**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 June 30, 2007**

**or**

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

**Forthe transition periodfrom                    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.

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated 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-2 of theExchange Act).  Yes  o  No  x.

As of August 1, 2007,the registrant had 144,547,195 shares of Class A common stock and53,660,000 shares of Class B common stock outstanding.

 

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**ICO GLOBALCOMMUNICATIONS (HOLDINGS) LIMITEDFORM 10-QFor the three and six months ended June 30, 2007INDEX**
|                   | ** **                                                                                  | ** ** | Page   |
|-------------------|---------------------------------------------------------------------------------------------|------------|--------|
| **PART I.**  | **FINANCIAL  INFORMATION**                                                                  |       |   |   |
| Item 1.           | Financial  Statements (unaudited):                                                          |       |   |   |
|              | 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                                                                          |       | 30     |   |
| Item 1A.     | Risk Factors                                                                                |       | 30     |   |
| Item  2.          | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 30     |   |
| Item  3.          | Defaults  Upon Senior Securities                                                            |       | 30     |   |
| Item  4.          | Submission  of Matters to a Vote of Security Holders                                        |       | 31     |   |
| Item 5.           | Other  Information                                                                          |       | 31     |   |
| Item 6.           | Exhibits                                                                                    |       | 31     |   |
| Signatures        |                                                                                        | 33         |   |
| Certifications    |                                                                                        |       |   |

 

2

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**PART I—FINANCIALINFORMATION**

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

**ICO Global Communications(Holdings) Limited**(A Development StageEnterprise)

**CondensedConsolidated Balance Sheets**

**(In thousands, except sharedata, unaudited)**

| ** **                                                                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                          | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                                                                          | ** ** | ** **        | ** ** |                  | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                     |       |              |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                                                                                          |       | $                 | 154,461    |                  |       | $ | 163,059 |   |   |
| Restricted cash                                                                                                                                                                     |       | 825               |       |                  | 825        |   |   |
| Available-for-sale  investments                                                                                                                                                     |       | 44,613            |       |                  | 76,680     |   |   |
| Restricted  investments                                                                                                                                                             |       | 24,969            |       |                  | 48,734     |   |   |
| Prepaid expenses  and other current assets                                                                                                                                          |       | 2,280             |       |                  | 807        |   |   |
| Total current  assets                                                                                                                                                               |       | 227,148           |       |                  | 290,105    |   |   |
| Property in  service-net of accumulated depreciation of $278 and $186, respectively                                                                                                 |       | 664               |       |                  | 373        |   |   |
| Satellite system  under construction                                                                                                                                                |       | 369,149           |       |                  | 318,563    |   |   |
| Debt issuance  costs-net of accumulated amortization of $12,565 and $9,083, respectively                                                                                            |       | 16,992            |       |                  | 20,476     |   |   |
| Other assets                                                                                                                                                                        |       | 14,000            |       |                  | 14,000     |   |   |
| Total                                                                                                                                                                               |       | $                 | 627,953    |                  |       | $ | 643,517 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIENCY IN ASSETS**                                                                                                                        | ** ** | ** **        | ** ** |                  | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                |       |              |       |                  |       |   |   |
| Accounts payable                                                                                                                                                                    |       | $                 | 252        |                  |       | $ | 623 |   |   |
| Accrued satellite  system construction payable                                                                                                                                      |       | 13,598            |       |                  | 43         |   |   |
| Accrued expenses                                                                                                                                                                    |       | 20,900            |       |                  | 21,656     |   |   |
| Accrued interest                                                                                                                                                                    |       | 31,273            |       |                  | 29,161     |   |   |
| Current portion of  capital lease obligations                                                                                                                                       |       | 15,337            |       |                  | 13,023     |   |   |
| Total current  liabilities                                                                                                                                                          |       | 81,360            |       |                  | 64,506     |   |   |
| Capital lease  obligations, less current portion                                                                                                                                    |       | 2,687             |       |                  | 4,595      |   |   |
| Income tax payable                                                                                                                                                                  |       | 9,521             |       |                  | —     |   |   |
| Convertible  long-term debt                                                                                                                                                         |       | 650,000           |       |                  | 650,000    |   |   |
| Total liabilities                                                                                                                                                                   |       | 743,568           |       |                  | 719,101    |   |   |
| Commitments and contingencies (Note 6)                                                                                                                                              |       |              |       |                  |       |   |   |
| Stockholders’ 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, 202,516,087 and 201,275,552  shares issued, and 144,547,195 and 143,306,660 shares outstanding |       | 2,013             |       |                  | 2,013      |   |   |
| Class B  convertible common stock, $.01 par value, 150,000,000 shares authorized, 84,663,382  and 85,843,382 shares issued, and 53,660,000 and 54,840,000 shares  outstanding  |       | 858               |       |                  | 858        |   |   |
| Additional paid-in  capital                                                                                                                                                         |       | 2,718,067         |       |                  | 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                                                                                                                                             |       | 6,302             |       |                  | 6,273      |   |   |
| Deficit  accumulated during the development stage                                                                                                                                   |       | (1,965,366        | )          |                  | (1,922,228 | ) |   |
| Total  stockholders’ deficiency in assets                                                                                                                                      |       | (115,615          | )          |                  | (75,584    | ) |   |
| Total                                                                                                                                                                               |       | $                 | 627,953    |                  |       | $ | 643,517 |   |   |

 

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

3

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**ICO GlobalCommunications (Holdings) Limited**

