revenue. Total blended SAC
(India and ROW) was approximately $27 per subscriber for the three months ended September 30, 2005 and $1 for the three months ended September 30, 2004. SAC for India was $38 per subscriber for the three months ended September 30,
2005 and $9 per subscriber for the three months ended September 30, 2004. Our SAC costs are primarily driven by equipment subsidies on units sold in India. We expect SAC for India to increase in 2005 as we continue to subsidize certain models
of receivers sold in India during the festival season.



Other cost of services.    Other cost of services for the three months ended September 30, 2005 was $176,000, compared with $141,000, for the three months ended September 30, 2004.



Operating expense



The table below presents our operating expense for the three months ended September 30, 2005 and 2004, together with
the relevant percentage increase year-over-year.



|                                  |  |                                  |        |      |   |                 |  |         |  
|--------------------------------- |  | -------------------------------- | ------ | ---- | - | --------------- |  | ------- | -
|                                  |  | Three months ended September 30, |       
|                                  |  | 2005                             |        | 2004 |   | Percentincrease | 
|Operating expense:                |  |                                  |        |      |   |                 |  |         |  
|Cost of Services                  |  | $                                | 6,026  |      | $ | 3,256           |  | 85.1    | %
|Selling, general & administrative |  |                                  | 17,571 |      |   | 8,474           |  | 107.4   |  
|Stock-based compensation          |  |                                  | 9,258  |      |   | 810             |  | 1,043.0 |  
|Depreciation and amortization     |  |                                  | 14,732 |      |   | 14,681          |  | 0.3     |  
|                                  |  |                                  |        |      |   |                 |  |         |  
|Total operating expense:          |  | $                                | 47,587 |      | $ | 27,221          |  |         |  
|                                  |  |                                  |        |      |   |                 |  |         |  



19



---

Total operating expense for the three months ended September 30, 2005 was $47.6 million, a 74.8%
increase compared with $27.2 million for the three months ended September 30, 2004. This increase was due primarily to increases in our selling, general and administrative expense, and stock-based compensation. Our selling, general and
administrative expense for the three months ended September 30, 2005 was $17.6 million, an increase of 107.4% compared with $8.5 million for the three months ended September 30, 2004. This increase was primarily due to a $3.9 million
increase in sales and marketing expenses, a $3.1 million increase in headcount expense as we increased our staffing levels in connection with our continued service ramp, and a $1.9 million increase in outside services as we increased our use of
outside consultants and incurred additional legal expenses associated with our new lease in Silver Spring, and incorporation of our European subsidiary. Our stock based compensation expense was $9.3 million in the three months ended
September 30, 2005 an increase of 1043.0% compared with $0.8 million in the three months ended September 30, 2004. We granted employees restricted stock awards, effective August 3, 2005. The stock award program offers employees the
opportunity to earn shares of our stock over time, rather than options that give employees the right to buy stock at a pre-determined price. For the period ended September 30, 2005 we issued 1,764,052 restricted stock units to our employees.
These stock units have vesting periods ranging between six months and three years. We recorded deferred stock compensation of $37.0 million, effective August 3, 2005, of which an expense of $9.2 million was recorded for the three-month period
ended September 30, 2005. Depreciation and amortization expense for the three months ended September 30, 2005 and September 30, 2004 was relatively flat at $14.7 million.



Cost Per Gross Addition (CPGA)



CPGA includes the amounts in SAC described above, as well as advertising, media and other discretionary marketing expenses,
but excludes headcount expense related to sales and marketing staff divided by gross subscriber additions. These costs are reported under Selling, General and Administrative expenses. Total blended CPGA expense (for India and ROW) was approximately
$4.9 million for the three months ended September 30, 2005 and approximately $0.8 million for the three months ended September 30, 2004. Total CPGA expense for India was approximately $4.1 million for the three months ended
September 30, 2005 and approximately $0.4 million for the three months ended September 30, 2004. CPGA expenses increased in 2005 as we substantially ramped up our sales and marketing activities after receiving financing in December 2004.
Unit blended CPGA (for India and ROW) was approximately $407 for the three months ended September 30, 2005 and approximately $128 for the three months ended September 30, 2004. Unit CPGA for India was approximately $508 for the three
months ended September 30, 2005 and approximately $97 for the three months ended September 30, 2004.



Other income (expense)



Interest income.    Interest income for the three months ended September 30, 2005 was $2.0 million, an increase of 1775.2% compared with $0.1 million in the three months ended September 30, 2004. This
increase was due to an increase in interest rates and increased average cash balances as a result of our recent financing activities.



