**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

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**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended March 31, 2007**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition period from                       to                       **

**CommissionFile Number 000-52006**

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**ICO GLOBAL COMMUNICATIONS(HOLDINGS) LIMITED**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **98-0221142**                     |
|------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.) |

 

**Plaza America Tower I,11700 Plaza America Drive, Suite 1010, Reston, Virginia 20190**

(Address of principalexecutive offices including zip code)

**(703) 964-1400**

(Registrant’s telephonenumber, including area code)

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

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer o | Accelerated  filer o | Non-accelerated filer x |
|--------------------------------|---------------------------|-----------------------------------|

 

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

Asof May 1, 2007, the registrant had 143,336,708 shares of Class Acommon stock and 54,840,000 shares of Class B common stock outstanding.

 

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**ICO GLOBALCOMMUNICATIONS (HOLDINGS) LIMITEDFORM 10-QFor the three months ended March 31, 2007**

**INDEX**

|                   | ** **                                                                                   | ** ** | ** ** | **Page** | ** ** |
|-------------------|----------------------------------------------------------------------------------------------|------------|------------|----------|------------|
| **PART I.**  | **FINANCIAL INFORMATION**                                                                    |       |       |
| Item 1.           | Financial Statements  (unaudited):                                                           |       | 3          |
|              | Condensed Consolidated Balance Sheets                                                        |       | 3          |
|              | Condensed Consolidated Statements of Operations                                              |       | 4          |
|              | Condensed Consolidated Statements of Comprehensive  Income (Loss)                            |       | 5          |
|              | Condensed Consolidated Statements of Cash Flows                                              |       | 6          |
|              | Notes to Condensed Consolidated Financial Statements                                         |       | 8          |
| Item 2.           | Management’s  Discussion and Analysis of Financial Condition and Results of  Operations |       | 19         |
| Item 3.           | Quantitative  and Qualitative Disclosures About Market Risk                                  |       | 27         |
| Item 4T.          | Controls and  Procedures                                                                     |       | 28         |
| **PART II.** | **OTHER  INFORMATION**                                                                       |       |       |
| Item 1.           | Legal Proceedings                                                                            |       | 29         |
| Item 1A.     | Risk Factors                                                                                 |       | 29         |
| Item 2.           | Unregistered  Sales of Equity Securities and Use of Proceeds                                 |       | 29         |
| Item 3.           | Defaults Upon  Senior Securities                                                             |       | 29         |
| Item 4.           | Submission of  Matters to a Vote of Security Holders                                         |       | 29         |
| Item 5.           | Other Information                                                                            |       | 29         |
| Item  6.          | Exhibits                                                                                     |       | 29         |
| Signatures        |                                                                                         | 30         |
| Certifications    |                                                                                         |       |

 

2

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**PART I—FINANCIALINFORMATION**

***Item 1.****                          FinancialStatements*

**ICO GlobalCommunications (Holdings) Limited**(A Development StageEnterprise)

**Condensed Consolidated Balance Sheets(In thousands, except share data, unaudited)**

| ** **                                                                                                                                                                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                                                                | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                           |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                 |       | $                  | 162,252    |                  | $          | 163,059 |   |
| Restricted cash                                                                                                                                                           |       | 825                |       | 825                   |       |
| Available-for-sale  investments                                                                                                                                           |       | 67,933             |       | 76,680                |       |
| Restricted investments                                                                                                                                                    |       | 24,720             |       | 48,734                |       |
| Prepaid expenses and  other current assets                                                                                                                                |       | 1,298              |       | 807                   |       |
| Total current assets                                                                                                                                                      |       | 257,028            |       | 290,105               |       |
| Property in  service—net of accumulated depreciation of $229 and $186,  respectively                                                                                 |       | 379                |       | 373                   |       |
| Satellite system  under construction                                                                                                                                      |       | 328,713            |       | 318,563               |       |
| Debt issuance  costs—net of accumulated amortization of $10,767 and $9,083,   respectively                                                                           |       | 18,791             |       | 20,476                |       |
| Other assets                                                                                                                                                              |       | 14,000             |       | 14,000                |       |
| Total                                                                                                                                                                     |       | $                  | 618,911    |                  | $          | 643,517 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIENCY IN ASSETS)**                                                                                                     | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                                                      |       |               |       |                  |       |
| Accounts payable                                                                                                                                                          |       | $                  | 1,263      |                  | $          | 623 |   |
| Accrued satellite system  construction payable                                                                                                                            |       | 2,400              |       | 43                    |       |
| Accrued expenses                                                                                                                                                          |       | 20,325             |       | 21,656                |       |
| Accrued interest                                                                                                                                                          |       | 18,012             |       | 29,161                |       |
| Current portion of  capital lease obligations                                                                                                                             |       | 13,821             |       | 13,023                |       |
| Total current liabilities                                                                                                                                                 |       | 55,821             |       | 64,506                |       |
| Capital lease  obligations, less current portion                                                                                                                          |       | 3,944              |       | 4,595                 |       |
| Income tax payable                                                                                                                                                        |       | 9,351              |       | —                |       |
| Convertible  long-term debt                                                                                                                                               |       | 650,000            |       | 650,000               |       |
| Total liabilities                                                                                                                                                         |       | 719,116            |       | 719,101               |       |
| Commitments and contingencies (Note 6)                                                                                                                                    |       |               |       |                  |       |
| Stockholders’ equity (deficiency in assets):                                                                                                                         |       |               |       |                  |       |
| Preferred stock, $.01 par  value, 75,000,000 shares authorized, no shares issued or outstanding                                                                           |       | —             |       | —                |       |
| Class A common  stock, $.01 par value, 900,000,000 shares authorized, 201,305,600 and 201,275,552  shares issued, and 143,336,708 and 143,306,660 shares outstanding |       | 2,013              |       | 2,013                 |       |
| Class B convertible  common stock, $.01 par value, 150,000,000 shares authorized, 85,843,382  shares issued and 54,840,000 shares outstanding                        |       | 858                |       | 858                   |       |
| Additional paid-in  capital                                                                                                                                               |       | 2,716,485          |       | 2,714,989             |       |
| Treasury stock,  57,968,892 shares of Class A common stock and 31,003,382 shares of  Class B convertible common stock                                           |       | (877,489           | )          | (877,489              | )          |
| Accumulated other  comprehensive income                                                                                                                                   |       | 6,054              |       | 6,273                 |       |
| Deficit accumulated  during the development stage                                                                                                                         |       | (1,948,126         | )          | (1,922,228            | )          |
| Total  stockholders’ equity (deficiency in assets)                                                                                                                   |       | (100,205           | )          | (75,584               | )          |
| Total                                                                                                                                                                     |       | $                  | 618,911    |                  | $          | 643,517 |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

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**ICO GlobalCommunications (Holdings) Limited**(A Development StageEnterprise)

**CondensedConsolidated Statements of Operations**

**(Inthousands, except share and per share data, unaudited)**

| ** **                                                                            | ** ** | **Three months ended   March 31, ** | ** ** | **February 9, 2000  (inception) to  March 31, 2007  (development ** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2007**                                                     | ** ** | **2006**                                                                                          | ** ** | **stage period)** | ** ** |
| ** **                                                                            | ** ** | **(restated)**                                               | ** ** |
| Operating expenses :                                                                  |       |                                                         |       |                                                                                              |       |   |   |   |   |
| General and administrative                                                            |       | $                                                            | 9,765      |                                                                                              | $          | 9,009 |   |   | $ | 585,373 |   |   |
| Research and development                                                              |       | 2,149                                                        |       | 28                                                                                                |       |   | 71,479 |   |   |
| Contract settlements                                                                  |       | —                                                       |       | —                                                                                            |       |   | (74,955 | ) |   |
| Impairment of property under construction                                             |       | —                                                       |       | —                                                                                            |       |   | 1,438,304 |   |   |
| Loss on disposal of assets                                                            |       | —                                                       |       | —                                                                                            |       |   | 11,100 |   |   |
| Total operating expenses                                                              |       | 11,914                                                       |       | 9,037                                                                                             |       |   | 2,031,301 |   |   |
| Operating loss                                                                        |       | (11,914                                                      | )          | (9,037                                                                                            | )          |   | (2,031,301 | ) |   |
| Interest income                                                                       |       | 3,389                                                        |       | 5,581                                                                                             |       |   | 124,755 |   |   |
| Interest expense                                                                      |       | (7,981                                                       | )          | (12,319                                                                                           | )          |   | (155,988 | ) |   |
| Other income  (expense)                                                               |       | (38                                                          | )          | 774                                                                                               |       |   | 3,687 |   |   |
| Loss before income taxes                                                              |       | (16,544                                                      | )          | (15,001                                                                                           | )          |   | (2,058,847 | ) |   |
| Income tax  benefit (expense)                                                         |       | (173                                                         | )          | (40                                                                                               | )          |   | 120,453 |   |   |
| Net loss before cumulative effect of change in  accounting principle                  |       | (16,717                                                      | )          | (15,041                                                                                           | )          |   | (1,938,394 | ) |   |
| Cumulative effect of change in accounting principle                                   |       | —                                                       |       | —                                                                                            |       |   | (1,944 | ) |   |
| Net loss                                                                              |       | $                                                            | (16,717    | )                                                                                                 | $          | (15,041 | ) |   | $ | (1,940,338 | ) |   |
| Basic and diluted  loss per share:                                                    |       |                                                         |       |                                                                                              |       |   |   |   |   |
| Loss before cumulative effect of change in  accounting principle                 |       | $                                                            | (0.08      | )                                                                                                 | $          | (0.08 | ) |   | $ | (10.06 | ) |   |
| Cumulative effect of change in accounting principle                                   |       | —                                                       |       | —                                                                                            |       |   | (0.01 | ) |   |
| Basic and diluted loss per share                                                      |       | $                                                            | (0.08      | )                                                                                                 | $          | (0.08 | ) |   | $ | (10.07 | ) |   |
| Weighted average shares outstanding used to compute basic  and diluted loss per share |       | 198,056,342                                                  |       | 197,481,492                                                                                       |       |   | 192,747,377 |   |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

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**ICO GlobalCommunications (Holdings) Limited**(A Development StageEnterprise)

**CondensedConsolidated Statements of Comprehensive Income (Loss)**(In thousands,unaudited)

| ** **                                 | ** ** | ** **                       | ** ** | ** **                   | ** ** | **February 9, 2000** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | ** **                       | ** ** | ** **                   | ** ** | **(inception) to**        | ** ** |
| ** **                                 | ** ** | **Three months ended** | ** ** | **March 31, 2007** | ** ** |
| ** **                                 | ** ** | **March 31,**               | ** ** | **(development**             | ** ** |
| ** **                                 | ** ** | **2007**                         | ** ** | **2006**                     | ** ** | **stage period)**         | ** ** |
| ** **                                 | ** ** | ** **                       | ** ** | **(restated)**               | ** ** | ** **                     | ** ** |
| Net loss                                   |       | $                                | (16,717    | )                            | $          | (15,041                        | )          |   | $ | (1,940,338 | ) |   |
| Other  comprehensive income (loss):        |       |                             |       |                         |       |                           |       |   |   |
| Unrealized gain on investments, net of tax |       | 18                               |       | 36                           |       |                           | —     |   |   |
| Cumulative translation adjustments         |       | (237                             | )          | (556                         | )          |                           | 6,054      |   |   |
| Comprehensive  loss                        |       | $                                | (16,936    | )                            | $          | (15,561                        | )          |   | $ | (1,934,284 | ) |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

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**ICO Global Communications (Holdings) Limited (A Development Stage Enterprise)**