**(ADevelopment Stage Enterprise)**

**CondensedConsolidated Statements of Operations**

**(In thousands, except shareand per share data, unaudited)**

| ** **                                                                            | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** **                  | ** ** | ** **     | ** ** | **February 9, 2000** | ** **  |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------------|------------|----------------|------------|--------------------------------|-------------|
| ** **                                                                            | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** **                  | ** ** | ** **     | ** ** | **(inception) to**        | ** **  |
| ** **                                                                            | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** | **June 30, 2007** | ** ** |
| ** **                                                                            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** | **(development**            | ** ** |
| ** **                                                                            | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007**                    | ** ** | **2006**       | ** ** | **stage period)**         | ** **  |
| ** **                                                                            | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** **                  | ** ** | **(restated)** | ** ** | ** **                     | ** **  |
| Operating expenses  :                                                                 |       |                             |       |                           |       |                        |       |           |       |                           |        |   |   |
| General and administrative                                                            |       | $                                | 9,792      |                           | $          | 9,476                       |       | $              | 19,557     |                           | $           | 18,485 |   |   | $ | 595,165 |   |   |
| Research and development                                                              |       | 2,203                            |       | 843                            |       | 4,352                       |       | 871            |       |                           | 73,682      |   |   |
| Contract settlements                                                                  |       | —                           |       | —                         |       | —                      |       | —         |       |                           | (74,955     | ) |   |
| Impairment of property under construction                                             |       | —                           |       | —                         |       | —                      |       | —         |       |                           | 1,438,304   |   |   |
| Loss on disposal of assets                                                            |       | —                           |       | —                         |       | —                      |       | —         |       |                           | 11,100      |   |   |
| Total operating expenses                                                              |       | 11,995                           |       | 10,319                         |       | 23,909                      |       | 19,356         |       |                           | 2,043,296   |   |   |
| Operating loss                                                                        |       | (11,995                          | )          | (10,319                        | )          | (23,909                     | )          | (19,356        | )          |                           | (2,043,296  | ) |   |
| Interest income                                                                       |       | 3,149                            |       | 5,050                          |       | 6,538                       |       | 10,631         |       |                           | 127,904     |   |   |
| Interest expense                                                                      |       | (8,234                           | )          | (10,673                        | )          | (16,215                     | )          | (22,992        | )          |                           | (164,222    | ) |   |
| Other income  (expense)                                                               |       | 9                                |       | 362                            |       | (29                         | )          | 1,136          |       |                           | 3,696       |   |   |
| Loss before income  taxes                                                             |       | (17,071                          | )          | (15,580                        | )          | (33,615                     | )          | (30,581        | )          |                           | (2,075,918  | ) |   |
| Income tax benefit  (expense)                                                         |       | (169                             | )          | 4                              |       | (342                        | )          | (36            | )          |                           | 120,284     |   |   |
| Net loss before  cumulative effect of change in accounting  principle            |       | (17,240                          | )          | (15,576                        | )          | (33,957                     | )          | (30,617        | )          |                           | (1,955,634  | ) |   |
| Cumulative effect  of change in accounting principle                                  |       | —                           |       | —                         |       | —                      |       | —         |       |                           | (1,944      | ) |   |
| Net loss                                                                              |       | $                                | (17,240    | )                              | $          | (15,576                     | )          | $              | (33,957    | )                              | $           | (30,617 | ) |   | $ | (1,957,578 | ) |   |
| Basic and diluted loss per share:                                                     |       |                             |       |                           |       |                        |       |           |       |                           |        |   |   |
| Loss before cumulative effect of change in  accounting principle                 |       | $                                | (0.09      | )                              | $          | (0.08                       | )          | $              | (0.17      | )                              | $           | (0.16 | ) |   | $ | (10.14 | ) |   |
| Cumulative effect of change in accounting principle                                   |       | —                           |       | —                         |       | —                      |       | —         |       |                           | (0.01       | ) |   |
| Basic and diluted loss per share                                                      |       | $                                | (0.09      | )                              | $          | (0.08                       | )          | $              | (0.17      | )                              | $           | (0.16 | ) |   | $ | (10.15 | ) |   |
| Weighted average  shares outstanding used to compute basic and diluted loss per share |       | 198,085,419                      |       | 197,488,531                    |       | 198,070,961                 |       | 197,485,031    |       |                           | 192,930,795 |   |   |

 

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)

**Condensed Consolidated Statements of ComprehensiveIncome (Loss)**(In thousands,unaudited)

| ** **                                      | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** **                  | ** ** | ** **     | ** ** | **February 9, 2000** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------------|------------|----------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** **                  | ** ** | ** **     | ** ** | **(inception) to**        | ** ** |
| ** **                                      | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** | **June 30, 2007** | ** ** |
| ** **                                      | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** | **(development**            | ** ** |
| ** **                                      | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007**                    | ** ** | **2006**       | ** ** | **stage period)**         | ** ** |
| ** **                                      | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** **                  | ** ** | **(restated)** | ** ** | ** **                     | ** ** |
| Net loss                                        |       | $                                | (17,240    | )                              | $          | (15,576                     | )          | $              | (33,957    | )                              | $          | (30,617 | ) |   | $ | (1,957,578 | ) |   |
| Other comprehensive  income (loss):             |       |                             |       |                           |       |                        |       |           |       |                           |       |   |   |
| Unrealized gain on investments, net of tax |       | —                           |       | (9                             | )          | 18                          |       | 27             |       |                           | —     |   |   |
| Cumulative translation adjustments              |       | 248                              |       | (515                           | )          | 11                          |       | (1,071         | )          |                           | 6,302      |   |   |
| Comprehensive  loss                             |       | $                                | (16,992    | )                              | $          | (16,100                     | )          | $              | (33,928    | )                              | $          | (31,661 | ) |   | $ | (1,951,276 | ) |   |

 

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, except share data, unaudited)**