Interest expense.    Interest expense for the three months ended September 30, 2005 was $2.3 million, a decrease of 92.4%
compared with $30.6 million in the three months ended September 30, 2004. This decrease was primarily due to the restructuring of debt pursuant to a loan restructuring agreement, which reduced our long-term debt liability from $1.4 billion as
of December 30, 2004 to $155.0 million as of September 30, 2005.



Other income (expense).    Other income for the three months ended September 30, 2005 was $1.4 million, a 225.5% increase, compared with other expense for the three months ended
September 30, 2004 of $1.1 million primarily due to a write-off of our Washington D.C. deferred lease obligations and leasehold improvements due to the headquarters move from Washington D.C. to Silver Spring, MD.



20



---

Income tax



During the three month period ended September 30, 2005, we recorded an income tax benefit of $28.7 million. This benefit is the result of current period
operating losses and a reduction in our corporate effective tax rate by approximately 2% following the move of our headquarters from Washington, D.C. to Silver Spring, MD in September 2005.



Net loss



For the three months ended September 30, 2005 and 2004, as result of the factors referred to above, we recorded net
losses of $15.4 million and $57.3 million, respectively, a decrease of 73.1%.



Nine months ended September 30, 2005 compared with nine months ended September 30, 2004



Revenue



Our total revenue consists of subscription fees, leasing of satellite capacity, government services, equipment sales, and other items such as advertising and technology licensing. The mix of our revenue changed during
2004 as we emerged from development stage and launched subscription services in a limited manner.



The table below presents our operating revenue for the nine months ended September 30, 2005 and 2004, together with the relevant percentage of total
revenue represented by each revenue category.



|                    |  |                                 |       |  |      |   |  |   |       |  |      |  
|------------------- |  | ------------------------------- | ----- |  | ---- | - |  | - | ----- |  | ---- | -
|                    |  | Nine months ended September 30, |      
|                    |  | 2005                            |       |  | 2004 |  
|                    |  | ($ in thousands)                |      
|Revenue:            |  |                                 |       |  |      |   |  |   |       |  |      |  
|Subscription        |  | $                               | 2,554 |  | 35.3 | % |  | $ | 599   |  | 9.5  | %
|Capacity lease      |  |                                 | 893   |  | 12.3 |   |  |   | 1,480 |  | 23.5 |  
|Government services |  |                                 | 1,152 |  | 15.9 |   |  |   | 1,635 |  | 25.9 |  
|Equipment sales     |  |                                 | 1,597 |  | 22.1 |   |  |   | 1,018 |  | 16.1 |  
|Other               |  |                                 | 1,039 |  | 14.4 |   |  |   | 1,577 |  | 25.0 |  
|                    |  |                                 |       |  |      |   |  |   |       |  |      |  
|Total revenue:      |  | $                               | 7,235 |  | 100  | % |  | $ | 6,309 |  | 100  | %
|                    |  |                                 |       |  |      |   |  |   |       |  |      |  



Total revenue for the
nine months ended September 30, 2005 was $7.2 million, a 14.7% increase compared with $6.3 million for the nine months ended September 30, 2004. This was primarily due to increased revenue from subscribers to our DARS service and equipment
sales offset by a reduction in revenue from government service contracts and capacity leases. The mix of our revenue changed during 2004 as we emerged from development stage and launched subscription services in a limited manner.



Subscription revenue.    Subscription revenue for
the nine months ended September 30, 2005 was approximately $2.6 million, an increase of 326.4% compared with $0.6 million generated in the nine months ended September 30, 2004. This increase in subscription revenues was primarily due to
the increase in our paying subscribers.



Average Monthly
Subscription Revenue Per Subscriber(ARPU).



Blended ARPU
(for India and ROW) was $4.83 for the nine months ended September 30, 2005 and $6.46 for the nine months ended September 30, 2004. ARPU from India was $2.56 for the nine months ended September 30, 2005, and $1.89 for the nine months
ended September 30, 2004. We expect that ARPU for India will continue to increase in 2005. On July 7, 2005 we increased the annual subscription pricing by 50% to Rs. 1800 (approximately $40) from Rs. 1200 (approximately $27). The increase
in the monthly subscription price took effect for all billing cycles on or after July 7, 2005. As expected, total blended ARPU has been declining in 2005 and we anticipate it will continue to do so as we increase the percentage of subscribers
in India relative to other regions (where we sell a global subscription package ranging from $5.00 per month to $9.99 per month).



Capacity lease revenue.    Satellite capacity leasing revenue for the nine months ended September 30, 2005 was $0.9
million, a decrease of 39.6% compared with $1.5 million for the nine months ended September 30, 2004. This decrease was a result of a reduction in the number of broadcasters contracting to use our satellite capacity for their broadcasts as we
shifted focus toward acquiring new subscribers and away from the capacity leasing business.