**Condensed Consolidated Statements of Cash Flows (In thousands, unaudited)**

| ** **                                                                   | ** ** | ** **                       | ** ** | ** **       | ** ** | **February 9, 2000** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | ** **                       | ** ** | ** **       | ** ** | **(inception) to**        | ** ** |
| ** **                                                                   | ** ** | **Three months ended** | ** ** | **2007**         | ** ** |
| ** **                                                                   | ** ** | **March 31,**               | ** ** | **(development** | ** ** |
| ** **                                                                   | ** ** | **2007**                         | ** ** | **2006**         | ** ** | **stage period)**         | ** ** |
| ** **                                                                   | ** ** | ** **                       | ** ** | **(restated)**   | ** ** | ** **                     | ** ** |
| Operating activities:                                                        |       |                             |       |             |       |                           |       |   |   |   |   |
| Net loss                                                                     |       | $                                | (16,717    | )                |       | $                              | (15,041    | ) |   |   | $ | (1,940,338 | ) |   |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                             |       |             |       |                           |       |   |   |   |   |
| Stock-based  compensation                                                    |       | 1,371                            |       |             | 1,703      |                           |       |   | 27,906 |   |   |
| Depreciation                                                                 |       | 44                               |       |             | 31         |                           |       |   | 3,507 |   |   |
| Amortization of  debt issuance costs                                         |       | 1,684                            |       |             | 1,616      |                           |       |   | 10,767 |   |   |
| Unrealized foreign  exchange (gain) loss                                     |       | 32                               |       |             | 3,588      |                           |       |   | (5,110 | ) |   |
| Loss on disposal  of assets                                                  |       | —                           |       |             | —     |                           |       |   | 11,100 |   |   |
| Impairment of  property under construction                                   |       | —                           |       |             | —     |                           |       |   | 1,438,304 |   |   |
| Gain on contract  settlements                                                |       | —                           |       |             | —     |                           |       |   | (74,955 | ) |   |
| Gain on Nextel  share-pledge derivative                                      |       | —                           |       |             | —     |                           |       |   | (9,168 | ) |   |
| Deferred tax  credit                                                         |       | —                           |       |             | —     |                           |       |   | (121,928 | ) |   |
| Other than  temporary loss on marketable securities available-for-sale       |       | —                           |       |             | —     |                           |       |   | 689 |   |   |
| Amortization of  capitalized SAN operator incentive                          |       | —                           |       |             | —     |                           |       |   | 2,593 |   |   |
| Cost of issuance  of shares to distribution partners                         |       | —                           |       |             | —     |                           |       |   | 37,440 |   |   |
| Other                                                                        |       | —                           |       |             | —     |                           |       |   | 30,573 |   |   |
| Other changes in certain  assets and liabilities:                            |       |                             |       |             |       |                           |       |   |   |   |   |
| Prepaid expenses  and other current assets                                   |       | (490                             | )          |             | 432        |                           |       |   | 48,984 |   |   |
| Accrued interest  income                                                     |       | (300                             | )          |             | 1,493      |                           |       |   | (3,414 | ) |   |
| Accounts payable                                                             |       | 640                              |       |             | (913       | )                              |       |   | 315 |   |   |
| Accrued interest  payable                                                    |       | (18,048                          | )          |             | (13,893    | )                              |       |   | 45,414 |   |   |
| Other accrued  expenses                                                      |       | (1,092                           | )          |             | 1,002      |                           |       |   | 58,279 |   |   |
| Net cash used in  operating activities                                       |       | (32,876                          | )          |             | (19,982    | )                              |       |   | (439,042 | ) |   |
| Investing activities:                                                        |       |                             |       |             |       |                           |       |   |   |   |   |
| Proceeds from  launch insurance                                              |       | —                           |       |             | —     |                           |       |   | 225,000 |   |   |
| Debtor in  possession advance in relation to Old ICO                         |       | —                           |       |             | —     |                           |       |   | (275,000 | ) |   |
| Acquisition of net  assets of Old ICO                                        |       | —                           |       |             | —     |                           |       |   | (117,590 | ) |   |
| Cash received from  Old ICO at acquisition                                   |       | —                           |       |             | —     |                           |       |   | 107,436 |   |   |
| Restricted cash                                                              |       | —                           |       |             | 825        |                           |       |   | (5,899 | ) |   |
| Purchases of  satellite system under construction                            |       | (985                             | )          |             | (41,875    | )                              |       |   | (301,373 | ) |   |
| Purchases of  property under construction                                    |       | —                           |       |             | —     |                           |       |   | (497,890 | ) |   |
| Purchases of  property in service                                            |       | (33                              | )          |             | (92        | )                              |       |   | (2,065 | ) |   |
| Investment in  unconsolidated subsidiaries                                   |       | —                           |       |             | —     |                           |       |   | (2,373 | ) |   |
| Purchases of other  assets                                                   |       | —                           |       |             | (14,000    | )                              |       |   | (14,000 | ) |   |
| Purchases of  available-for-sale investments                                 |       | (160,563                         | )          |             | (111,827   | )                              |       |   | (3,891,454 | ) |   |
| Maturities and  sales of available-for-sale investments                      |       | 170,652                          |       |             | 249,984    |                           |       |   | 3,825,871 |   |   |
| Purchases of  restricted investments                                         |       | (25                              | )          |             | (625       | )                              |       |   | (94,258 | ) |   |
| Maturities and  sales of restricted investments                              |       | 23,015                           |       |             | 24,559     |                           |       |   | 71,050 |   |   |
| Proceeds from  contract amendments                                           |       | —                           |       |             | —     |                           |       |   | 44,434 |   |   |
| Proceeds from sale  of assets                                                |       | —                           |       |             | —     |                           |       |   | 12,106 |   |   |
| Net cash provided  by (used in) investing activities                         |       | 32,061                           |       |             | 106,949    |                           |       |   | (916,005 | ) |   |
| Financing activities:                                                        |       |                             |       |             |       |                           |       |   |   |   |   |
| Net proceeds from  issuance of common stock                                  |       | —                           |       |             | —     |                           |       |   | 597,918 |   |   |
| Proceeds from  issuance of convertible notes                                 |       | —                           |       |             | —     |                           |       |   | 650,000 |   |   |
| Debt issuance  costs                                                         |       | —                           |       |             | —     |                           |       |   | (29,558 | ) |   |
| Proceeds from  sales of subsidiary stock and stock options                   |       | —                           |       |             | 9,920      |                           |       |   | 9,920 |   |   |
| Advances from  affiliates                                                    |       | —                           |       |             | —     |                           |       |   | 324,395 |   |   |
| Repayment of  advances from affiliates                                       |       | —                           |       |             | —     |                           |       |   | (324,395 | ) |   |
| Repayment of note  payable to Eagle River                                    |       | —                           |       |             | —     |                           |       |   | (37,500 | ) |   |
| Repayment of  operator financing                                             |       | —                           |       |             | —     |                           |       |   | (5,727 | ) |   |
| Proceeds from  pledge of Nextel shares                                       |       | —                           |       |             | —     |                           |       |   | 351,600 |   |   |
| Proceeds from loan  from Teledesic LLC                                       |       | —                           |       |             | —     |                           |       |   | 20,000 |   |   |
| Acquisition of ICO  shares from minority interest stockholder                |       | —                           |       |             | —     |                           |       |   | (30,868 | ) |   |
| Net cash provided  by financing activities                                   |       | —                           |       |             | 9,920      |                           |       |   | 1,525,785 |   |   |
| Effect of foreign  exchange rate changes on cash                             |       | 8                                |       |             | (4,048     | )                              |       |   | (8,486 | ) |   |
| Net increase  (decrease) in cash and cash equivalents                        |       | (807                             | )          |             | 92,839     |                           |       |   | 162,252 |   |   |
| Cash and cash  equivalents—beginning of period                          |       | 163,059                          |       |             | 175,510    |                           |       |   | — |   |   |
| Cash and cash  equivalents—end of period                                |       | $                                | 162,252    |             |       | $                              | 268,349    |   |   |   | $ | 162,252 |   |   |

 

(continued)

6

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**ICO Global Communications (Holdings) Limited (A Development Stage Enterprise)**

**Condensed Consolidated Statements of Cash Flows (Continued) (In thousands, unaudited)**

 

| ** **                                                                                                           | ** ** | ** **                             | ** ** | ** **       | ** ** | **February 9, 2000** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|------------------|------------|--------------------------------|------------|
| ** **                                                                                                           | ** ** | ** **                             | ** ** | ** **       | ** ** | **(inception) to**        | ** ** |
| ** **                                                                                                           | ** ** | ** **                             | ** ** | ** **       | ** ** | **March 31,**             | ** ** |
| ** **                                                                                                           | ** ** | **Three  months ended** | ** ** | **2007**         | ** ** |
| ** **                                                                                                           | ** ** | **March 31,**                     | ** ** | **(development** | ** ** |
| ** **                                                                                                           | ** ** | **2007**                               | ** ** | **2006**         | ** ** | **stage period)**         | ** ** |
| ** **                                                                                                           | ** ** | ** **                             | ** ** | **(restated)**   | ** ** | ** **                     | ** ** |
| Supplemental  disclosure:                                                                                            |       |                                   |       |             |       |                           |       |   |   |   |   |
| Income taxes paid                                                                                                    |       | $                                      | 13         |             |       | $                              | —     |   |   |   | $ | 7,440 |   |   |
| Interest paid                                                                                                        |       | 24,375                                 |       |             | 24,374     |                           |       |   | 126,027 |   |   |
| Capitalized interest                                                                                                 |       | 6,807                                  |       |             | 2,208      |                           |       |   | 24,939 |   |   |
| Supplemental  disclosure of non-cash activities:                                                                     |       |                                   |       |             |       |                           |       |   |   |   |   |
| Issuance of Class A common shares in respect of  investment in Ellipso, Inc.                               |       | —                                 |       |             | —     |                           |       |   | 6,863 |   |   |
| Issuance of Class B common shares in respect of  investment in Ellipso, Inc.                               |       | —                                 |       |             | —     |                           |       |   | 74 |   |   |
| Issuance of Class A common shares in respect of  investment in Constellation Communications Holdings, Inc. |       | —                                 |       |             | —     |                           |       |   | 904 |   |   |
| Increase in accrued satellite system construction  payable                                                           |       | 2,357                                  |       |             | 19,465     |                           |       |   | 2,400 |   |   |
| Equipment acquired in capital lease agreements                                                                       |       | —                                 |       |             | —     |                           |       |   | 42,096 |   |   |
| Issuance of warrants for the repayment of debt                                                                       |       | —                                 |       |             | —     |                           |       |   | 4,950 |   |   |
| The following  securities of ICO arose from the acquisition of Old ICO’s net assets:                            |       |                                   |       |             |       |                           |       |   |   |   |   |
| 93,700,041 Class A common shares and options to  acquire Class A common shares issued                      |       | —                                 |       |             | —     |                           |       |   | 679,873 |   |   |
| 31,003,382 Class B common shares issued                                                                         |       | —                                 |       |             | —     |                           |       |   | 275,000 |   |   |
| 1,600,000 Class A common shares issued to  distribution partners                                                |       | —                                 |       |             | —     |                           |       |   | 16,720 |   |   |
| 200,000 Class A common shares committed to  distribution partners                                               |       | —                                 |       |             | —     |                           |       |   | 2,090 |   |   |
| 50,000,000  warrants issued to acquire Class A common shares                                                    |       | —                                 |       |             | —     |                           |       |   | 180,000 |   |   |
|                                                                                                                      |            |                                        |            |                  |            |                                |            |  |  |  |  |  |  |  |

 

(concluded)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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**ICO GlobalCommunications (Holdings) Limited(A Development Stage Enterprise)**

**Notes to CondensedConsolidated Financial Statements(unaudited)**

**1.**                 Organizationand Business

ICO Global Communications (Holdings) Limited (“ICO”),along with its subsidiaries (collectively referred to as the “Company”), is anext-generation mobile satellite service (“MSS”) operator permitted to operatea medium earth orbit (“MEO”) satellite system globally outside theUnited States and, through its majority owned subsidiary, ICO NorthAmerica, Inc. (“ICO North America”), authorized by the Federal Communications Commission (“FCC”) tooffer ubiquitous MSS throughout the United States using a geosynchronous earthorbit (“GEO”) satellite.