| ** **                                                                   | ** ** | ** **                     | ** ** | ** **                  | ** ** | **February 9, 2000** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | ** **                     | ** ** | ** **                  | ** ** | **(inception) to**        | ** ** |
| ** **                                                                   | ** ** | **Six months ended** | ** ** | **June 30, 2007** | ** ** |
| ** **                                                                   | ** ** | **June 30,**              | ** ** | **(development**            | ** ** |
| ** **                                                                   | ** ** | **2007**                       | ** ** | **2006**                    | ** ** | **stage period)**         | ** ** |
| ** **                                                                   | ** ** | ** **                     | ** ** | **(restated)**              | ** ** | ** **                     | ** ** |
| Operating activities:                                                        |       |                           |       |                        |       |                           |       |   |   |   |   |
| Net loss                                                                     |       | $                              | (33,957    | )                           |       | $                              | (30,617    | ) |   |   | $ | (1,957,578 | ) |   |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                           |       |                        |       |                           |       |   |   |   |   |
| Stock-based  compensation                                                    |       | 2,828                          |       |                        | 3,464      |                           |       |   | 29,363 |   |   |
| Depreciation                                                                 |       | 94                             |       |                        | 69         |                           |       |   | 3,557 |   |   |
| Amortization of  debt issuance costs                                         |       | 3,482                          |       |                        | 3,253      |                           |       |   | 12,565 |   |   |
| Unrealized foreign  exchange (gain) loss                                     |       | 786                            |       |                        | (999       | )                              |       |   | (4,356 | ) |   |
| 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                                   |       | (1,466                         | )          |                        | 521        |                           |       |   | 48,008 |   |   |
| Accrued interest  income                                                     |       | (1,684                         | )          |                        | 179        |                           |       |   | (4,798 | ) |   |
| Accounts payable                                                             |       | (371                           | )          |                        | (958       | )                              |       |   | (696 | ) |   |
| Accrued interest  payable                                                    |       | (11,286                        | )          |                        | (4,853     | )                              |       |   | 52,176 |   |   |
| Other accrued  expenses                                                      |       | (184                           | )          |                        | 2,258      |                           |       |   | 59,187 |   |   |
| Net cash used in  operating activities                                       |       | (41,758                        | )          |                        | (27,683    | )                              |       |   | (447,924 | ) |   |
| 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                            |       | (23,627                        | )          |                        | (121,099   | )                              |       |   | (324,015 | ) |   |
| Purchases of  property under construction                                    |       | —                         |       |                        | —     |                           |       |   | (497,890 | ) |   |
| Purchases of  property in service                                            |       | (385                           | )          |                        | (141       | )                              |       |   | (2,417 | ) |   |
| Investment in  unconsolidated subsidiaries                                   |       | —                         |       |                        | —     |                           |       |   | (2,373 | ) |   |
| Purchases of other  assets                                                   |       | —                         |       |                        | (14,000    | )                              |       |   | (14,000 | ) |   |
| Purchases of  available-for-sale investments                                 |       | (287,570                       | )          |                        | (177,874   | )                              |       |   | (4,018,461 | ) |   |
| Maturities and  sales of available-for-sale investments                      |       | 322,114                        |       |                        | 326,688    |                           |       |   | 3,977,333 |   |   |
| Purchases of  restricted investments                                         |       | (25                            | )          |                        | (626       | )                              |       |   | (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                         |       | 33,522                         |       |                        | 38,332     |                           |       |   | (914,544 | ) |   |
| 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                             |       | (362                           | )          |                        | 181        |                           |       |   | (8,856 | ) |   |
| Net increase  (decrease) in cash and cash equivalents                        |       | (8,598                         | )          |                        | 20,750     |                           |       |   | 154,461 |   |   |
| Cash and cash  equivalents—beginning of period                          |       | 163,059                        |       |                        | 175,510    |                           |       |   | — |   |   |
| Cash and cash  equivalents—end of period                                |       | $                              | 154,461    |                        |       | $                              | 196,260    |   |   |   | $ | 154,461 |   |   |

 

(continued)

6

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**ICO Global Communications (Holdings) Limited**

**(A Development Stage Enterprise)**

**Condensed Consolidated Statements of Cash Flows (Continued)**

**(in thousands, except share data, unaudited)**

 

| ** **                                                                                                                | ** ** | ** **                           | ** ** | ** **       | ** ** | **February 9, 2000** | ** **  |
|---------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------|------------|--------------------------------|-------------|
| ** **                                                                                                                | ** ** | ** **                           | ** ** | ** **       | ** ** | **(inception) to**        | ** **  |
| ** **                                                                                                                | ** ** | ** **                           | ** ** | ** **       | ** ** | **June 30,**              | ** **  |
| ** **                                                                                                                | ** ** | **Six  months ended** | ** ** | **2007**         | ** ** |
| ** **                                                                                                                | ** ** | **June 30,**                    | ** ** | **(development** | ** ** |
| ** **                                                                                                                | ** ** | **2007**                             | ** ** | **2006**         | ** ** | **stage period)**         | ** **  |
| ** **                                                                                                                | ** ** | ** **                           | ** ** | **(restated)**   | ** ** | ** **                     | ** **  |
| Supplemental disclosure:                                                                                                  |       |                                 |       |             |       |                           |        |   |   |
| Income taxes paid                                                                                                         |       | $                                    | 23         |             | $          | —                         |        |   | $ | 7,450 |   |   |
| Interest paid                                                                                                             |       | 24,375                               |       | 24,374           |       |                           | 126,027     |   |   |
| Capitalized interest                                                                                                      |       | 13,404                               |       | 6,037            |       |                           | 31,536      |   |   |
| 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 (decrease) in accrued satellite system  construction payable                                                     |       | 13,555                               |       | (17,061          | )          |                           | 13,598      |   |   |
| 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 Condensed Consolidated 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. Through its majorityowned subsidiary, ICO North America, Inc. (“ICO North America”), ICO isauthorized by the FederalCommunications Commission (“FCC”) to offer ubiquitous MSS throughout theUnited States using a geosynchronous earth orbit (“GEO”) satellite. ICO is alsopermitted to operate a medium earth orbit (“MEO”) satellite system globallyoutside the United States.

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. In 2007, ICO North America hasalso begun to design and develop its Mobile Interactive Media (“MIM”) servicesfor use on its MSS/ATC System and plans to conduct an alpha trial of its MIMservices in 2008.

**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 June 30, 2007.

As the Company is not currently generating revenuefrom operations, there is no assurance that the Company will be able to obtainthe funding necessary to complete the construction of the MSS/ATC System,fund its future working capital requirements, or achieve positive cash flowfrom operations. In addition, the Company operates in a heavily regulatedindustry, and its rights to offer its planned services are tied to meetingsignificant milestones or otherwise satisfying its regulators. Ifthe Company fails to meet a milestone and is unable to obtain a waiver orextension, the Company could lose its MSS authorization, and a loss of its MSSauthorization would be an event of default under the indenture governing theCompany’s $650 million aggregate principal amount of convertible notes due inAugust 2009 (the “7.5% Notes”) (see Note 5). In the event that the Companyis not able to realize its assets in the ordinary course of business, and isforced to realize the assets by divestment, there is no assurance that thecarrying value of the assets could be recovered.

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**3.**                 Summaryof Significant Accounting Policies

***Interim FinancialStatements—******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 disclosures have been condensedor omitted. The financial information as of December 31, 2006, is derivedfrom the Company’s audited consolidated financial statements and notes, includedin Item 8 in the Company’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2006, filed with the U.S. Securities andExchange Commission on April 2, 2007 (“Form 10-K”). Thefinancial information included in this Form 10-Q should be read in conjunctionwith management’s discussion and analysis of financial condition and results ofoperations and the financial statements and notes included in the Company’sForm 10-K. Operating results and cash flows for the interim periodpresented are not necessarily indicative of the results that may be expectedfor the fiscal year ending December 31, 2007 or any other interim period.