21



---

Government services revenue.    Government services revenue for the nine
months ended September 30, 2005 was $1.2 million, a decrease of 29.5% compared with $1.6 million for the nine months ended September 30, 2004. Government services revenues decreased as we completed the Pakistan Education Initiative (PEI)
contract in June 2005. Government services revenue included minimal equipment sales for the nine months ended September 30, 2005 and approximately $0.5 million for the nine months ended September 30, 2004, related to fulfillment of the PEI
contract.



Equipment sales
revenue.    Equipment sales revenue was approximately $1.6 million for the nine months ended September 30, 2005, an increase of 56.9% compared with $1.0 million for the nine months ended September 30, 2004. This
increase was primarily due to the greater availability of low-cost receivers and increased unit sales in India. Excluding the receivers sold under the government services unit, as described above, we sold a total of approximately 26,200 receivers in
the nine months ended September 30, 2005, compared with approximately 11,200 receivers sold in the nine months ended September 30, 2004.



Other revenue.    Other revenue, including licensing revenue, for the nine months ended September 30, 2005 was $1.0
million, a decrease of 34.2% compared with $1.6 million, in the nine months ended September 30, 2004. This decrease was related to lower advertising barter revenue.



Cost of services



The table below presents our costs of services for the nine months ended September 30, 2005 and 2004, together with the relevant percentages of total
cost of services for each cost category.



|                                    |  |                                 |        |  |      |   |  |   |        |  |      |  
|----------------------------------- |  | ------------------------------- | ------ |  | ---- | - |  | - | ------ |  | ---- | -
|                                    |  | Nine months ended September 30, |       
|                                    |  | 2005                            |        |  | 2004 |  
|                                    |  | ($ in thousands)                |       
|Cost of services:                   |  |                                 |        |  |      |   |  |   |        |  |      |  
|Engineering & broadcast operations  |  | $                               | 7,962  |  | 57.2 | % |  | $ | 6,245  |  | 57.9 | %
|Content & programming               |  |                                 | 2,885  |  | 20.7 |   |  |   | 2,082  |  | 19.3 |  
|Customer care, billing & collection |  |                                 | 284    |  | 2.0  |   |  |   | 320    |  | 3.0  |  
|Cost of equipment                   |  |                                 | 2,022  |  | 14.5 |   |  |   | 1,425  |  | 13.2 |  
|Other cost of services              |  |                                 | 767    |  | 5.6  |   |  |   | 719    |  | 6.6  |  
|                                    |  |                                 |        |  |      |   |  |   |        |  |      |  
|Total cost of services:             |  | $                               | 13,920 |  | 100  | % |  | $ | 10,791 |  | 100  | %
|                                    |  |                                 |        |  |      |   |  |   |        |  |      |  



Total cost of services
for the nine months ended September 30, 2005 was $13.9 million, a 29.0% increase compared with $10.8 million in the nine months ended September 30, 2004. This increase was primarily due to increases in the engineering and broadcast
operations, content and programming and cost of equipment.



Engineering and broadcast operations.    Engineering and broadcast expense, including the cost of operating our two satellites, ground control systems and telecommunications links as well as our in-orbit
insurance, for the nine months ended September 30, 2005 was $8.0 million, an increase of 27.5% compared with $6.2 million for the nine months ended September 30, 2004. This increase was primarily due to higher regional operating center
expenses in 2005, and an increase in in-orbit insurance as we renewed policies on our AfriStar and AsiaStar satellites in April 2005, offset by a pricing adjustment related to satellite monitoring services provided by Gabon Telecom (in Libreville).



Content and programming.    Content
and programming expense, which includes content production, music royalties and other content acquisition costs, for the nine months ended September 30, 2005 was $2.9 million, an increase of 38.6% compared with $2.1 million for the nine months
ended September 30, 2004. These expenses



22



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increased as we increased staffing levels to support global content production and launched additional channels in India. We expect content costs to continue
to increase in 2005 as we launch additional channels for India and other markets.



Customer care, billing & collection.    Customer care, billing and collections expense for the nine months ended September 30, 2005 was $0.3 million, remaining relatively flat
compared to $0.3 million for the nine months ended September 30, 2004. We commenced our customer care, billing and collections in March 2004 to support the limited launch of our subscription services in India. Prior to this limited launch in
March 2004, our two subscription service packages were being tested, and expenses related to customer care, billing and collections were minimal. We incurred operational start-up costs related to the service launch and consequently our billing and
collection expenses decreased by 11.3% for the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004. These expenses are expected to increase as we continue to add subscribers throughout the rest of
the year.