ICO was incorporated in the State of Delaware in 2000to purchase the assets and assume certain liabilities of ICO GlobalCommunications (Holdings) Limited (“Old ICO”), a Bermuda corporation, on itsemergence from Chapter 11 bankruptcy. Following the purchase of assets andassumption of certain liabilities of Old ICO, the Company established a newmanagement team who oversaw further construction of the MEO satellites andground systems and developed the technical plan for the MEO system. While theCompany has several MEO satellites in different stages of completion, and ithas successfully launched one MEO satellite, it has significantly curtailedfurther construction of its MEO satellite system due to disagreements with themanufacturer and launch manager of its MEO satellites as well as regulatoryuncertainties surrounding its MEO satellite system.

ICO North America iscurrently developing an advanced hybrid mobile satellite service/ancillaryterrestrial component system (the “MSS/ATC System”), using a GEO satellite, toprovide wireless voice, data, video, and/or Internet service throughout theUnited States on mobile and portable devices.

**2.**                 DevelopmentStage Enterprise

The Company is a development stage enterprise asdefined in Statement of Financial Accounting Standards (“SFAS”) No. 7, *Accounting and Reporting by Development Stage Enterprises*(“SFAS7”)*,* and will continue to be so until itcommences commercial operations. The development stage is from February 9,2000 (inception) through March 31, 2007.

As the Company is notcurrently generating revenue from operations, there is no assurance that theCompany will be able to obtain the funding necessary to complete theconstruction of the MSS/ATC System, fund its future working capitalrequirements, or achieve positive cash flow from operations. In addition, theCompany operates in a heavily regulated industry, and its rights to offer itsplanned services are tied to meeting significant milestones or otherwisesatisfying its regulators. If the Company fails to meet amilestone and is unable to obtain a waiver or extension, the Company could loseits MSS authorization, and a loss of its MSS authorization would be an event ofdefault under the indenture governing the Company’s $650 million aggregateprincipal amount of convertible notes due in August 2009 (the “7.5% Notes”)(see Note 5). In the event that the Company is not able to realize its assetsin the ordinary course of business, and is forced to realize the assets bydivestment, there is no assurance that the carrying value of the assets couldbe recovered.

**3.**                 Summaryof Significant Accounting Policies

***Interim Financial Statements—******The***financial information included in the accompanying condensed consolidatedfinancial statements is unaudited and includes all adjustments, consisting ofnormal recurring adjustments and accruals, considered necessary for a fairpresentation. Certain information and footnote 

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disclosures have been condensed or omitted. Thefinancial information as of December 31, 2006, is derived from the Company’saudited consolidated financial statements and notes, included in Item 8 in theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31,2006, filed with the U.S. Securities and Exchange Commission on April 2,2007 (“Form 10-K”). The financial information included in this Form 10-Qshould be read in conjunction with management’s discussion and analysis offinancial condition and results of operations and the financial statements andnotes included in the Company’s Form 10-K. Operating results for theinterim period presented are not necessarily indicative of the results that maybe expected for the fiscal year ending December 31, 2007 or any otherinterim period.

***Restatement of Prior Period Information—******During the financial closingprocess for the year ended December 31, 2006, m***anagementdetermined that a cumulative translation adjustment of $4.4 million, whichrelated to certain subsidiaries substantially liquidated in 2004, had beenrecorded incorrectly as a component of other income (expense) during the firstquarter of 2006. At December 31, 2006, upon the Company’s application ofStaff Accounting Bulletin No. 108, *Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements,* this amount was included as a component of theCompany’s adjustment to its beginning deficit accumulated during thedevelopment stage as of January 1, 2006. The financial statements for thethree months ended March 31, 2006 have been restated to reflect the effectof this adjustment.

***Use of Estimates—******The preparation of financial statementsrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Significant estimates areused when accounting for depreciation, taxes, contingencies, asset useful livesand valuation of stock compensation awards, among others. Actual results coulddiffer from those estimates. Estimates are evaluated on an ongoing basis.***

***Cash and CashEquivalents—******Cash***andcash equivalents is defined as short-term highly liquid investments withoriginal maturities from the date of purchase of 90 days or less. Cash andcash equivalents is comprised of the following (in thousands):

| ** **          | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------|------------|--------------------|------------|-----------------------|------------|
| ** **          | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Cash                |       | $                  | 16,875     |                  |       | $ | 23,148 |   |   |
| Money market  funds |       | 11,860             |       |                  | 20,192     |   |   |
| Commercial paper    |       | 133,517            |       |                  | 119,719    |   |   |
|                |       | $                  | 162,252    |                  |       | $ | 163,059 |   |   |

 

***Restricted Cash******—******As***of March 31,2007 and December 31, 2006, the Company had restricted cash of $825,000related to a bond which is held pursuant to conditions of the Company’s FCCauthorization to operate in the MSS spectrum.

***Available-for-Sale Investments—******The***Company’sinvestments are primarily held in commercial paper, corporate bonds and notesand U.S. government and agency securities, and are classified asavailable-for-sale and are reported at fair value based upon quoted marketprices. Investments generally mature or are sold within six months from thepurchase date and are classified as current assets in the condensed consolidatedbalance sheets. Realized gains and losses on investments are determined usingthe specific identification method and are included in interest income in the condensedconsolidated statements of operations. The Company includes any unrealizedgains or losses on investments, net of tax, in stockholders’ equity (deficiencyin assets) as a component of accumulated other comprehensive income (loss). TheCompany does not hold any derivative financial instruments in its investmentportfolio.

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***Restricted Investments******—******The***Company’srestricted investments consist of U.S. Treasury securities held as collateralfor future interest payments related to the 7.5% Notes. The maturity dates ofthese investments correspond with interest payment dates as specified in the7.5% Notes. These investments are classified as held-to-maturity and arereported at amortized cost. As of March 31, 2007 and December 31,2006, all of the Company’s restricted investments mature in 2007 and areclassified as current. Gross unrealized losses on restricted investments at March 31,2007 and December 31, 2006 were $82,000 and $178,000, respectively.

***Satellite System Under Construction—******Satellite***systemunder construction represents payments made and accrued for third-partyconstruction and engineering costs incurred in the design, manufacture, testand launch of the MSS/ATC System. Satellite system under construction will beclassified as property in service when placed into service and will bedepreciated using the straight-line method based on an anticipated useful lifeof 10 to 15 years. Only the costs of constructing successfully deployedsatellites will be transferred to property in service. Losses resulting fromany unsuccessful launches or satellite failures will be recognized as thoseevents occur, and insurance proceeds, if any, related to such losses will berecorded when their realization becomes determinable.

***Capitalized Interest******—******The***Companycapitalizes interest costs associated with the construction of the MSS/ATCSystem. Interest capitalized to satellite system under construction for thethree months ended March 31, 2007 and 2006 was $6.8 million and $2.2million, respectively.

***Debt Issuance Costs******—******Costs***incurredin connection with the issuance of the 7.5% Notes have been capitalized and areincluded in debt issuance costs on the condensed consolidated balance sheets.These costs are being amortized using the effective interest method fromissuance in August 2005 through maturity in August 2009. Amortizationof debt issuance costs is included in interest expense on the condensedconsolidated statements of operations and totaled $1.7 million and $1.6 millionfor the three months ended March 31, 2007 and 2006, respectively.

***Other Assets—******Other assets represents paymentsmade to acquire first priority rights to use a desired orbital slot for theCompany’s GEO satellite. The Company currently intends to utilize such slotwhen it deploys its first satellite to be used in the MSS/ATC System. TheCompany expects to amortize such costs over the estimated useful life of itssatellite system under construction, currently anticipated to be 10 to 15years.***

***Share-Based Payment******—***The Company recordsstock-based compensation in accordance with SFAS No. 123 (revised 2004), *Share-Based Payment* (“SFAS 123(R)”) using the modifiedprospective transition method, which requires measurement of all share-basedpayment awards made to employees, directors and consultants, based on the estimatedfair value on the date of grant and recognition of compensation cost over theservice period for awards expected to vest.

The Company records stock-based compensation on stockoptions and restricted stock awards. The fair value of restricted stock awardsis determined based on the number of shares granted and the quoted market priceof the Company’s common stock on the date of grant. The fair value of stockoptions is estimated on the date of grant using the Black-Scholesoption-pricing model (“Black-Scholes”) based on the single option awardapproach. Fair value is amortized on a straight-line basis over the requisiteservice periods of the awards, which is generally the vesting period. The fairvalue of share-based payment awards as determined by Black-Scholes is affectedby the Company’s stock price as well as other assumptions. These assumptionsinclude, but are not limited to, the expected stock price volatility over theterm of the awards and actual and projected employee stock option exercise behaviors.SFAS 123(R) requires forfeitures to be estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ fromthose estimates.

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***Research and Development Costs******—******Research***anddevelopment costs, consisting of third-party engineering, consulting anddevelopment costs associated with technology being considered for use in theMSS/ATC System, are expensed as incurred. The Company reviews each of itsresearch and development projects to determine if technological feasibility hasbeen achieved, at which point, future development costs associated with thatproject are capitalized.

***Contract Settlements—******The***Company’spolicy with respect to a contract in dispute is to continue to record operatingexpenses and liabilities according to its contractual obligation until suchcontract is terminated. Upon termination, and prior to settlement, the Companycontinues to accrue estimated late payment fees and interest expense, asapplicable. Upon reaching settlement, whereby the other party’s claims arelegally released, the Company will extinguish its recorded liability, resultingin the recognition of a gain or loss on contract settlement.

***Foreign Currency Translation and Foreign CurrencyTransactions******—******The***reportingcurrency for the Company’s operations is U.S. dollars. The Company translatesthe activities of its foreign subsidiaries during the period at the averageexchange rate prevailing during the period. Assets and liabilities denominatedin foreign currencies are restated at the exchange rates prevailing at thebalance sheet date. Translation adjustments resulting from these processes arerecognized as a component of accumulated other comprehensive income (loss). TheCompany recognizes applicable cumulative translation adjustments as a componentof operating income (loss) in the period in which a subsidiary is substantiallyliquidated.

Gains and losses on foreign currency transactions arerecognized as a component of other income (expense) in the condensed consolidatedstatements of operations in the period in which they occur. For the threemonths ended March 31, 2007 and 2006, losses on intercompany foreigncurrency transactions of $234,000 and gains on intercompany foreign currencytransactions of $5.9 million, respectively, have been excluded from net lossand reported as a component of accumulated other comprehensive income.