***Restatement ofPrior 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 thesix months ended June 30, 2006 have been restated to reflect the effect ofthis adjustment.

***Use of Estimates—******The preparation of financialstatements requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Significantestimates are used when accounting for depreciation, taxes, contingencies,asset useful lives and valuation of stock compensation awards, among others.Actual results could differ from those estimates. Estimates are evaluated on anongoing basis.***

***Cash and Cash Equivalents—******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):

| ** **          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------|------------|-------------------|------------|-----------------------|------------|
| ** **          | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Cash                |       | $                 | 13,731     |                  |       | $ | 23,148 |   |   |
| Money market  funds |       | 14,331            |       |                  | 20,192     |   |   |
| Commercial paper    |       | 126,399           |       |                  | 119,719    |   |   |
|                |       | $                 | 154,461    |                  |       | $ | 163,059 |   |   |

*** ***

***Restricted Cash—******As***of June 30,2007 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-SaleInvestments—******The***Company’sinvestments are primarily held in commercial paper, corporate bonds and notesand U.S. government and agency securities, and are classified as available-for-saleand are reported at fair value based upon quoted market prices. Investmentsgenerally mature or are sold within six months from the purchase date and areclassified as current assets in the condensed consolidated balance sheets.Realized gains and losses on investments are determined using the specificidentification method and are included in interest income in the condensedconsolidated 

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statements of operations.The Company includes any unrealized gains or losses on investments, net of tax,in stockholders’ deficiency in assets as a component of accumulated othercomprehensive income (loss). The Company does not hold any derivative financialinstruments in its investment portfolio.

***RestrictedInvestments—******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 June 30, 2007 and December 31,2006, all of the Company’s restricted investments mature in 2007 and areclassified as current assets in the condensed consolidated balance sheets.Gross unrealized losses on restricted investments at June 30, 2007 andDecember 31, 2006 were $15,000 and $178,000, respectively.

***Satellite SystemUnder 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.

***CapitalizedInterest—******The***Companycapitalizes interest costs associated with the construction of the MSS/ATCSystem. Interest capitalized to satellite system under construction for thethree and six months ended June 30, 2007 and 2006 was $6.6 million and$13.4 million and $3.8 million and $6 million, respectively.

***Debt IssuanceCosts—******Costs***incurredin connection with the issuance of the 7.5% Notes have been capitalized and areincluded in debt issuance costs in 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 in the condensedconsolidated statements of operations. Amortization of debt issuance costs forthe three and six months ended June 30, 2007 and 2006 was $1.8 million and$3.5 million and $1.6 million and $3.3 million, 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 GEO satellite to be used in the MSS/ATC System. TheCompany expects to amortize such costs over the estimated useful life of itsGEO satellite, currently anticipated to be 10 to 15 years.***

***Research andDevelopment 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.

***ContractSettlements—******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 with 

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functionalcurrencies other than the U.S. dollar during the period at the average exchangerate prevailing during the period. Assets and liabilities denominated inforeign currencies are restated at the exchange rates prevailing at the balancesheet 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. During the period, there were no gains or losses resulting from theliquidation of subsidiaries.

Gains and losses onforeign currency transactions are recognized as a component of other income(expense) in the condensed consolidated statements of operations in the periodin which they occur. For the three and six months ended June 30, 2007 and2006, gains on intercompany foreign currency transactions of $1 million and$788,000 and losses on intercompany foreign currency transactions of $2.2million and gains on intercompany foreign currency transactions of $3.7million, respectively, have been excluded from net loss and reported as acomponent of accumulated other comprehensive income (loss).

***Accumulated Other Comprehensive 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 ofJune 30, 2007 consisted of cumulative translation adjustments of $6.3million. ***Accumulatedother comprehensive income as of December 31, 2006 consisted of cumulativetranslation adjustments of $6.3 million, less unrealized losses onavailable-for-sale investments 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.

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

| ** **                                                               | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                               | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                               | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | **(restated)(2)** | ** ** |
| Net loss                                                                 |       | $                                                   | (17,240    | )                                                 | $          | (15,576 | ) | $ | (33,957 | ) | $ | (30,617 | ) |
| Weighted average common  shares outstanding                              |       | 198,185,419                                         |       | 198,088,531                                       |       | 198,170,961 |   | 198,085,031 |   |
| Less: unvested  restricted stock                                         |       | (100,000                                            | )          | (600,000                                          | )          | (100,000 | ) | (600,000 | ) |
| Shares used for  computation of basic and diluted loss per share(1) |       | 198,085,419                                         |       | 197,488,531                                       |       | 198,070,961 |   | 197,485,031 |   |
| Basic and diluted loss per share                                         |       | $                                                   | (0.09      | )                                                 | $          | (0.08 | ) | $ | (0.17 | ) | $ | (0.16 | ) |

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(1)          Theeffect of certain stock options and warrants was anti-dilutive, and they werenot included in the calculation of diluted loss per share. Anti-dilutive stockoptions and warrants totaled 13,756,933 and 60,033,075 as of June 30, 2007and 2006, respectively.

(2)          Financialresults for the six months ended June 30, 2006 have been restated toreflect the effect of a $4.4 million cumulative translation adjustmentincorrectly recorded as a component of other income (expense) during the firstquarter of 2006. Net loss has been restated from $35 million to $30.6million, and basic and diluted loss per share has been restated from a loss of$0.18 per share to a loss of $0.16 per share.

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***New AccountingPronouncements—***In June 2006, the Financial Accounting Standards Board (“FASB”)issued Interpretation No. 48, *Accounting for Uncertaintyin 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 SFASNo. 109, *Accounting for Income Taxes*(“SFAS 109”). 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.