Cost of
Equipment.    Cost of equipment for the nine months ended September 30, 2005 was $2.0 million, an increase of 41.9% compared with $1.4 million, in the nine months ended September 30, 2004. Cost of equipment
increased due to an increased number of receivers being sold in India in 2005 as we focused on ramping up subscriptions in India. The government services unit sold minimal receivers in 2005, compared to approximately 6,000 receivers in 2004.



Subscriber Acquisition Cost (SAC)



SAC is calculated by including the negative margins from equipment sales to
end customers and excluding ongoing royalty payments to retailers and distribution partners, and payments under revenue sharing arrangements to content providers divided by gross subscriber additions. SAC costs are reported under Cost of equipment,
net of Equipment revenue. Total blended SAC (for India and ROW) was approximately $11 per subscriber for the nine months ended September 30, 2005 and $2 for the nine months ended September 30, 2004. SAC for India was approximately
$23 per subscriber for the nine months ended September 30, 2005 and approximately $19 per subscriber for the nine months ended September 30, 2004. Our SAC costs are primarily driven by equipment subsidies on units sold in India.
We expect SAC for India to increase as we continue to subsidize certain models of receivers sold in India during the festival season.



Other cost of services.    Other cost of services for the nine months ended September 30, 2005 was $767,000, an increase
of 6.7% compared with $719,000 for the nine months ended September 30, 2004. This increase was due to an increase in subscription revenue share paid to our partners in Kenya, South Africa and France, offset by a reduction of shipping and VAT
charges, as we completed delivery of the receivers for the PEI contract.



Operating expense



The table below presents
our operating expense for the nine months ended September 30, 2005 and 2004, together with the relevant percentage increase (decrease) year-over-year.



|                                  |  |                                 |         |      |   |                           |  |       |  
|--------------------------------- |  | ------------------------------- | ------- | ---- | - | ------------------------- |  | ----- | -
|                                  |  | Nine Months Ended September 30, |        
|                                  |  | 2005                            |         | 2004 |   | Percentincrease(decrease) | 
|Operating expense:                |  |                                 |         |      |   |                           |  |       |  
|Cost of Services                  |  | $                               | 13,920  |      | $ | 10,791                    |  | 29.0  |  
|Selling, general & administrative |  |                                 | 39,172  |      |   | 21,739                    |  | 80.2  |  
|Stock-based compensation          |  |                                 | 10,246  |      |   | 2,499                     |  | 310.0 |  
|Depreciation and amortization     |  |                                 | 44,136  |      |   | 45,022                    |  | (2.0  | )
|                                  |  |                                 |         |      |   |                           |  |       |  
|Total operating expense:          |  | $                               | 107,474 |      | $ | 80,051                    |  |       |  
|                                  |  |                                 |         |      |   |                           |  |       |  



Total operating
expense for the nine months ended September 30, 2005 was $107.5 million, a 34.3% increase compared with $80.0 million for the nine months ended September 30, 2004. This increase was



23



---

primarily due to an increase in our selling, general and administrative and stock based compensation expense. Our selling, general and administrative expense
for the nine months ended September 30, 2005 was $39.2 million, an increase of 80.2% compared with $21.7 million in the nine months ended September 30, 2004. This increase was primarily due to a $5.0 million increase in sales and marketing
expense, a $4.7 million reduction in bonus compensation expense in the nine months ended September 30, 2004, a $3.0 million increase in outside services, and a $2.5 million temporary increase in facilities expense as our subtenants
terminated their lease in May 2004, and we incurred increased expenditure on extension of our current lease to September 2005. Our stock based compensation expense was $10.2 million in the nine months ended September 30, 2005 an increase of
310.0% compared with $2.5 million in the nine months ended September 30, 2004. The Company granted employees restricted stock awards, effective August 3, 2005. For the period ended September 30, 2005 the company issued 1,764,052
restricted stock units to its employees. These stock units have vesting periods ranging between six months and three years. The company recorded deferred stock compensation of $37.0 million, effective August 3, 2005, of which an expense of $9.2
million was recorded for the three-month period ended September 30, 2005. Depreciation and amortization expense between the nine months ended September 30, 2005 and the nine months ended September 30, 2004 was $44.1 million in and
$45.0 million respectively due to fixed asset additions.



Cost Per Gross Addition (CPGA)



CPGA includes
the amounts in SAC described above, as well as advertising, media and other discretionary marketing expenses, but excludes headcount expense related to sales and marketing staff divided by gross subscriber additions. These costs are reported under
Selling, General and Administrative expenses. Total blended CPGA expense (for India and ROW) was approximately $6.8 million for the nine months ended September 30, 2005 and approximately $1.7 million for the nine months ended
September 30, 2004. CPGA for India was approximately $5.6 million for the nine months ended September 30, 2005 and approximately $0.8 million for the nine months ended September 30, 2004. CPGA expense increased in 2005 as we
significantly ramped up our sales and marketing activities subsequent to closing a financing transaction in December 2004. Unit blended CPGA (for India and ROW) was approximately $200 for the nine months ended September 30, 2005 and
approximately $122 for the nine months ended September 30, 2004. CPGA for India was approximately $310 for the nine months ended September 30, 2005 and approximately $154 for the nine months ended September 30, 2004.