***Accumulated OtherComprehensive Income (Loss)—******The***Company’saccumulated other comprehensive income (loss) consists of unrealized gains andlosses on available-for-sale investments, net of tax, and cumulativetranslation adjustments. Accumulated other comprehensive income as of March 31,2007 consisted of cumulative translation adjustments of $6.1 million. ***Accumulated other comprehensiveincome as of December 31, 2006 consisted of cumulative translationadjustments of $6.3 million, less unrealized losses on available-for-saleinvestments of $18,000.***

***Earnings (Loss) Per Share—******Basic***earnings(loss) per share is calculated based on the weighted average number of sharesthat were outstanding during the period. Diluted earnings (loss) per share iscalculated by dividing income or loss allocable to common shareholders by theweighted average common shares outstanding plus potential dilutive commonstock. Potential dilutive common stock includes unvested restricted stock,stock options and warrants, the dilutive effect of which is calculated usingthe treasury stock method. Prior to satisfaction of all conditions of vesting,unvested restricted stock is considered contingently issuable consistent withSFAS No. 128, *Earnings Per Share*,and is excluded from weighted average common shares outstanding.

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Thefollowing table sets forth the computation of basic and diluted loss per share(in thousands, except share and per share data):

| ** **                                                          | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                                          | ** ** | ** **                                           | ** ** | **(restated)(2)** | ** ** |
| Net loss                                                            |       | $                                                    | (16,717    | ) | $ | (15,041 | ) |
| Weighted average  common shares outstanding                         |       | 198,156,342                                          |       | 198,081,492 |   |
| Less: unvested  restricted stock                                    |       | (100,000                                             | )          | (600,000 | ) |
| Shares used for  computation of basic and diluted loss per share(1) |       | 198,056,342                                          |       | 197,481,492 |   |
| Basic and diluted loss per share                                    |       | $                                                    | (0.08      | ) | $ | (0.08 | ) |

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(1)          The effect of certainstock options and warrants was anti-dilutive, and they were not included in thecalculation of diluted loss per share. Anti-dilutive options and warrantstotaled 13,296,933 and 55,810,697 as of March 31, 2007 and 2006,respectively.

(2)          Financial results forthe three months ended March 31, 2006 have been restated to reflect theeffect of a $4.4 million cumulative translation adjustment incorrectly recordedas a component of other income (expense) during the first quarter of 2006. Netloss has been restated from $19.4 million to $15 million, and basic anddiluted loss per share has been restated from a loss of $0.10 per share to aloss of $0.08 per share.

***New Accounting Pronouncements******—***In June 2006,the Financial Accounting StandardsBoard (“FASB”) issued Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109*(“FIN 48”), which clarifies the accounting for uncertainty in income taxesrecognized in a company’s financial statements in accordance with SFAS No. 109,*Accounting for Income Taxes* (“SFAS 109”).The interpretation prescribes a recognition threshold and measurement attributecriteria for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. The interpretation alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition.

The Company adopted the provisions of FIN 48 on January 1,2007. As a result of the implementation of FIN 48, the Company recognized anincrease of approximately $9.2 million in its liability for uncertain taxpositions, which was accounted for as an adjustment to its deficit accumulatedduring the development stage as of January 1, 2007. The total amount of reservesfor income taxes as of March 31, 2007 and January 1, 2007 was $9.4million and $9.2 million, respectively. If these reserves were recognized, theentire amount would impact the Company’s effective tax rate.

The Company’s policy is to recognize interest and/orpenalties related to unrecognized tax benefits as income tax expense. TheCompany recorded $3.8 million of interest related to its adoption of FIN 48 andhas recorded this amount as an adjustment to its January 1, 2007 beginningdeficit accumulated during the development stage. For the three months ended March 31,2007, the Company recorded $170,000 of interest related to its reserves forincome taxes and has included this amount in income tax expense on itscondensed consolidated statements of operations.

The Company and its subsidiaries file income taxreturns in the U.S. federal jurisdiction, and various states and foreignjurisdictions. The Company is generally no longer subject to state and local,or non-U.S. income tax examinations by tax authorities for years prior to 2000.In mid-2005 the Internal Revenue Service (“IRS”) commenced an audit ofthe Company’s 2003 U.S. federal income tax return. The Company’s 2003 returnreflected gain of more than $300 million recognized on the sale of securitieson the maturity of a variable forward contract. The gain was offset by lossesrelated to the abandonment of 

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elements of the Company’sMEO satellite system. The IRS examination is focused on the deductibility ofthe losses claimed related to the MEO satellite system and the timing of thegain recognized with respect to the sale of securities under the variableforward contract. As of March 31, 2007 the IRS had proposed no adjustmentswith respect to the Company’s tax reporting for 2003 or earlier years; however,the IRS has not yet completed its examination. The Company believes its taxreporting for 2003 is proper and that it is more likely than not its currenttax position will be sustained; however, if the IRS were to propose and sustaina position that either disallows part or all of its MEO asset abandonmentdeductions for 2003, or results in the taxation of the gain related to thevariable forward contract in a year prior to 2003, the Company will incur a taxliability ranging from $12 million to $128 million (including interest butexcluding penalty). The Company expects these issues will be resolved by theend of 2008.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS 157”). Thisstatement clarifies the definition of fair value, establishes a framework formeasuring fair value, and expands the disclosures on fair value measurements.SFAS 157 is effective for fiscal years beginning after November 15, 2007.The Company does not expect the adoption of this statement to have a materialimpact on its financial position, results of operations or cash flows.

In February 2007, theFASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities - Including an amendment ofFASB Statement No. 115*(“SFAS 159”). SFAS 159 permitsentities to choose to measure eligible items at fair value at specifiedelection dates and report unrealized gains and losses on items for which thefair value option has been elected in earnings at each subsequent reportingdate. SFAS 159 is effective for fiscal years beginning after November 15,2007. The Company does not expect the adoption of this statement to have amaterial impact on its financial position, results of operations or cash flows.

**4.**                 SatelliteAccess Node (“SAN”) Agreements and Contract Settlements

As part of the ground infrastructure for its MEOsatellite system, the Company established SAN sites in eleven countriesthroughout the world. One SAN, in Brazil, is owned and operated by the Company.Prior to 2000, the Company entered into noncancellable agreements with tenvendors (“SAN Operators”) that own and operate the Company’s SAN sites. All ofthe agreements provide for varying levels of support required to operate theSAN sites (“SAN Operating Agreements”). Additionally, certain of the agreementsrequire the repayment of certain up-front infrastructure costs incurred on theCompany’s behalf (“SAN Infrastructure Agreements”). Both the SAN OperatingAgreements and the SAN Infrastructure Agreements were scheduled to expire invarious years through 2010 and are payable in U.S. and non-U.S. currencies. TheSAN Infrastructure Agreements represent capital leases payable with initialinterest rates ranging from 8.5% to 20.0%.

In 2002, due to a delay in the deployment of the MEOsatellite system, the Company attempted to enter into negotiations with the SANOperators to defer certain of the payment obligations and reduce the servicelevels and associated expense of the SAN operational support. These negotiationswere unsuccessful and did not result in any significant modifications to theagreements with the SAN Operators.

The Company continued to explore its strategicalternatives and, in 2003, determined that it only needed some, not all, of theSAN sites to economically deploy the MEO satellite system. Additionally, theCompany’s Board of Directors decided that the Company would no longer providefunding to its subsidiaries to pay SAN Operators, with the exception of itsU.S. SAN Operator, unless the Company received additional funding or thecontracts with such operators were restructured to obtain a substantial costsavings. In December 2004, the Company’s Board of Directors determined tosignificantly curtail further construction on its MEO satellite system, whichfurther increased the likelihood that the SAN sites would not be utilized in atimely fashion in the contemplated MEO satellite system. As a result of theCompany’s decisions, eight of the ten SAN Operators terminated their agreementswith the Company from 

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2004 to 2006 anddiscontinued providing the requisite level of services. The Company accruesoperating expenses until the related agreement is terminated and the SANOperator has ceased providing services. Certain of the terminated agreementswere settled in exchange for a nominal level of consideration, including cashand the transfer of certain SAN assets. Certain of the terminated agreementshave not been settled and remain outstanding.

Subsequent to the date of termination, the Company hascontinued to accrue estimated late payment fees, if applicable, and theinterest expense on the capital leases in effect pursuant to the SANInfrastructure Agreements. Upon reaching settlement with the SAN Operator wherethe SAN Operator’s claims are legally released, the Company has written off theliability, resulting in the recognition of a gain on contract settlement.

Thefollowing represents a summary of transactional activity with the variousSAN Operators (in thousands):

| ** **                                                 | ** ** | **Three months ended March 31,**                                                           | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **         2007        ** | ** ** | **         2006         ** | ** ** |
| Total SAN  liability, beginning of period                  |       |                                                                                                           | $          | 45,591 |   |   |   | $ | 40,097 |   |   |
| Expense  recognized under SAN Operating Agreements         |       |                                                                                                           | 561        |   |   |   | 624 |   |   |
| Interest expense  related to SAN Infrastructure Agreements |       |                                                                                                           | 791        |   |   |   | 673 |   |   |
| Payments made to  SAN Operators                            |       |                                                                                                           | (1,255     | ) |   |   | (102 | ) |   |
| Effect of changes  in foreign currency exchange rates      |       |                                                                                                           | 278        |   |   |   | (193 | ) |   |
| Total SAN liability, end  of period                        |       |                                                                                                           | $          | 45,966 |   |   |   | $ | 41,099 |   |   |

 

Thetotal SAN liability is comprised of the following amounts which are included inthe following line items of the condensed consolidated balance sheets (inthousands):

| ** **                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Accrued expenses                                 |       |               | $          | 16,283                |       |   |   | $ | 16,977 |   |   |
| Accrued interest                                 |       |               | 11,918     |                  |       |   | 10,996 |   |   |
| Current portion  of capital lease obligations    |       |               | 13,821     |                  |       |   | 13,023 |   |   |
| Capital lease  obligations, less current portion |       |               | 3,944      |                  |       |   | 4,595 |   |   |
|                                             |       |               | $          | 45,966                |       |   |   | $ | 45,591 |   |   |

 

In January 2007, anindirect subsidiary of the Company, ICO Global Communications Holding BV, reacheda resolution regarding a dispute concerning past payments for a SAN locatedin Usingen, Germany, and entered into a settlement agreement pursuant towhich it agreed to pay a third party an agreed-upon amount over the next twoyears. The Company made its first payment under this settlement agreementin January 2007 and the remaining balance is included in accrued expenseson the Company’s condensed consolidated balance sheet.

**5.**                 ConvertibleLong Term Debt

In August 2005, ICO North America completed thesale of $650 million aggregate principal amount of convertible notes toQualified Institutional Buyers pursuant to the exemption from the registrationrequirements of the Securities Act of 1933, as amended, provided by Rule 144Athereunder. The net proceeds from the sale of the 7.5% Notes are being used todevelop the MSS/ATC System and to fund operating expenses.

The 7.5% Notes mature in August 2009 and bearinterest at a rate of 7.5% per year, payable semi-annually in arrears in cashon February 15 and August 15. Subject to certain exceptions, for theperiod 

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from August 16, 2007through August 15, 2009, ICO North America has the option of payingaccrued interest due with additional notes in lieu of cash at an increasedinterest rate of 8.5% per annum. ICO North America’s GEO satellite and itsassociated systems must be certified as operational by August 15, 2008 orthe coupon increases by 150 basis points for every 30 days, until certificationis achieved, up to a maximum of 13.5% per annum.