The Company adopted the provisions of FIN 48 onJanuary 1, 2007. As a result of the implementation of FIN 48, the Companyrecognized an increase of approximately $9.2 million in its liability foruncertain tax positions, which was accounted for as an adjustment to itsdeficit accumulated during the development stage as of January 1, 2007.The total amount of reserves for income taxes as of June 30, 2007 andJanuary 1, 2007 was $9.5 million and $9.2 million, respectively. If thereversal of these reserves were recognized, the entire amount would impact theCompany’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 and six monthsended June 30, 2007, the Company recorded interest of $170,000 and$340,000, respectively, related to its reserves for income taxes and hasincluded this amount in income tax expense on its condensed consolidatedstatements 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 of theCompany’s 2003 U.S. federal income tax return. The Company’s 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 the Company’s MEO satellite system.The IRS examination is focused on the deductibility of the losses claimedrelated to the MEO satellite system and the timing of the gain recognized withrespect to the sale of securities under the variable forward contract. As ofJune 30, 2007 the IRS had proposed no adjustments with respect to theCompany’s tax reporting for 2003 or earlier years; however, the IRS has not yetcompleted its examination. The Company believes its tax reporting for 2003 isproper and that it is more likely than not its current tax position will besustained; however, if the IRS were to propose and sustain a position thateither disallows part or all of its MEO asset abandonment deductions for 2003,or results in the taxation of the gain related to the variable forward contractin a year prior to 2003, the Company will incur a tax liability ranging from$12 million to $131 million (including interest but excluding penalty). TheCompany expects these issues will be resolved by the end of 2008 and does notexpect there to be a material change in its tax position over the next twelvemonths.

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 of FASBStatement No. 115*(“SFAS 159”). SFAS 159 permits entitiesto choose to measure eligible items at fair value at specified election datesand report unrealized gains and losses on items for which the fair value optionhas been elected in earnings at each subsequent reporting date. SFAS 159is effective for fiscal years beginning after November 15, 2007. The 

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Companydoes not expect the adoption of this statement to have a material impact on itsfinancial 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. Prior to 2000, the Company entered into noncancellableagreements with certain vendors (“SAN Operators”) that own and operate theCompany’s SAN sites. All of the agreements provide for varying levels ofsupport required to operate the SAN sites (“SAN Operating Agreements”).Additionally, certain of the agreements require the repayment of certainup-front infrastructure costs incurred on the Company’s behalf (“SANInfrastructure Agreements”) that represent capital leases payable with initialinterest rates ranging from 8.5% to 20.0%.

In 2003, the Company determined that it needed onlysome, not all, of the SAN sites to economically deploy the MEO satellitesystem. Additionally, the Company’s Board of Directors decided that the Companywould no longer provide funding to its subsidiaries to pay SAN Operators, withthe exception of its U.S. SAN Operator, unless the Company received additionalfunding or the contracts with such operators were restructured to obtain asubstantial cost savings. In December 2004, the Company’s Board ofDirectors decided to significantly curtail further construction on its MEOsatellite system, which further increased the likelihood that the SAN siteswould not be utilized in a timely fashion in the contemplated MEO satellitesystem. As a result of the Company’s decisions, eight of the ten SAN Operatorsterminated their agreements with the Company from 2004 to 2006 and discontinuedproviding the requisite level of services. The Company accrues operatingexpenses until the related agreement is terminated and the SAN Operator hasceased providing services. Certain of the terminated agreements were settled inexchange for a nominal level of consideration, including cash and the transferof certain SAN assets. Certain of the terminated agreements have not beensettled 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 June 30,**                                          | ** ** | **Six months ended June 30,**                                            | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **       2007       ** | ** ** | **       2006       ** | ** ** | **       2007       ** | ** ** | **       2006       ** | ** ** |
| Total SAN  liability, beginning of period                  |       |                                                                                         | $          | 45,966                                                                                       |       |   |   | $ | 41,099 |   |   |   | $ | 45,591 |   |   |   | $ | 40,097 |   |   |
| Expense  recognized under SAN Operating Agreements         |       |                                                                                         | 314        |                                                                                         |       |   | 448 |   |   |   | 875 |   |   |   | 1,072 |   |   |
| Interest expense  related to SAN Infrastructure Agreements |       |                                                                                         | 836        |                                                                                         |       |   | 703 |   |   |   | 1,627 |   |   |   | 1,376 |   |   |
| Payments made to  SAN Operators                            |       |                                                                                         | (111       | )                                                                                            |       |   | (162 | ) |   |   | (1,366 | ) |   |   | (264 | ) |   |
| Effect of changes  in foreign currency exchange rates      |       |                                                                                         | 496        |                                                                                         |       |   | 223 |   |   |   | 774 |   |   |   | 30 |   |   |
| Total SAN liability, end  of period                        |       |                                                                                         | $          | 47,501                                                                                       |       |   |   | $ | 42,311 |   |   |   | $ | 47,501 |   |   |   | $ | 42,311 |   |   |

 

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

| ** **                                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Accrued expenses                                 |       | $                 | 16,486     |                  |       | $ | 16,977 |   |   |
| Accrued interest                                 |       | 12,991            |       |                  | 10,996     |   |   |
| Current portion of  capital lease obligations    |       | 15,337            |       |                  | 13,023     |   |   |
| Capital lease  obligations, less current portion |       | 2,687             |       |                  | 4,595      |   |   |
|                                             |       | $                 | 47,501     |                  |       | $ | 45,591 |   |   |

 

In January 2007, anindirect subsidiary of the Company, ICO Global Communications Holding BV,reached a resolution regarding a dispute concerning past payments for a SANlocated in Usingen, Germany, and entered into a settlement agreement pursuantto which it agreed to pay the SAN Operator an agreed-upon amount over the nexttwo years. The Company made its first payment under this settlementagreement in January 2007 and the remaining balance is included in accruedexpenses in the Company’s condensed consolidated balance sheet.

**5.**                 Convertible LongTerm 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 byRule 144A thereunder. The net proceeds from the sale of the 7.5% Notes arebeing used to develop 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 from August 16, 2007 through August 15, 2009, ICO NorthAmerica has the option of paying accrued interest due with additional notes inlieu of cash at an increased interest rate of 8.5% per annum. ICO NorthAmerica’s GEO satellite and its associated systems must be certified asoperational by August 15, 2008 or the coupon increases by 150 basis pointsfor every 30 days, until certification is achieved, up to a maximum of13.5% 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 June 30, 2007 and December 31, 2006 isapproximately $676 million and $721.5 million, respectively.

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**6.**                 Commitmentsand Contingencies

***PurchaseCommitments—******The*********Company has an agreement withSpace Systems/Loral, Inc. (“Loral”) to design, develop, manufacture, testand deliver one GEO satellite and to develop, test and implement certainground-based systems related to the operation of the satellite. The satelliteis expected to be delivered by November 30, 2007. The Company also retainsan option through December 31, 2008 to purchase one additional GEOsatellite.