Other income (expense)



Interest income.    Interest income for the nine months ended September 30, 2005 was $3.6
million, an increase of 1029.1% compared with $0.3 million in the nine months ended September 30, 2004. This increase was due to an increase in interest rates and increased average cash balances as a result of our recent financing activities.



Interest expense.    Interest
expense for the nine months ended September 30, 2005 was $7.5 million, a decrease of 91.2% compared with $85.4 million in the nine months ended September 30, 2004. This decrease was primarily due to the extinguishments of debt pursuant to
the Loan Restructuring Agreement described in our S1, which reduced our long-term debt liability from $1.4 billion as of December 30, 2004 to $155 million as of September 30, 2005.



Other income (expense).    Other income for the
nine months ended September 30, 2005 was $2.3 million due to a write-off of its Washington D.C. deferred lease obligations and leasehold improvements due to the Companys headquarters move from Washington D.C. to Silver Spring, MD,
compared with $0.4 million of expense recorded in the nine months ended September 30, 2004. We also recorded a gain on extinguishment of debt of $14.1 million related to the Alcatel settlement. (See Note JEquity).



Income tax



During the nine month period ended September 30, 2005, we recorded an Income tax benefit of $41.0 million. This benefit is
the result of current period operating losses and a reduction in our corporate effective tax rate by approximately 2% following the move of our headquarters form Washington, D.C. to Silver Spring, MD in September 2005.



24



---

Net loss



For the nine months ended September 30, 2005 and 2004, as result of the factors referred to above, we recorded net losses of $46.7 million and $159.2
million, respectively, a decrease of 70.7%.



Liquidity and Capital Resources



Overview



As of September 30, 2005, we had cash and cash equivalents of $63.0
million, and marketable securities of $233.4 million. Cash and cash equivalents decreased $91.3 million during the nine months ended September 30, 2005. This decrease resulted from $88.2 million used in operating activities, $246.9 million used
in investing activities, and $243.8 million provided by financing activities. Cash flows used in operations includes the net loss of $46.7 million, and $67.4 million used for working capital purposes, offset by $25.8 million in net non cash expenses
included in net loss. Cash used in investing activities consisted mainly of $233.4 million purchases of marketable securities to invest the proceeds from the initial public offering, $11.5 million used for the purchase of property and equipment and
$2.0 million used for purchase of satellite and related systems. Cash provided by financing activities consisted of $266.9 million from the sale of common stock in our IPO and to XM Satellite Radio, and $7.0 million in shares issued to complete the
settlement of the Alcatel payable, offset by $23.2 million in costs incurred for the sale of common stock, and a $6.9 million increase in restricted cash.



Historical sources of cash



We raised $1.8 billion of equity and debt net proceeds from inception through August 3, 2005 from investors and strategic partners to fund our
operations.



IPO



On August 3, 2005, we agreed to sell 11,500,000 shares of common stock
at a price to the public of $21.00 per share in our initial public offering. The aggregate gross proceeds to us from the public offering were approximately $241.5 million. We incurred expenses of approximately $20.5 million of which approximately
$16.9 million represented underwriting discounts and commissions and approximately $3.6 million represented expenses related to the offering. Net proceeds to us from the offering were $221.0 million.



XM Investment



On July 18, 2005, we issued XM Satellite Radio 1,562,500 shares of Class A common stock for an aggregate purchase
price of $25 million. The net proceeds after deducting expenses were $22.5 million.



Uses of Cash



Our cash used during the nine
months ended September 30, 2005, consisted primarily of funding operating expenses, working capital, and several onetime corporate expenses, including approximately $11.7 million in financial advisory fees in connection with our December 2004
private placement of senior convertible notes and a loan restructuring agreement and approximately $19.4 million in fees associated with the IPO and the XM investment, approximately $10 million in connection with the Alcatel Settlement,
approximately $4.3 million in connection with legal and accounting fees for the private placement and the IPO and $7.3 million in connection with the build-out of our new headquarters in Silver Spring. The use of $7.3 million for build-out includes
$5.0 million for regional operating center & broadcast studios and $2.3 million for office facilities. In accordance with the terms of the lease, the Company is entitled to receive a tenant improvement allowance of approximately $2.0 million
from the landlord in the fourth quarter of fiscal year 2005.