The 7.5% Notes are convertible, at the option of theholder, into ICO North America’s Class A common stock at a conversionprice of $4.25 per share, subject to adjustment pursuant to the indenture.Additionally, the 7.5% Notes will automatically convert into shares of ICONorth America’s Class A common stock upon a qualifying private offering orsale, a qualifying public offering of ICO North America’s common stock or uponwritten consent of holders owning two-thirds of the 7.5% Notes. The 7.5% Notescontain an embedded beneficial conversion feature contingent upon theoccurrence of certain future events, including the issuance of ICO NorthAmerica Class A common stock or the issuance of options or warrants topurchase ICO North America Class A common stock. The fair value of theembedded conversion feature will be measured at the time such events occur.Holders of the 7.5% Notes also have the right of first offer on any equitysecurities of ICO North America subject to certain exemptions and conditions.

The 7.5% Notes contain covenants, including, but notlimited to, restrictions on ICO North America’s future indebtedness and thepayment of dividends. In addition, all of ICO North America’s stock is pledgedand all of its existing and future assets are held as collateral for the 7.5%Notes. As of March 31, 2007, ICO North America is in compliance with allof the covenants.

The 7.5% Notes are carriedat cost on the condensed consolidated balance sheets. The aggregate fair valueof the 7.5% Notes as of March 31, 2007 and December 31, 2006 isapproximately $663 million and $721.5 million, respectively.

**6.**                 Commitmentsand Contingencies

***Purchase Commitments******—******The***Companyhas an agreement with Space Systems/Loral, Inc. (“Loral”) to design,develop, manufacture, test and deliver one GEO satellite and to develop, testand implement certain ground-based systems related to the operation of thesatellite. The satellite is expected to be delivered to permit a launch by November 30,2007. The Company also retains an option through December 31, 2008 topurchase one additional GEO satellite.

The Company has an agreement with Lockheed MartinCommercial Launch Services, Inc. (“Lockheed”) for the provision of launchservices for its GEO satellite. In February 2007, the Company selected, incoordination with Lockheed, its launch slot as November 2007. The Company has purchased launchrisk protection insurance from Lockheed, providing for a payment to the Companyin the event of a launch failure due to the launch vehicle. The Company alsoretains an option to require Lockheed to provide a replacement launch in theevent that the Company determines that the initial launch resulted in asatellite failure within the first six months after launch.

The Company has an agreement with Hughes NetworkSystems, LLC (“HNS”) to provide gateway services for the Company’s MSS/ATCSystem including the design, manufacture, delivery, and test of the radiofrequency subsystem, the gateway system controller, the gateway control networkand the gateway system interconnections. The gateway will be located atthe HNS facility in North Las Vegas, Nevada and is scheduled to be delivered inJune 2007. The Company retains an option to purchase a diverse site radiofrequency terminal along with an associated diverse site facility.

As of March 31, 2007, the Company had remainingpayments of approximately $84 million that are payable based on the achievementof certain construction, delivery and deployment milestones related to thedevelopment of the MSS/ATC System, which are expected to occur later in 2007.These remaining 

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payments relate to theagreements above as well as other secondary agreements related to thedevelopment of the MSS/ATC System. Additional payments of $23.2 million relatedto in-orbit satellite performance incentives, including interest, related tothe Company’s GEO satellite are payable over 15 years from 2007 through2022. In addition to these remaining payments, the Company has purchasecommitments of approximately $500,000 related to its MEO satellite system.

***Leaseand Operating Commitments*—*****The***Companyhas entered into agreements with ten SAN Operators that own and operatesubstantially all of the Company’s MEO SAN sites. Such agreements require therepayment of certain up-front capital asset costs incurred by each SAN Operatorin establishing the initial infrastructure for the SAN, as well as payments forongoing operations and related expenses incurred at each SAN site. The Companycontinues to have lease and operating commitments under some of these agreements(see Note 4).

The Company leases office space and office equipmentunder noncancellable rental agreements accounted for as operating leases. Thetotal rental expense under operating leases was approximately $157,000 and$152,000 for the three months ended March 31, 2007 and 2006, respectively,and is included in general and administrative expense in the accompanyingcondensed consolidated statements of operations.

***Internal Revenue Service Audit—******For***U.S.federal income tax purposes, the Company realized a gain of more than $300million on the disposition of certain securities in 2003. This gain was offsetby losses incurred in connection with the Company’s MEO satellite system. TheCompany is currently being audited for tax year 2003 by the Internal RevenueService. The audit involves both the recognition of the losses in connectionwith the impairment of the Company’s MEO assets and the timing of the gain onthe disposition of the relevant securities, which were sold through a variableforward contract. While the Company believes it properly treated and reportedall items of gain and loss, it is possible that the Company could have a taxliability ranging from approximately $12 million to $128 million, notincluding any penalties that may be imposed. As the Company believes its taxreporting for 2003 is proper, and that it is more likely than not its currenttax position will be sustained, no amount has been recorded in the Company’s condensedconsolidated financial statements.

***Boeing Litigation—******In***response tothe Company’s demand for arbitration, in August 2004 Boeing SatelliteSystems International, Inc. (“BSSI”) filed an action in the Superior Courtof the State of California, in and for the County of Los Angeles, seeking ajudicial declaration that the Company had terminated its contractual agreementswith BSSI, and thereby extinguished all of the Company’s rights and claimsagainst BSSI arising out of or relating to the development, construction andlaunch of the Company’s MEO satellite system. In response, the Company filed across-complaint seeking damages from BSSI for breach of the parties’agreements and for other wrongful, tortuous conduct. Subsequently, theCompany also filed a cross-complaint against The Boeing Company, BSSI’scorporate parent, alleging wrongful, tortuous conduct that also damagedthe Company. BSSI filed a cross complaint against the Company seekingunspecified monetary relief. On August 24, 2006, the court denied BSSI’smotions for summary judgment and summary adjudication; and on December 1,2006, the court denied BSSI’s motion to dismiss the Company’s trade secretclaim. A trial date has been set for November 2007; and on May 9, 2007,the court denied BSSI’s motion to dismiss the Company’s duress and fraud claims.The Company believes that its claims are meritorious and is vigorouslypursuing a prompt resolution. The ultimate resolution is uncertain and theCompany anticipates that the expense of pursuing this litigation will bematerial.

***Ellipso, Inc.—******In*********December 2006, Ellipso, Inc.(“Ellipso”) filed an action in the Superior Court of the District of Columbiaseeking damages in excess of $100 million from the Company and itssubsidiary, ICO Global Limited, for breach of contract, breach of warranty andfraud. The Company recently filed a Motion to Dismiss in this case. The Companybelieves that Ellipso’s claims are without merit. The 

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Company intends to vigorously defend itself againstEllipso. Management currently believes that this lawsuit will not have a materialadverse effect on the Company’s financial condition or results of operations;however, the outcome is uncertain.

***Other—******In***theopinion of management, except for those matters described above and inNote 4, to the extent so described, litigation, contingent liabilities andclaims against the Company in the normal course of business are not expected toinvolve any judgments or settlements that would be material to the Company’sfinancial condition, results of operations or cash flows.

**7.**                 Stockholders’Equity (Deficiency in Assets)

***Common Stock******—******The***Company’sRestated Certificate of Incorporation authorizes two classes of common stock, Class Aand Class B. The rights of the holders of shares of Class A commonstock and Class B common stock are identical, except with respect tovoting and conversion. Holders of shares of Class A common stock areentitled to one vote per share. Holders of shares of Class B common stockare entitled to ten votes per share. The Class B common stock isconvertible at any time at the option of its holder into shares of Class Acommon stock. Each share of Class B common stock is convertible into oneshare of Class A common stock. Additionally, subject to certainexceptions, shares of Class B common stock will automatically convert intoshares of Class A common stock if the shares of Class B common stockare sold or transferred. Class A common stock is not convertible.

***Stock Incentive Plan******—******The Company’s Amended and Restated***2000 Stock Incentive Plan (the “Plan”) authorizes thegrant of incentive stock options, as well as stock awards, to Companyemployees, board members, contractors and consultants.

For the three months ended March 31, 2007 and2006, stock-based compensation recognized under SFAS 123(R) was $1.3million and $1.1 million, respectively, net of income taxes of $0 for bothperiods presented, and is included in general and administrative expenses inthe Company’s condensed consolidated statements of operations.

***Stock Options*—**TheCompany’s stock option activity for the three months ended March 31, 2007is summarized as follows:

| ** **                           | ** ** | ** **                      | ** ** | **Weighted**            | ** ** |
|--------------------------------------|------------|---------------------------------|------------|-------------------------|------------|
| ** **                           | ** ** | ** **                      | ** ** | **average**             | ** ** |
| ** **                           | ** ** | **Number of options** | ** ** | **exercise price** | ** ** |
| Outstanding at  January 1, 2007 |       |                            | 9,484,823  |                    |       |   | $ | 5.04 |   |   |
| Granted                              |       |                            | 1,195,000  |                    |       |   | $ | 4.80 |   |   |
| Cancelled                            |       |                            | (555,000   | )                       |       |   | $ | 5.32 |   |   |
| Outstanding at  March 31, 2007  |       |                            | 10,124,823 |                    |       |   | $ | 5.00 |   |   |
| Exercisable at  March 31, 2007  |       |                            | 2,768,073  |                    |       |   | $ | 5.62 |   |   |

 

During the first quarter of 2007, the Company electedto cancel 555,000 stock options whose fair market value on the date of grantexceeded the exercise price of the respective option, and regrant stock optionswith identical terms of the cancelled stock options. This decision was madebased upon the disadvantageous tax treatment that such option holders wouldotherwise be subject to under Section 409A of the Internal Revenue Codefor option grants whose fair market value on the date of grant exceeded theexercise price of those options.  Stockoptions granted during the three months ended March 31, 2007, as disclosedabove, include the regranted stock options.

Theweighted average grant date fair value of stock options granted during thethree months ended March 31, 2007 was $2.61 per share and the total fairvalue of these stock options was $3.1 million. The 

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weighted average grant date fair value of stockoptions granted during the three months ended March 31, 2007 was estimatedusing Black-Scholes with the following assumptions:

| ** **                | ** ** | **Three months ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **March 31, 2007**     | ** ** |
| Expected  volatility      |       |                             | 38         | % |   |
| Risk-free  interest rate  |       |                             | 4.6        | % |   |
| Expected dividend  yield  |       |                             | 0          | % |   |
| Expected  forfeiture rate |       |                             | 0          | % |   |
| Expected term in years    |       |                             | 8.0        |   |   |

 

***Restricted Stock Awards*—*****In***November 2005,the Company granted 1,600,000 shares of restricted Class A common stock toEagle River Satellite Holdings, LLC and certain employees and board members. Ofthese shares, 1,000,000 were granted to Eagle River Satellite Holdings, LLC andtreated as a stock dividend. The remaining 600,000 shares, granted pursuant tothe Plan, had a grant date fair value of $2.4 million and are being charged toexpense over the respective vesting period. Restricted stock awards of1,500,000 vested on October 12, 2006. The remaining 100,000 restrictedstock awards vest in two equal installments, on July 14, 2007 and 2008.For the three months ended March 31, 2007 and 2006, the Company recognizedcompensation expense of $49,000 and $613,000, respectively, related to itsrestricted stock awards.

**8.**                 RelatedParty Transactions

***Eagle River—******Eagle River Satellite Holdings,LLC and Eagle River, Inc. (collectively “Eagle River”), is the Company’s***controllingshareholder with an economic interest of approximately 33% and a votinginterest of approximately 69%.

The Company has an agreement with Eagle River, Inc.to provide advisory services to the Company. This agreement has an annual feeof $500,000 and is payable in quarterly installments in stock or cash, at theCompany’s option. To date, the Company has elected to make all payments in Class Acommon stock and has issued 127,599 shares as consideration. As of March 31,2007, the Company owed Eagle River, Inc. approximately $42,000 pursuant tothe advisory services agreement, which is included in accrued expenses in thecondensed consolidated balance sheets.