The Company has an agreement with Lockheed MartinCommercial Launch Services, Inc. (“Lockheed”) for the provision of alaunch service for its GEO satellite. In February 2007, the Companyselected, in coordination with Lockheed, its launch slot as November 2007. In August 2007, the Company wasinformed by Lockheed that its launch slot would be postponed approximately sixweeks: from November 1, 2007—November 30, 2007 to December 15,2007—January 15, 2008. In addition, Lockheed expects that the range datefor the launch will be January 7 or January 8, 2008. The Company haspurchased launch risk protection insurance from Lockheed, providing for apayment to the Company in the event of a launch failure due to the launchvehicle. The Company also retains an option to require Lockheed to provide areplacement launch in the event that the Company determines that the initiallaunch resulted in a satellite failure within the first six months afterlaunch.

The Company has an agreement with Hughes NetworkSystems, LLC (“HNS”) to provide gateway equipment and services for theCompany’s MSS/ATC System, including the design, manufacture, test and deliveryof the radio frequency subsystem, the gateway system controller, the gatewaycontrol network and the gateway system interconnections. The gateway islocated at the HNS facility in North Las Vegas, Nevada and is expected to becompleted in the third quarter of 2007. The Company retains an option topurchase a diverse site radio frequency terminal along with an associateddiverse site facility.

On May 1, 2007, the Company entered into anagreement with HNS to develop user equipment and a GMR satellite gateway foruse in the Company’s alpha trial of its MIM services. This agreement may beterminated for any reason by the Company for its convenience or upon default byHNS under certain circumstances. In the case of termination for convenience,the Company’s liabilities approximate the total amounts paid or payable by theCompany at the time of termination. Under the termination for default, HNS isrequired to refund to the Company all payments made by the Company.

On June 22, 2007, the Company entered into anagreement with Lucent Technologies, Inc. (“Alcatel-Lucent”) to providecertain architecture and technical design services to develop and manufactureequipment, including repeaters, satellite headend and gateway core equipment.In addition, Alcatel-Lucent is responsible for the delivery, installationand testing of the Company’s MIM services, based on DVB-SH technology. Thisagreement may be terminated for any reason by the Company for its convenienceor upon default by Alcatel-Lucent under certain circumstances. In the case oftermination for convenience, the Company’s liabilities approximate the totalamounts paid or payable by the Company at the time of termination. Under thetermination for default, the Company shall remain liable for payment ofpreviously accepted milestones and otherwise have no further paymentobligations to Alcatel-Lucent under the agreement.

As of June 30, 2007, the Company had contractualobligations of approximately $119.4 million related to the contracts describedabove as well as other secondary agreements related to the development of itsMSS/ATC System. Approximately $93.2 million of this amount is payable based onthe achievement of certain construction, delivery and deployment milestonesrelated to the development of the MSS/ATC System and the completion of certainagreed-upon services associated with the Company’s alpha trial of its MIMservices. Additional payments of $23.3 million, including interest, related toin-orbit satellite performance incentives associated with the Company’s GEOsatellite, are payable over 15 years from 2007 through 2022. The Company alsohas purchase commitments of approximately $2.9 million related to its MEOsatellite system.

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***Lease and OperatingCommitments******—******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 theseagreements (see Note 4).

The Company leases office space and office equipmentunder noncancellable rental agreements accounted for as operating leases. Rentexpense is included in general and administrative expense in the Company’scondensed consolidated statements of operations. Total rent expense underoperating leases for the three and six months ended June 30, 2007 and 2006was approximately $160,000 and $317,000 and $71,000 and $223,000, respectively.

***Internal RevenueService 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 the tax year 2003 by the InternalRevenue Service. The audit involves both the recognition of the losses inconnection with the impairment of the Company’s MEO assets and the timing ofthe gain on the disposition of the relevant securities, which were sold througha variable forward contract. While the Company believes it properly treated andreported all items of gain and loss, it is possible that the Company could havea tax liability ranging from approximately $12 million to $131 million,not including any penalties that may be imposed. As the Company believes itstax reporting for 2003 is proper, and that it is more likely than not itscurrent tax position will be sustained, no amount has been recorded in theCompany’s condensed consolidated financial statements.

***Boeing Litigation—******In***responseto the 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 satellites. 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; on December 1,2006, the court denied BSSI’s motion to dismiss the Company’s trade secretclaim; and on May 9, 2007, the court denied BSSI’s motion to dismiss theCompany’s duress and fraud claims. A trial date has been set forMarch 2008. The Company believes that its claims are meritorious and isvigorously pursuing a prompt resolution. Through June 30, 2007, theCompany has expensed approximately $11.1 million in pursuing thislitigation and expects it will continue to incur substantial costs through theultimate resolution which is uncertain.

***Ellipso, Inc.—******In*********December 2006,Ellipso, Inc. (“Ellipso”) filed an action in the Superior Court of theDistrict of Columbia seeking damages in excess of $100 million from theCompany and its subsidiary, ICO Global Limited, for breach of contract,breach of warranty and fraud. The Company recently filed an answer to Ellipso’scomplaint as well as a number of counterclaims. The Company believes thatEllipso’s claims are without merit. The Company intends to vigorously defenditself against Ellipso. Management currently believes that this lawsuit willnot have a material adverse effect on the Company’s financial condition orresults 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 

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of business are notexpected to involve any judgments or settlements that would be material to theCompany’s financial condition, results of operations or cash flows.

**7.**                 Share-BasedPayment

The Company records stock-based compensation inaccordance with SFAS No. 123 (revised 2004), *Share-BasedPayment* (“SFAS 123(R)”), using the modified prospective transitionmethod, which requires measurement of all share-based payment awards made toemployees, directors, contractors and consultants, based on the estimated fairvalue 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 issued to employees, directors, contractorsand consultants. The fair value of restricted stock awards is determined basedon the number of shares granted and the quoted market price of the Company’scommon stock on the date of grant. The fair value of stock options is estimatedon the date of grant using the Black-Scholes option-pricing model (“Black-Scholes”)based on the single option award approach. Fair value is amortized on a straight-linebasis over the requisite service periods of the awards, which is generally thevesting period. The fair value of share-based payment awards as determined byBlack-Scholes is affected by the Company’s stock price as well as otherassumptions. These assumptions include, but are not limited to, the expectedstock price volatility over the term of the awards and actual and projectedemployee stock option exercise behaviors. SFAS 123(R) requires forfeituresto be estimated at the date of grant and revised, if necessary, in subsequentperiods if actual forfeitures differ from those estimates.