Future
Operating Liquidity and Capital Resource Requirements



Based upon our current plans, we believe that our cash, cash equivalents and marketable securities will be sufficient to cover our estimated funding needs for at least the next 12 months. Our financial projections are based on assumptions
which we believe are reasonable but contain significant uncertainties.



25



---

We intend to use our existing cash reserves to execute our business plan, which includes the build-out of
a terrestrial repeater network; service launch in key cities and marketing expenses related to subscriber acquisitions in India; business development activities in China, Western Europe and other selected markets within our broadcast coverage area.
We expect that the majority of our expenditures in the remainder of 2005 will be directed towards sales and marketing activities, including developing subscriber operations, increasing content and programming development, capital expenditures,
operating and corporate expenses including research and development



Our business is in its early stages, and we regularly evaluate our plans and strategy. These evaluations may result in changes to our plans and strategy, some of which may be material and significantly change our cash requirement. Our
business plan is based on estimates regarding expected future costs and expected revenue. Our costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Furthermore,
we will require additional cash to fully launch our business in China and Western Europe.



Any of these factors may increase our need for funds, which would require us to seek additional financing to continue implementing our current business plan. However, there can be no assurance that we will be
successful in securing financing or that it will be available to us at attractive terms.



Our ability to obtain the financing in the future will depend on several factors, including future market conditions; our success in developing, implementing and marketing our satellite radio service; our future
creditworthiness; and restrictions contained in agreements with our investors or lenders. If we fail to obtain any necessary financing on a timely basis or on attractive terms, our results of operations could be materially adversely affected.
Additional financings could also increase our level of indebtedness or result in further dilution to existing shareholders.



Capital expenditures



We have spent approximately $731.5 million on capital expenditures related to the development and launch of our satellites, for our ground systems and for
property and equipment. We expect to spend additional amounts to enhance our infrastructure with terrestrial repeaters. We expect to start our terrestrial repeater network build-out in key metropolitan areas in India next year, assuming we obtain
the necessary regulatory approvals, and the total cost to cover these major metropolitan areas will be approximately $20 million. This amount will need to be reviewed as we conduct further topographical analysis. Until we receive the final approvals
from Chinas regulatory agencies, we will not start the build-out of a terrestrial repeater network in China. We do not envision this project starting in the next 12 months. We expect the total network in China to cost a similar amount as India
in its initial stages. Our future capital expenditures will depend on our business strategy and our response to business opportunities and trends in our industry and our markets.



Special note regarding forward-looking statements



This Quarterly Report on Form 10-Q, particularly, Managements Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to the Companys growth
strategy and future financial performance, including the Companys operations, economic performance, financial condition and prospects, and other future events. The Company generally identifies forward-looking statements by using such words as
anticipate, believe, can, continue, could, estimate, expect, intend, may, plan, potential, seek,
should, will, or variations of such words or other similar expressions and the negatives of such words. These forward-looking statements are only predictions and are based on the Companys current expectations.



26



---

In addition, a number of known and unknown risks, uncertainties and other factors could affect the
accuracy of these statements. Some of the more significant known risks that the Company faces are uncertainty regarding market acceptance of its products and services and its ability to generate revenue or profit. Other important factors to consider
in evaluating the Companys forward-looking statements include:



| |  |  | the Companys possible inability to execute its strategy due to changes in its industry or the economy generally;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | the Companys possible inability to execute its strategy due to changes in political, economic and social conditions in the markets in which it operates;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | uncertainties associated with currency exchange fluctuations;
| | - |  | -------------------------------------------------------------



| |  |  | changes in laws and regulations governing the Companys business and operations or permissible activities;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | changes in the Companys business strategy; and
| | - |  | -----------------------------------------------



| |  |  | the success of the Companys competitors and the emergence of new competitors.
| | - |  | ------------------------------------------------------------------------------



Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company
cannot guarantee its future results, levels of activity or performance. Any or all of the forward-looking statements in this Form 10-Q may turn out to be inaccurate. The Company has based these forward-looking statements on its current expectations
and projections about future events and financial, political and social trends and assumptions the Company made based on information currently available to it. These statements may be affected by inaccurate assumptions the Company might have made or
by known or unknown risks and uncertainties. In light of these assumptions, risks and uncertainties, the forward-looking events and circumstances discussed in this Form 10-Q may not occur as contemplated, and actual results could differ materially
from those anticipated or implied by the forward-looking statements.