The Company also has a month-to-month agreement withEagle River, Inc. to provide office space and administrative support tothe Company. Total payments made to Eagle River, Inc. under this agreementfor the three months ended March 31, 2007 and 2006 were $15,000 and $10,000,respectively.

***Davis Wright Tremaine—******A*********principal of Eagle River, who isalso a board member of the Company, is the spouse of a partner at the law firmDavis Wright Tremaine which provides the Company with ongoing legal services.Total payments made to Davis Wright Tremaine for the three months endedMarch 31, 2007 and 2006 were $30,000 and $373,000, respectively.

**9.**                 SubsequentEvent

In May 2007, the Company entered into anagreement with HNS to develop key architecture and technology for use in theCompany’s alpha trial of its Mobile Interactive Media (“MIM”) services. Thetotal contract price is $10.1 million, and is expected to be paid over the nexttwelve months.

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***Item 2.******                          Management’sDiscussion and Analysis of Financial Condition and Results of Operations***

The following discussionand analysis should be read in conjunction with the condensed consolidatedfinancial statements and accompanying notes included elsewhere in thisquarterly report and the audited consolidated financial statements and notescontained in our Form 10-K.

**Special NoteRegarding Forward-Looking Statements**

With the exception ofhistorical facts, the statements contained in this management’s discussion andanalysis are “forward-looking” statements. All of these forward-lookingstatements are subject to risks and uncertainties that could cause our actualresults to differ materially from those contemplated by the relevantforward-looking statements. Factors that might cause or contribute to such adifference include, but are not limited to, those discussed under “Risks andUncertainties” below, and elsewhere in this Form 10-Q. Theforward-looking statements included in this document are made only as of thedate of this report, and we undertake no obligation to publicly update theseforward-looking statements to reflect subsequent events or circumstances.

**Overview**

We are a next-generation MSS operator. We intend tocapitalize on the rapid growth of the wireless sector by building a hybridMSS/ATC System to offer ubiquitous satellite and terrestrial wireless servicethroughout the United States. We are authorized to offer MSS services in theUnited States using a GEO satellite. We have the opportunity in the future toseek authorization from the FCC to integrate ATC into the MSS system in orderto provide integrated satellite and terrestrial services. Our MSS/ATC System isbeing designed to provide wireless voice, data, video, and/or Internet servicethroughout the United States on mobile and portable devices.

We are not currently generating revenue fromoperations. The net losses we have funded and capital expenditures we have madesince December 31, 2004 primarily relate to the development of our MSS/ATCSystem. We expect that our current resources will be sufficient to fund thedevelopment of this system for at least the next twelve months. We are focusingour efforts on meeting our planned satellite construction and launch schedule,much of which is mandated by the FCC, while maintaining system developmentexpenses at our planned levels.

We are preparing to demonstrate the operational statusof our MSS system in 2007, with more robust trials and operations in 2008. In2007, we have began, and expect tocontinue, to: (i) sign agreements with vendors to more fully developtechnology which would permit video and data multicasting and voice and datainteractivity from the satellite, as well as related integrated services forthe terrestrial segment; (ii) design and construct a terrestrialnetwork, including the leasing of towers; (iii) install radio equipmentand begin to construct a ground network to connect the terrestrial network; and(iv) hire personnel and devote resources in areas such as customer serviceand billing, marketing and customer fulfillment. We expect that thecommencement of full scale commercial MSS/ATC service operations would requiresubstantial additional capital.

We may offer our services to strategic serviceproviders who could incorporate our capabilities to offer integrated satelliteand terrestrial services to their customers. Accordingly, we are meeting withpotential strategic partners as well as exploring alternative sources ofcapital. To provide ATC service, we must separately apply to the FCC for ATCauthorization, which we expect to do later in 2007, and meet certain “gatingcriteria,” which include the provision of commercial MSS service, as apre-condition to obtaining an ATC authorization.

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We are also permitted to operate a MEO satellitesystem globally in compliance with regulations promulgated by the UnitedKingdom and the ITU. However, some of these regulations are currently underreconsideration in Europe and there is considerable uncertainty as to how legacysystems, such as our MEO satellite system, would be treated in any newregulatory regime. While we have several MEO satellites in different stages ofcompletion, and we have successfully launched one MEO satellite, we havesignificantly curtailed further construction of our MEO satellite system due todisagreements with the manufacturer and launch manager of our MEO satellites aswell as these regulatory uncertainties. Despite the curtailment of constructionof our MEO satellite system and the considerable uncertainty as to the cost andeffectiveness of restarting the MEO satellite program with our currentmanufacturer, we continue to explore the potential development of a MEObusiness plan outside of North America.

We are considered adevelopment stage enterprise as defined in SFAS 7, *Accountingand Reporting by Development Stage Enterprises,* and are notcurrently generating revenue from operations. There is no assurance that wewill be able to obtain the funding necessary to complete the construction ofour MSS/ATC System, fund our future working capital requirements, or achievepositive cash flow from operations. These and other uncertainties that couldmaterially affect our results of operations or liquidity in the future arediscussed in greater detail below in “Risks and Uncertainties.” In theevent that we are not able to realize our assets in the ordinary course ofbusiness and are forced to realize the assets by divestment, there is noassurance that the carrying value of the assets could be recovered. Our lossesto date have been primarily funded by proceeds from the issuance of variousforms of capital and by proceeds from the sale of the 7.5% Notes. Managementplans to sustain operations with existing funds and through additionalthird-party equity or debt financing when necessary.

**Critical AccountingPolicies**

Critical accountingpolicies require difficult, subjective or complex judgments, often as a resultof the need to make estimates about the effect of matters that are inherentlyuncertain. The judgments and uncertainties affecting the application of thesepolicies include significant estimates and assumptions made by us usinginformation available at the time the estimates are made. Actual results coulddiffer materially from those estimates. Our critical accounting policiesinvolve judgments associated with our accounting for the impairment oflong-lived assets, contract settlements, share-based payment, income taxes andcontingencies. There have been no significant changes to our criticalaccounting policies contained in our Form 10-K for the year ended December 31,2006.

**New AccountingPronouncements**

In June 2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income Taxes—an Interpretation of FASBStatement No. 109*, which clarifies the accounting foruncertainty in income taxes recognized in a company’s financial statements inaccordance with SFAS 109, *Accounting for IncomeTaxes*. The interpretation prescribes a recognition threshold andmeasurement attribute criteria for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.The interpretation also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition.

We adopted the provisions of FIN 48 on January 1,2007. As a result of the implementation of FIN 48, we recognized an increase ofapproximately $9.2 million in our liability for uncertain tax positions, whichwas accounted for as an adjustment to our deficit accumulated during thedevelopment stage as of January 1, 2007. The total amount of reserves forincome taxes as of March 31, 2007 and January 1, 2007 was $9.4million and $9.2 million, respectively. If these reserves were recognized, theentire amount would impact our effective tax rate.

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Our policy is to recognize interest and/or penalties relatedto unrecognized tax benefits as income tax expense. We recorded $3.8 million ofinterest related to our adoption of FIN 48 and have recorded this amount as anadjustment to our January 1, 2007 beginning deficit accumulated during thedevelopment stage. For the three months ended March 31, 2007, we recorded$170,000 of interest related to our reserves for income taxes and have includedthis amount in income tax expense on our condensed consolidated statements ofoperations.

We and our subsidiaries file income tax returns in theU.S. federal jurisdiction, and various states and foreign jurisdictions. We aregenerally no longer subject to state and local, or non-U.S. income taxexaminations by tax authorities for years prior to 2000. In mid-2005 the IRScommenced an audit of our 2003 U.S. federal income tax return. Our 2003 returnreflected a gain of more than $300 million recognized on the sale of securitieson the maturity of a variable forward contract. The gain was offset by lossesrelated to the abandonment of elements of our MEO satellite system. The IRSexamination is focused on the deductibility of the losses claimed related tothe MEO satellite system and the timing of the gain recognized with respect tothe sale of securities under the variable forward contract. As of March 31,2007 the IRS had proposed no adjustments with respect to our tax reporting for2003 or earlier years; however, the IRS has not yet completed its examination.We believe our tax reporting for 2003 is proper and that it is more likely thannot our current tax position will be sustained; however, if the IRS were topropose and sustain a position that either disallows part or all of its MEOasset abandonment deductions for 2003, or results in the taxation of the gainrelated to the variable forward contract in a year prior to 2003, we will incura tax liability ranging from $12 million to $128 million (including interestbut excluding penalty). We expect these issues will be resolved by the end of2008.

In September 2006, the FASB issued SFAS 157, *Fair Value Measurements*. This statementclarifies the definition of fair value, establishes a framework for measuringfair value, and expands the disclosures on fair value measurements. SFAS 157 iseffective for fiscal years beginning after November 15, 2007. We do notexpect the adoption of this statement to have a material impact on ourfinancial position, results of operations or cash flows.

In February 2007, theFASB issued SFAS 159, *The Fair Value Option forFinancial Assets and Financial Liabilities—Including an amendment of FASBStatement No. 115*. SFAS 159 permits entities to choose tomeasure eligible items at fair value at specified election dates and report unrealizedgains and losses on items for which the fair value option has been elected inearnings at each subsequent reporting date. SFAS 159 is effective forfiscal years beginning after November 15, 2007. We do not expect theadoption of this statement to have a material impact on our financial position,results of operations or cash flows.

**Results ofOperations**

The following table isprovided to facilitate the discussion of our results of operations for thethree months ended March 31, 2007 and 2006 (in thousands):

| ** **                           | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| General and  administrative expenses |       |                                                 | $          | 9,765 |   |   |   | $ | 9,009 |   |   |
| Research and  development expenses   |       |                                                 | 2,149      |   |   |   | 28 |   |   |
| Interest income                      |       |                                                 | (3,389     | ) |   |   | (5,581 | ) |   |
| Interest expense                     |       |                                                 | 7,981      |   |   |   | 12,319 |   |   |
| Other (income)  expense              |       |                                                 | 38         |   |   |   | (774 | ) |   |
| Income tax expense                   |       |                                                 | 173        |   |   |   | 40 |   |   |

 

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*Generaland Administrative Expenses.**  *Generaland administrative expenses are primarily comprised of personnel costs,stock-based compensation, satellite storage, third-party legal and professionalfees and general office related costs.

General and administrative expenses were $9.8 millionfor the three months ended March 31, 2007, compared to $9 million for thethree months ended March 31, 2006. The increase is primarily due to higherpersonnel costs related to the hiring of additional employees necessary tosupport the development of our MSS/ATC System.

We expect general and administrative expenses tocontinue to increase as we hire additional personnel necessary to support thedevelopment of our MSS/ATC System.

*Researchand Development Expenses.**  *Researchand development expenses principally consist of third-party engineering,consulting and development costs associated with technology being consideredfor use in the MSS/ATC System.

Research and development expenses were $2.1 millionfor the three months ended March 31, 2007, compared to $28,000 for thethree months ended March 31, 2006. This increase is primarily due toadditional design and development activities related to the ground networkportion of our MSS/ATC System.

We expect future research and development costs toincrease as the pace of the design and development of our ground networkincreases.

*InterestIncome.**  *Interestincome was $3.4 million for the three months ended March 31, 2007,compared to $5.6 million for the three months ended March 31, 2006.Interest income in both periods was primarily attributable to interest earnedon the investment of the proceeds of the 7.5% Notes.