Stock-based compensation is included in general andadministrative expenses in the Company’s condensed consolidated statements ofoperations. For the three and six months ended June 30, 2007 and 2006,stock-based compensation recognized under SFAS 123(R) was $1.5 million and$2.8 million and $1.8 million and $3.5 million, respectively.

***Stock Options******—***The Company’s stock option activityfor the six months ended June 30, 2007 is summarized as follows:

| ** **                           | ** ** | **Number of options** | ** ** | **Exercise price** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|-------------------------|------------|
| Outstanding at  January 1, 2007 |       |                            | 9,484,823  |                    |       |   | $ | 5.04 |   |   |
| Granted                              |       |                            | 1,680,000  |                    |       |   | $ | 4.58 |   |   |
| Cancelled                            |       |                            | (580,000   | )                       |       |   | $ | 5.20 |   |   |
| Outstanding at June 30, 2007    |       |                            | 10,584,823 |                    |       |   | $ | 4.96 |   |   |
| Exercisable at  June 30, 2007   |       |                            | 3,040,573  |                    |       |   | $ | 5.61 |   |   |

 

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 Code foroption grants whose fair market value on the date of grant exceeded theexercise price of those options. Stock options granted during the six monthsended June 30, 2007, as disclosed above, include the regranted stockoptions.

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Theweighted average grant date fair value of stock options granted during the sixmonths ended June 30, 2007 was $2.33 per share and the total fair value ofthese stock options was $3.9 million. The weighted average grant date fairvalue of stock options granted during the six months ended June 30, 2007was estimated using Black-Scholes with the following assumptions:

| Expected  volatility      |   | 38  | %      |
|---------------------------|--------|-----|--------|
| Risk-free  interest rate  |   | 4.6 | %      |
| Expected dividend  yield  |   | 0   | %      |
| Expected  forfeiture rate |   | 0   | %      |
| Expected term in years    |   | 7.3 |   |

 

For the three and six months ended June 30, 2007and 2006, the Company recognized stock-based compensation expense of $1.4million and $2.7 million and $1.1 million and $2.2 million, respectively,related to stock option issuances.

***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 Company’s Amended and Restated 2000 Stock Incentive Plan, had a grant datefair value of $2.4 million and are being charged to expense over therespective vesting period. Restricted stock awards of 1,500,000 shares vestedon October 12, 2006. The remaining restricted stock awards of 100,000shares vest in two equal installments, on July 14, 2007 and 2008. For thethree and six months ended June 30, 2007 and 2006, the Company recognized compensationexpense of $49,000 and $98,000 and $614,000 and $1.2 million, respectively,related to its restricted 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 68%.

The Company has an agreement with EagleRiver, Inc. to provide advisory services to the Company. This agreementhas an annual fee of $500,000 and is payable in quarterly installments in stockor cash, at the Company’s option. To date, the Company has elected to make allpayments in Class A common stock and has issued 158,086 shares asconsideration. As of June 30, 2007, the Company owed EagleRiver, Inc. approximately $42,000 pursuant to the advisory servicesagreement, which is included in accrued expenses in the condensed consolidatedbalance 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 and six months ended June 30, 2007 and 2006 were $16,000 and$31,000 and $17,000 and $27,000, respectively.

***Davis WrightTremaine—******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 and six months endedJune 30, 2007 and 2006 were $135,000 and $165,000 and $526,000 and$899,000 respectively.

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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 are currently developing an advancedhybrid satellite terrestrial system and, in the future, have the opportunity toseek authorization from the FCC to integrate ATC into our 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. In 2007, we havealso begun to design and develop our MIM services for use on our MSS/ATC Systemand plan to conduct an alpha trial of these services in 2008.

We are not currently generating revenue fromoperations. The net losses we have funded and capital expenditures we have madeto date primarily relate to the development of our MSS/ATC System. We expectthat our current resources will be sufficient to fund the development of thissystem for at least the next twelve months. We are focusing our efforts onmeeting our planned satellite construction and launch schedule, much of whichis mandated by the FCC, while maintaining system development expenses at ourplanned levels.

We are preparing to demonstrate the operational statusof our MSS system in early 2008, with more robust trials and operations in midto late 2008. In 2007, we have begun,and expect to continue, to: (i) sign agreements with vendors to more fullydevelop technology which would permit video and data multicasting and voice anddata interactivity from the satellite, as well as related integrated servicesfor the terrestrial segment; (ii) design and construct aterrestrial network, including the leasing of towers; (iii) install radioequipment and begin to construct a ground network to connect the terrestrialnetwork; and (iv) hire personnel and devote resources in areas such ascustomer service and billing, marketing and customer fulfillment. We expectthat the commencement of full scale commercial MSS/ATC service operations wouldrequire substantial 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 International Telecommunication Union. However, some of theseregulations are currently under reconsideration in Europe and there isconsiderable uncertainty as to how legacy systems, such as our MEO satellitesystem, would be treated in any new regulatory regime. While we have severalMEO satellites in different stages of completion, and we have successfullylaunched one MEO satellite, we have significantly curtailed furtherconstruction of our MEO satellite system due to disagreements with themanufacturer and launch manager of our MEO satellites as well as theseregulatory uncertainties. Despite the curtailment of construction of our MEOsatellite 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 and have recently signed contracts to helpus further evaluate the usability of a MEO satellite system.

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 June 30, 2007 and January 1, 2007 was $9.5 millionand $9.2 million, respectively. If the reversal of these reserves wererecognized, the entire amount would impact our effective tax rate.

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Our policy is to recognize interest and/or penaltiesrelated to unrecognized tax benefits as income tax expense. We recorded $3.8million of interest related to our adoption of FIN 48 and have recorded thisamount as an adjustment to our January 1, 2007 beginning deficitaccumulated during the development stage. For the three and six months ended June 30,2007, we recorded interest of $170,000 and $340,000, respectively, related toour reserves for income taxes and have included this amount in income taxexpense on our condensed consolidated statements of operations.