Forward-looking statements contained herein speak only as of the date of this Form 10-Q. Unless required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statements to reflect new information or
future events or otherwise.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------



Foreign Currency



As a
global company, we are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany balances between subsidiaries that operate
in different functional currencies and transactions with customers, suppliers and employees that are denominated in foreign currencies. Our objective is to minimize our exposure to these risks through our normal operating activities and, where
appropriate, to have these transactions denominated in United States dollars. For the nine months ended September 30, 2005, approximately 70% of our total revenues and 24% of total operating expenses were denominated in foreign currencies. The
following table shows approximately the split of these foreign currency exposures by principal currency:



|                                              |  |                                                |   |  |             |   |  |                |   |  |                   |   |  |       |   |  |                |  
|--------------------------------------------- |  | ---------------------------------------------- | - |  | ----------- | - |  | -------------- | - |  | ----------------- | - |  | ----- | - |  | -------------- | -
|                                              |  | Foreign Currency Exposure atSeptember 30, 2005 |   |  |             |   |  |                |  
|                                              |  | Euro                                           |   |  | IndianRupee |   |  | KenyanShilling |   |  | South AfricanRand |   |  | Other |   |  | Total Exposure |  
|Total Revenues                                |  | 27                                             | % |  | 31          | % |  | 15             | % |  | 17                | % |  | 10    | % |  | 100            | %
|(Nine months ended September 30, 2005)        |  |                                                |   |  |             |   |  |                |   |  |                   |   |  |       |   |  |                |  
|                                              |  |                                                |   |  |             |  
|Total Cost of Revenues and Operating Expenses |  | 24                                             | % |  | 55          | % |  | 11             | % |  | 4                 | % |  | 6     | % |  | 100            | %
|(Nine months ended September 30, 2005)        |  |                                                |   |  |             |   |  |                |   |  |                   |   |  |       |   |  |                |  



27



---

For the nine month period ended September 30, 2004, approximately 42% of our total revenues and 16% of
our total operating expenses were denominated in foreign currencies.



Interest Rates



Our market risk from changes
in interest rates is not material because our long-term debt only includes the Convertible Notes which have a fixed interest rate.



We classify our investments in money market funds as cash equivalents and marketable securities consist primarily of investment grade securities with high
credit ratings of relatively short duration that trade in highly liquid markets. Accordingly, we have no quantitative information concerning the market risks and believe that the risk is minimal. We currently do not hedge either foreign exchange or
interest rate exposures, but do not believe that an increase in interest rates would have a material effect on the value of our cash equivalents, marketable securities or the convertible notes.



At September 30, 2005, we had $63.0 million in cash and cash equivalents
and $233.4 million in marketable securities.



|Item 4. | Controls and Procedures
|------- | -----------------------



We maintain disclosure controls and procedures that have been designed to ensure that information related to the Company is recorded, processed, summarized and reported on a timely basis. The Company has established a Disclosure Committee
that is responsible for accumulating potentially material information regarding the Companys activities and considering the materiality of this information. The Disclosure Committee is also responsible for making recommendations regarding
disclosure and communicating this information to our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. The Companys Disclosure Committee is comprised of our senior legal official,
chief operating officer, corporate controller, head of internal audit and certain other members of the Companys finance department.



Evaluation of the Companys disclosure controls and procedures.    An evaluation was performed under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q, as required by Rule 13a-15 of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and
procedures were effective.



Changes in Internal Control over
Financial Reporting.    In light of the aggregation of significant deficiencies constituting a material weakness as of December 31, 2004, the Company has instituted control improvements, including hiring additional key
accounting personnel, establishing an internal audit function and instituting a greater level of internal control consciousness. In addition, during the quarter ended September 30, 2005, the Company added further controls by implementing
additional review procedures over the selection, application and monitoring of appropriate accounting policies, and increasing oversight of its overseas subsidiaries. There have been no additional changes in its respective internal control over
financial reporting during the quarter ended September 30, 2005, that have materially affected, or are reasonably likely to materially affect, our respective internal control over financial reporting.



28



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Part IIOther Information



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



(a) Not applicable.



(b) Use of proceeds



On August 9, 2005, the Company completed its initial public offering of 11,868,400 shares of Class A common stock at an initial public offering
price per share of $21.00. Of the 11,868,400 shares of Class A Common Stock offered, the Company sold 11,500,000 shares and a selling stockholder sold 368,400 shares. The Company did not receive any of the proceeds of the sale by the selling
stockholder.



The aggregate proceeds of the offering were
$249.2 million, of which the aggregate gross proceeds to the Company were approximately $241.5 million. Net proceeds to the Company were approximately $221.0 million. The Company incurred expenses in connection with the offering of
$20.5 million which included direct payments of: (i) $3.4 million in legal, accounting and printing fees; (ii) $16.9 million in underwriters discounts, fees and commissions payable by the Company and
(iii) $0.2 million in miscellaneous expenses. None of the offering expenses were paid to directors, officers, ten percent stockholders or affiliates of the Company.