We expect interest income to decrease in futureperiods as our cash, cash equivalents, and available-for-sale investmentsbalances decrease as we develop our MSS/ATC System.

*InterestExpense.**  *Interestexpense was $8 million for the three months ended March 31, 2007, comparedto $12.3 million for the three months ended March 31, 2006. Interestexpense for the three months ended March 31, 2007 was comprised ofinterest incurred on the 7.5% Notes of $12.2 million, amortization of debtissuance costs of $1.7 million and interest expense related to the SANagreements recorded as capital lease obligations of $791,000, partially offsetby $6.8 million of capitalized interest costs associated with the constructionof our MSS/ATC System. Interest expense for the three months ended March 31,2006 consisted of $12.2 million of interest incurred on the 7.5% Notes, $1.6million of amortization of debt issuance costs and interest expense related tothe SAN agreements recorded as capital lease obligations of $673,000, partiallyoffset by $2.2 million of capitalized interest costs associated with theconstruction of our MSS/ATC System.

In future periods, we expect interest incurredassociated with our 7.5% Notes, including amortization of debt issuance costs,to remain comparable with amounts reported in the first quarter of 2007. Weexpect capitalized interest expense to increase in future periods as wecontinue to incur costs associated with the construction of our MSS/ATC System until suchtime that construction is complete.

*Other(Income) Expense.*   Other (income) expense iscomprised primarily of gains and losses on foreign currency transactions. Other(income) expense was nominal for the three months ended March 31, 2007 and2006.

*Income Tax Expense.**  *Incometax expense represents the tax on income of certain of our foreign entities ona stand-alone basis and interest associated with reserves for income taxes.Income tax expense was nominal for the three months ended March 31, 2007and 2006 since we are still in the development 

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stage and areincurring losses. The tax benefit for these losses will not be recognized untilrealization is more likely than not.

**Liquidity andCapital Resources**

*Overview.**  **Substantially all of our capitalexpenditures and liquidity requirements since December 2004 have beenrelated to the development of our MSS/ATC System. As described in more detailbelow under “Contractual Obligations,” our primary expected cash needs for 2007are for the construction and launch of the GEO satellite and relateddevelopment costs for the MSS portion of the MSS/ATC System.*

*Cash Flows.**  *Thefollowing table is provided to facilitate the discussion of our liquidity andcapital resources for the three months ended March 31, 2007 and 2006 (inthousands):

| ** **                                            | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Net cash provided  by (used in):                      |       |                                                 |       |   |   |   |   |   |   |
| Operating activities                                  |       |                                                 | $          | (32,876 | ) |   |   | $ | (19,982 | ) |   |
| Investing activities                                  |       |                                                 | 32,061     |   |   |   | 106,949 |   |   |
| Financing activities                                  |       |                                                 | —     |   |   |   | 9,920 |   |   |
| Effect of foreign  exchange rate changes on cash      |       |                                                 | 8          |   |   |   | (4,048 | ) |   |
| Net increase  (decrease) in cash and cash equivalents |       |                                                 | (807       | ) |   |   | 92,839 |   |   |
| Cash and cash  equivalents—beginning of period   |       |                                                 | 163,059    |   |   |   | 175,510 |   |   |
| Cash and cash  equivalents—end of period         |       |                                                 | $          | 162,252 |   |   |   | $ | 268,349 |   |   |

 

Cash, cash equivalents and available-for-saleinvestments were $230.2 million at March 31, 2007 compared to$239.7 million at December 31, 2006. We believe that our cash, cashequivalents and available-for-sale securities will be sufficient to fund ouroperational and capital requirements for at least the next twelve months.

Cash used in operating activities was $32.9 millionfor the three months ended March 31, 2007 compared to $20 million for thethree months ended March 31, 2006. For the three months ended March 31,2007, cash used in operating activities consisted primarily of our net loss of$16.7 million and a decrease in accrued interest expense of $18 million due tothe payment of interest on the 7.5% Notes, partially offset by various non-cashitems included in our net loss. Cash used in operating activities for the threemonths ended March 31, 2006 consisted primarily of our net loss of $15million and a decrease in accrued interest expense of $13.9 million due to thepayment of interest on the 7.5% Notes, partially offset by various non-cashitems included in our net loss.

Cash provided by investing activities was $32.1million for the three months ended March 31, 2007 compared to $106.9million for the three months ended March 31, 2006. For the three monthsended March 31, 2007, the primary source of cash provided by investingactivities was net sales and maturities of available-for-sale and restrictedinvestment securities of $33.1 million, partially offset by capitalexpenditures of $1 million related to the satellite system under construction.Cash provided by investing activities for the three months ended March 31,2006 consisted primarily of $162.1 million of net purchases of available-for-salesecurities and restricted investments, partially offset by $41.9 million ofcapital expenditures related to the satellite system under construction and $14million to acquire first priority rights to use a desired orbital slot for ourGEO satellite.

Cash provided by financingactivities was zero for the three months ended March 31, 2007 compared to$9.9 million for the three months ended March 31, 2006. For the threemonths ended March 31, 2006, cash provided by financing activities wasattributable to the sale of ICO North America Class A common 

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stockand options to purchase shares of ICO North America Class A common stockto certain holders of our 7.5% Notes.

**Risks andUncertainties**

Certain risks anduncertainties that could materially affect our future results of operations orliquidity are discussed under “Part II—Other Information, Item 1A.Risk Factors” in this Form 10-Q and in our Form 10-K. Inparticular, these risks and uncertainties include, but are not limited to, thefollowing matters:

·       Weoperate in a heavily regulated industry, and our rights to offer our plannedservices are tied to meeting significant milestones or otherwise satisfying ourregulators. In the United States, we have met nine FCC milestones and our rightto use our assigned MSS spectrum to provide service is conditioned on ourcompletion of three additional FCC milestones. There can be no assurance that we willachieve our remaining milestone dates. If we fail to meet a milestoneand we are unable to obtain a waiver or extension, we could lose our MSSauthorization, and a loss of our MSS authorization would be an event of defaultunder the indenture governing the 7.5% Notes. Substantially all of the$525 million to $600 million we anticipated needing to develop the MSSportion of our MSS/ATC System will be used to complete the tasks to permit usto meet the FCC milestones.

·       Thereare many risks inherent to building, launching and maintaining a satellite. Weintend to obtain launch vehicle and satellite insurance and maintain in-orbitinsurance coverage. These costs through 2007 are included in our estimatedcosts for completing the MSS portion of our MSS/ATC System. We expect theinsurance policies to include customary satellite insurance exclusions and/ordeductibles and material change limitations. We anticipate that, as is commonin the industry, we will not insure against business interruption, lostrevenues or delay of revenues in the event of a total or partial loss of thecommunications capacity or life of the satellite. Accordingly, we would not befully insured for all of the potential losses that may be incurred in the eventof a satellite launch failure or other satellite malfunction. In addition, ourbusiness plan contemplates operating one satellite, and a launch failure wouldresult in significant delays in the deployment of the satellite due to the needto construct a replacement, which can take 27 months or longer, and toobtain a launch opportunity for the replacement satellite. If we were unable toobtain a waiver or extension from the FCC, we could lose our MSS authorization,and a loss of our MSS authorization would be an event of default under theindenture governing the 7.5% Notes. In addition, in the event that the GEOsatellite and its associated systems are not certified as operational by August 15,2008, the annual interest rate on the 7.5% Notes will increase by 1.5%initially and by an additional 1.5% every 30 days until certification isachieved, up to a maximum annual interest rate of 13.5%, and all interestpayments on the 7.5% Notes will be required to be paid in cash.

·       Webelieve we have sufficient capital resources to complete and certify to the FCCthat the MSS portion of our MSS/ATC System is operational. We may seek potentialstrategic partners to assist us in developing the ATC portion of our MSS/ATCSystem. If we chose to complete our MSS/ATC System without partners, we wouldneed to raise substantial additional funding through equity and/or debtofferings. The category of business or consumer market we choose to serve, thetype and extent of ATC infrastructure necessary to serve such market and thegeographic scope of our service area will affect the amount of capital neededfor the terrestrial ATC portion of our MSS/ATC System. We expect that theadditional funding needed for the type and scope of ATC service we would pursuewithout strategic partners would range from approximately $300 million to$800 million. To provide ATC service, we must separately apply to the FCCfor ATC authorization, which we expect to do later in 2007, and meet certain “gatingcriteria,” which include the provision of commercial MSS service, as apre-condition to obtaining ATC authorization.

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·       ForU.S. federal income tax purposes, we realized a gain of more the $300 millionon the disposition of certain securities in 2003. This gain was offset bylosses incurred in connection with the abandonment of certain assets related toour MEO satellite system in the same year. The IRS is currently auditing our2003 tax year in which these transactions occurred. The audit involves both therecognition of the losses in connection with the impairment of our MEO assetsand the timing of the gain on the disposition of the relevant securities, whichwere sold through a variable forward contract. To the extent the IRS disallowsthe deductions claimed, we could face a tax liability ranging fromapproximately $12 million to $128 million, not including any penaltiesthat may be imposed.

·       Weare engaged in litigation with The Boeing Company and BSSI arising out ofagreements for the development and launch of our MEO satellites. BSSI’sallegations are unproven and it has not specified the amount of monetary reliefit is seeking. We have asserted cross-claims that we believe are meritorious.From August 2004 through March 31, 2007, we have incurredapproximately $10.8 million in pursuing this litigation and expect that wewill continue to incur substantial costs through the duration of thelitigation. Due to the uncertain nature of litigation and the many factorsbeyond our control, we could incur greater costs as the litigation proceeds.

·       Thereis considerable uncertainty as to how legacy MEO satellite systems, such asours, would be treated in any new regulatory regime in Europe. Europeanregulators are currently considering new rules for the S-band, and Ofcom has requested that wecontinue to meet our due diligence requirements toward the deployment ofcommercial service on our MEO satellite system, and has requested that concrete steps be taken by us inthe near future, in order to maintain Ofcom’s support for us in internationalforums. If we are unable to preserve our claim to priority and legacyrights, we will be entitled to pursue international S-band operations on thesame terms as all other operators. Depending on the development of a MEObusiness plan and the associated costs (including the costs to comply with thefinal milestone or any new milestones imposed), as well as the success ofdiscussions with potential partners who could provide the funding for thedevelopment of the MEO satellite system, we may or may not proceed with thedevelopment of our physical and regulatory MEO assets.

·       Inconnection with the audit of our financial statements for the year ended December 31,2006, our independent auditors identified a material weakness in our internalcontrols regarding review procedures with respect to income tax accounting.This inadequate review process, including a need for dedicated internal taxpersonnel, contributed to our inability to identify material misstatements inour 2005 and 2006 income tax note disclosures. As of March 31, 2007, wehad not remediated the material weakness identified by our auditors. If we donot have sufficient adequately trained and experienced tax accountingpersonnel, we may be unable to prepare our financial statements on time and maynot accurately reflect our performance or condition, which may adversely affectour business and compliance with SEC reporting obligations.

We are subject toadditional risks and uncertainties discussed under “Part II—OtherInformation” in this Form 10-Q and in “Item 1A. Risk Factors”in our Form 10-K, that could adversely affect the planneddevelopment, operation or commercialization of our MSS/ATC System and ourcosts, competitive position, financial condition and ability to realizeearnings.

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**ContractualObligations**

Our primary contractualobligations include the 7.5% Notes and the obligations under our primaryagreements for the design, manufacture and launch of our GEO satellite andprocurement of equipment and other services for our gateway system. In thetable below, we set forth our contractual obligations as of March 31, 2007(in millions):

| ** **                         | ** ** | ** ** | ** ** | ** **    | ** ** | **Years ending December 31,** | ** ** |
|------------------------------------|------------|------------|------------|---------------|------------|----------------------------------------------|------------|
| ** **                         | ** ** | ** ** | ** ** | **Remainder** | ** ** | ** **                                   | ** ** | ** ** | ** ** | **2012 and** | ** ** |
| ** **                         | ** ** | **Total**  | ** ** | **of 2007**   | ** ** | **2008-2009**                                | ** ** | **2010-2011** | ** ** | **Thereafter** | ** ** |
| Long-term debt  obligations(1)     |       | $          | 771.9      |          |       | $                                            | 24.4       |   |   |   | $ | 747.5 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Capital lease  obligations         |       | 26.0       |       |          | 20.1       |                                         |       |   | 4.5 |   |   |   | 1.4 |   |   |   | — |   |   |
| SAN operating lease  obligations   |       | 5.6        |       |          | 1.1        |                                         |       |   | 4.0 |   |   |   | 0.5 |   |   |   | — |   |   |
| Other operating lease  obligations |       | 1.7        |       |          | 0.3        |                                         |       |   | 0.7 |   |   |   | 0.6 |   |   |   | 0.1 |   |   |
| Purchase obligations(2)            |       | 107.7      |       |          | 66.3       |                                         |       |   | 5.7 |   |   |   | 4.5 |   |   |   | 31.2 |   |   |
| Total                              |       | $          | 912.9      |          |       | $                                            | 112.2      |   |   |   | $ | 762.4 |   |   |   | $ | 7.0 |   |   |   | $ | 31.3 |   |   |

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(1)          Assumes all interestpayments on our 7.5% Notes are made in cash and at an interest rate of 7.5%.Subject to the satisfaction of certain conditions and to certain exceptions,for the period from August 16, 2007 through August 15, 2009, we havethe option of paying interest with additional notes in lieu of cash at anincreased rate of 8.5% per annum. In the event that our GEO satellite and itsassociated systems are not certified as operational by August 15, 2008,the interest rate on the 7.5% Notes increases by 1.5% initially and by anadditional 1.5% every 30 days until certification is achieved, up to a maximumannual interest rate of 13.5%, and all payments on the 7.5% Notes are requiredto be paid in cash.

(2)          As of March 31,2007, we had remaining payments of approximately $84 million that are payablebased on the achievement of certain construction, delivery and deploymentmilestones related to the development of the MSS/ATC System, which are expectedto occur later in 2007. These remaining payments relate to the agreementsdescribed below as well as other secondary agreements related to thedevelopment of the MSS/ATC System. Additional payments of $23.2 millionrelated to in-orbit satellite performance incentives, including interest,related to our GEO satellite are payable over 15 years from 2007 through2022. In addition to these remaining payments, we have purchase commitments ofapproximately $500,000 related to our MEO satellite system.

We have an agreement with Loral to design, develop,manufacture, test and deliver one GEO satellite and to develop, test andimplement certain ground-based systems related to the operation of thesatellite. The satellite is expected to be delivered to permit a launch by November 30,2007. We also retain an option through December 31, 2008 to purchase oneadditional GEO satellite.

We have an agreement with Lockheed for the provisionof launch services for our GEO satellite. In February 2007, we selected,in coordination with Lockheed, our launch slot as November 2007. We havepurchased launch risk protection insurance from Lockheed, providing for apayment to us in the event of a launch failure due to the launch vehicle. Wealso retain an option to require Lockheed to provide a replacement launch inthe event that we determine that the initial launch resulted in a satellitefailure within the first six months after launch.

We have an agreement with HNS to provide gatewayservices, including the design, manufacture, test and delivery of the radiofrequency subsystem, the gateway system controller, the gateway control networkand the gateway system interconnections. The gateway will be located at the HNSfacility in North Las Vegas, Nevada and is scheduled to be delivered in June 2007.We retain an option to purchase a diverse site radio frequency terminal alongwith an associated diverse site facility.

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Under the terms of the indenture governing the 7.5%Notes, we are required to obtain launch insurance and maintain in-orbitinsurance coverage, each in an amount equal to the full replacement cost of theGEO satellite. We expect this launch insurance to range from approximately$40 million to $60 million.

In 2007, we have begun to design and develop our MIMservices. We plan to conduct an alpha trial of our MIM services in 2008, withtotal costs expected to be in the range of $30 million to $40 million.

As a result of theimplementation of FIN 48, we have recorded a liability related to reservesfor income taxes of $9.4 million as of March 31, 2007. Settlement ofthis liability, including timing of future payment, if any, is currentlyuncertain.

**Inflation**

The impact of inflation onour consolidated financial condition and results of operations was notsignificant during any of the periods presented.

**Off-Balance SheetArrangements**

We do not have anyoff-balance sheet arrangements.

***Item 3.******                          Quantitativeand Qualitative Disclosures About Market Risk***

We have assessed our vulnerability to certain marketrisks, including interest rate risk associated with our available-for-salesecurities, long-term debt, accounts payable, capital lease obligations, andcash and cash equivalents and foreign currency risk associated with our capitallease obligations and cash held in foreign currencies.

Our investment portfolio consists of fixed income debtsecurities, including money market funds, commercial paper, governmentobligations and corporate bonds, with a fair value of approximately$254.9 million as of March 31, 2007 and $288.5 million as of December 31,2006. The primary objective of our investments in fixed income securities is topreserve principal, while maximizing returns and minimizing risk, and ourpolicies require that we make these investments in short-term, highly-ratedsecurities. For available-for-sale securities, unrealized gains and losses arerecorded in other comprehensive income. Losses will not be realized in the condensedconsolidated statement of operations unless the individual securities are soldprior to recovery or determined to be other-than-temporarily impaired. Wemanage our interest rate risk by purchasing securities with maturities thatcorrespond to our liquidity needs for operations, capital expenditures and debtservice. Due to the short-term nature of these investments (less than 180 days)and our investment policies and procedures, we have determined that the riskassociated with interest rate fluctuations related to these financialinstruments is not material to us.

Our convertible long-term debt bears interest at afixed rate of 7.5%, matures on August 15, 2009 and has a fair value ofapproximately $663 million as of March 31, 2007 and approximately$721.5 million as of December 31, 2006.

Our primary foreigncurrency exposure relates to cash balances in foreign currencies. Due to thesmall balances we hold, we have determined that the risk associated with foreigncurrency fluctuations is not material to us. We do not enter into any hedgingor derivative transactions to manage our exposure to foreign currency risk.

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***Item 4T.****                  Controlsand Procedures*

*Evaluation ofDisclosure Controls and Procedures*

Our management, with theparticipation of our chief executive officer and senior vice president—finance,evaluated the effectiveness of our disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) under theExchange Act) as of March 31, 2007. These disclosure controls andprocedures ensure that information required to be disclosed by a company in thereports that it files or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the SEC’s rules andforms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed bya company in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the company’s management, including itsprincipal executive and principal financial and accounting officers, asappropriate to allow timely decisions regarding required disclosure. Ourmanagement recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating thecost-benefit relationship of possible controls and procedures. As of March 31,2007, based on the evaluation of our disclosure controls and procedures, ourchief executive officer and senior vice president—finance concluded that, as ofsuch date, our disclosure controls and procedures were not effective because ofthe material weakness described below.

*Material Weakness*

In connection with the audit of our financialstatements for the year ended December 31, 2006, our independent auditorsidentified a material weakness in our internal control over financial reportingregarding review procedures with respect to income tax accounting. Thisinadequate review process, including a need for dedicated internal taxpersonnel, contributed to our inability to identify material misstatements inour 2005 and 2006 income tax note disclosures. As of March 31, 2007, wehad not remediated the material weakness identified by our independentauditors.

In light of the material weakness described above, wehave performed additional analysis and reviews to provide reasonable assurancethat the financial statements and related disclosures in this Form 10-Qhave been prepared in accordance with generally accepted accounting principles.

We continue to take stepsto remediate the material weakness identified at December 31, 2006.However, we will not be able to demonstrate that this material weakness hasbeen fully remediated or that our controls are operating effectively, until wecomplete our remediation efforts and both we and our independent registeredpublic accounting firm conduct a year-end assessment of our internal controlover financial reporting for the fiscal year ended December 31, 2007,pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Our remediationefforts include establishing new review processes and procedures, which taketime to implement, and the hiring of qualified tax accounting personnel.

*Changes in InternalControl Over Financial Reporting*

There have been no changes in our internal controlover financial reporting during the first quarter of 2007 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

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**PART II—OTHERINFORMATION**

***Item 1.***                          *Legal Proceedings*

See Note 6 of ourcondensed consolidated financial statements, *“Commitmentsand Contingencies”* included in Part I, Item 1 of this quarterlyreport on Form 10-Q, for a discussion of the material legal proceedingsto which we are a party.

***Item 1A.****                  RiskFactors*

The risk factor disclosureincluded under Part I, Item 1A. of our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2006 has not materially changed.

***Item 2.****                          UnregisteredSales of Equity Securities and Use of Proceeds*

Managementbelieves that the securities issuances described in the table below were exemptfrom the registration requirements of the Securities Act of 1933, as amended,pursuant to Section 4(2) as a transaction not involving any publicoffering. The number of investors was limited, the investors were eitheraccredited or otherwise qualified and had access to material information aboutthe registrant, and restrictions were placed on the resale of the securitiessold.

| **Date**            | ** ** | ** **                 | ** ** | **Title** | ** ** | **Number  of shares** | ** ** | **Consideration** | ** ** | **Recipient** | ** ** |
|---------------------|------------|----------------------------|------------|-----------|------------|----------------------------|------------|-------------------|------------|---------------|------------|
| March 2,  2007 |       | Class A  common stock |       |      | 30,048     |                       |       |              | —     |          |       | Eagle River, Inc. | (1) |
|                     |            |                            |            |           |            |                            |            |                   |            |               |            |  |  |  |  |

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(1)          Issuedas compensation for advisory services performed from December 1, 2006through February 28, 2007.

***Item 3.***                          *Defaults Upon Senior Securities*

None.

***Item 4.****                          Submissionof Matters to a Vote of Security Holders*

None.

***Item 5.****                          OtherInformation*

None.

***Item 6.***                          *Exhibits*
| Ex. 10.27*+ |   | Board Compensation Policy, as amended.                                                                                                                                                |
|-------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Ex. 31.1*   |   | Certification of the  principal executive officer required by Rule 13a-14(a) or  Rule 15d-14(a).                                                                       |
| Ex. 31.2*   |   | Certification of the  principal financial and accounting officer required by Rule 13a-14(a) or  Rule 15d-14(a).                                                        |
| Ex. 32.1*   |   | Certifications required  by Rule 13a-14(b) or Rule 15d-14(b) and  Section 1350 of Chapter 63 of Title 18 of the United States Code (18  U.S.C. § 1350). |

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*                    FiledHerewith.

+                Managementcontract or compensatory plan or arrangement

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theregistrant has duly caused this report to be signed on its behalf by theundersigned there unto duly authorized.
|                          | ** ** | **ICO GLOBAL COMMUNICATIONS  (HOLDINGS) LIMITED** |
|--------------------------|------------|---------------------------------------------------|
|                     |       | (Registrant)                                      |
| Dated: May 14, 2007 |       | By:                                               | /s/ J. TIMOTHY BRYAN |
|                     |       |                                              | J. Timothy Bryan |
|                     | * *   | * *                                          | *Chief Executive Officer (principal executive  officer)* |

 

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