As of November 8, 2005 the Company held approximately $221.0 million of the net proceeds from the offering, all of
which are invested in short-term marketable securities.



(c) Not applicable.



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



At the annual meeting of stockholders of WorldSpace held on July 7, 2005, the following matters were voted upon with the results indicated below:



| | 1. | The nominees listed below were elected as Class 1 Directors to serve as a three-year term ending at the 2008 Annual Meeting of Stockholders with the respective votes set forth
opposite their names:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Noah Samara: 32,770,438
| | --- | -----------------------

| | (b) | William Schneider, Jr.: 32,770,438
| | --- | ----------------------------------



| | 2. | The stockholders approved an amendment to WorldSpaces certificate of Incorporation increasing the number of authorized shares of the Companys Class A Common Stock,
par value $.01 per share (the Class A Common Stock), from 100,000,000 to 200,000,000 by a vote of 32,770,438 for, 0 opposed.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The stockholders approved the WorldSpace 2005 Incentive Award Plan (2005 Incentive Award Plan) and awards thereunder of restricted stock and/or options to certain
directors and executives of the company by a vote of 32,770,438 for, 0 opposed.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | The stockholders approved the award of restricted stock units to Charles Mc. Mathias, by a vote of 32,770,438 for, 0 opposed.
| | -- | -----------------------------------------------------------------------------------------------------------------------------



| | 5. | The stockholders approved the award of restricted stock units to L.G. Schafran by a vote of 32,770,438 for, 0 opposed.
| | -- | ----------------------------------------------------------------------------------------------------------------------



| | 6. | The stockholders approved an amendment to the Companys Certificate of Incorporation to effect a reverse stock split of the Companys Class A Common Stock at a ratio
of 1.6 to 1 share of each such class by a vote of 32,770,438 for, 0 opposed.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | The stockholders ratified the appointment of Grant Thornton LLP as the Companys auditors to audit the financial statements of the Company for the fiscal year ended
December 31, 2005 by a vote of 32,770,438 for, 0 opposed.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



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|Item 6. | Exhibits
|------- | --------



|     |  |                                                                                                                                                                                                                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Registration Rights Agreement, dated September 12, 2005, between the Company and Alcatel Alenia Space France SAS (filed as Exhibit 1.1 to the Companys Current Report on Form 8-K
filed on September 30, 2005, SEC File No. 000-51466, and incorporated by reference).                                                                              
|     | 
|10.2 |  | Underwriting Agreement, dated August 3, 2005, among the Company, Noah A. Samara, as selling stockholder, and UBS Securities LLC, as representative of the underwriters named in Schedule A
thereto (filed as Exhibit 1.1 to the Companys Current Report on Form 8-K filed on August 9, 2005, SEC File No. 000-51466, and incorporated by reference).
|     | 
|31.1 |  | Certification of the Chief Executive Officer of WorldSpace, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                      
|     | 
|31.2 |  | Certification of the Chief Financial Officer of WorldSpace, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                      
|     | 
|32.1 |  | Certification of the Chief Executive Officer of WorldSpace, Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                              
|     | 
|32.2 |  | Certification of the Chief Financial Officer of WorldSpace, Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                              



30



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S I G N A T U R E S



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.



WORLDSPACE, INC.(Registrant)By:

/S/    NOAH A.
SAMARANoah A. Samara Chairman, Chief Executive Officer and President




/S/    SRIDHAR
GANESANSridhar Ganesan Executive Vice PresidentChief Financial Officer




Dated: November 9, 2005



---

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                                                                                                                                                                      
|10.1        |  | Registration Rights Agreement, dated September 12, 2005, between the Company and Alcatel Alenia Space France SAS (filed as Exhibit 1.1 to the Companys Current Report on Form 8-K filed
on September 30, 2005, SEC File No. 000-51466, and incorporated by reference).                                                                              
|            | 
|10.2        |  | Underwriting Agreement, dated August 3, 2005, among the Company, Noah A. Samara, as selling stockholder, and UBS Securities LLC, as representative of the underwriters named in Schedule A
thereto (filed as Exhibit 1.1 to the Companys Current Report on Form 8-K filed on August 9, 2005, SEC File No. 000-51466, and incorporated by reference).
|            | 
|31.1        |  | Certification of the Chief Executive Officer of WorldSpace, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                      
|            | 
|31.2        |  | Certification of the Chief Financial Officer of WorldSpace, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                      
|            | 
|32.1        |  | Certification of the Chief Executive Officer of WorldSpace, Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                               
|            | 
|32.2        |  | Certification of the Chief Financial Officer of WorldSpace, Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002