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 IRS commencedan audit of our 2003 U.S. federal income tax return. Our 2003 return reflecteda gain of more than $300 million recognized on the sale of securities on thematurity of a variable forward contract. The gain was offset by losses relatedto the abandonment of elements of our MEO satellite system. The IRS examinationis focused on the deductibility of the losses claimed related to the MEOsatellite system and the timing of the gain recognized with respect to the saleof securities under the variable forward contract. As of June 30, 2007 theIRS had proposed no adjustments with respect to our tax reporting for 2003 orearlier years; however, the IRS has not yet completed its examination. We believeour tax reporting for 2003 is proper and that it is more likely than not ourcurrent tax position will be sustained; however, if the IRS were to propose andsustain a position that either disallows part or all of our MEO assetabandonment deductions for 2003, or results in the taxation of the gain relatedto the variable forward contract in a year prior to 2003, we will incur a taxliability ranging from $12 million to $131 million (including interest butexcluding penalty). We expect these issues will be resolved by the end of 2008and do not expect there to be a material change in our tax position over thenext twelve months.

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 reportunrealized gains and losses on items for which the fair value option has beenelected in earnings at each subsequent reporting date. SFAS 159 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.

**Results ofOperations**

Thefollowing table is provided to facilitate the discussion of our results ofoperations for the three and six months ended June 30, 2007 and 2006 (inthousands):

| ** **                           | ** ** | **Three months ended June 30,**                                          | ** ** | **Six months ended June 30,**                                            | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **       2007       ** | ** ** | **       2006       ** | ** ** | **     2007     ** | ** ** | **      2006      ** | ** ** |
| General and  administrative expenses |       |                                                                                         | $          | 9,792                                                                                        |       |   |   | $ | 9,476 |   |   |   | $ | 19,557 |   |   |   | $ | 18,485 |   |   |
| Research and  development expenses   |       |                                                                                         | 2,203      |                                                                                         |       |   | 843 |   |   |   | 4,352 |   |   |   | 871 |   |   |
| Interest income                      |       |                                                                                         | (3,149     | )                                                                                            |       |   | (5,050 | ) |   |   | (6,538 | ) |   |   | (10,631 | ) |   |
| Interest expense                     |       |                                                                                         | 8,234      |                                                                                         |       |   | 10,673 |   |   |   | 16,215 |   |   |   | 22,992 |   |   |
| Other (income)  expense              |       |                                                                                         | (9         | )                                                                                            |       |   | (362 | ) |   |   | 29 |   |   |   | (1,136 | ) |   |
| Income tax (benefit)  expense        |       |                                                                                         | 169        |                                                                                         |       |   | (4 | ) |   |   | 342 |   |   |   | 36 |   |   |

 

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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 expensesincreased $316,000 for the three months ended June 30, 2007 compared tothe three months ended June 30, 2006, and increased $1.1 million for thesix months ended June 30, 2007 compared to the six months ended June 30,2006. These increases are primarily due to higher personnel costs related tothe hiring of additional employees necessary to support the development of ourMSS/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 increased $1.4million for the three months ended June 30, 2007, compared to the threemonths ended June 30, 2006, and increased $3.5 million for the six monthsended June 30, 2007 compared to the six months ended June 30, 2006.These increases are primarily due to additional design and developmentactivities related to the ground network portion 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 is primarily attributable to interest earned on the investment of theproceeds of our 7.5% Notes. Interest income decreased $1.9 million for thethree months ended June 30, 2007 compared to the three months ended June 30,2006, and decreased $4.1 million for the six months ended June 30, 2007 comparedto the six months ended June 30, 2006. These decreases are primarily dueto a reduction in our cash, cash equivalents, and available-for-saleinvestments balances as we continue to develop our MSS/ATC System.

We expect interest income to continue to decrease infuture periods as our cash, cash equivalents, and available-for-saleinvestments balances decrease as we develop our MSS/ATC System.

*InterestExpense.**  *Interestexpense is comprised of interest incurred, and amortization of debt issuancecosts, on our 7.5% Notes, partially offset by capitalized interest costsassociated with the construction of our MSS/ATC System. Interest expensedecreased $2.4 million for the three months ended June 30, 2007 comparedto the three months ended June 30, 2006, and decreased $6.8 million forthe six months ended June 30, 2007 compared to the six months ended June 30,2006. These decreases are primarily the result of an increase in capitalizedinterest costs associated with the construction 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 2007. We expect capitalized interestexpense to increase in future periods as we continue to incur costs associatedwith the construction ofour MSS/ATC System until such time that construction is complete.

*Other(Income) Expense.*   Other (income) expense iscomprised primarily of gains and losses on foreign currency transactions andwas nominal for the three and six months ended June 30, 2007 and 2006.

*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 and six months ended June 30,2007 and 2006 since we are still in the development stage and are incurringlosses. The tax benefit for these losses will not be recognized untilrealization is more likely than not.

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**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 our 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 six months ended June 30, 2007 and 2006 (inthousands):

| ** **                                           | ** ** | **Six months ended June 30,**                                | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **      2007      ** | ** ** | **      2006      ** | ** ** |
| Net cash provided by  (used in):                     |       |                                                                             |       |   |   |   |   |   |   |
| Operating activities                                 |       |                                                                             | $          | (41,758 | ) |   |   | $ | (27,683 | ) |   |
| Investing activities                                 |       |                                                                             | 33,522     |   |   |   | 38,332 |   |   |
| Financing activities                                 |       |                                                                             | —     |   |   |   | 9,920 |   |   |
| Effect of foreign  exchange rate changes on cash     |       |                                                                             | (362       | ) |   |   | 181 |   |   |
| Net increase (decrease) in cash and cash equivalents |       |                                                                             | (8,598     | ) |   |   | 20,750 |   |   |
| Cash and cash  equivalents—beginning  of period |       |                                                                             | 163,059    |   |   |   | 175,510 |   |   |
| Cash and cash  equivalents—end  of period       |       |                                                                             | $          | 154,461 |   |   |   | $ | 196,260 |   |   |

 

Cash, cash equivalents and available-for-saleinvestments were $199.1 million at June 30, 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.

For the six months ended June 30, 2007, cash usedin operating activities consisted primarily of our net loss of $34 million anda decrease in accrued interest expense of $11.3 million as a result of thepayment 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 sixmonths ended June 30, 2006 consisted primarily of our net loss of $30.6 million,partially offset by various non-cash items included in our net loss.

For the six months ended June 30, 2007, theprimary source of cash provided by investing activities was net sales andmaturities of available-for-sale and restricted investment securities of $57.5million, partially offset by capital expenditures of $23.6 million related toour MSS/ATC System. Cash provided by investing activities for the six monthsended June 30, 2006 consisted primarily of $172.7 million of net purchasesof available-for-sale securities and restricted investments,partially offset by $121.1 million of capital expenditures related to ourMSS/ATC System and $14 million to acquire first priority rights to use adesired orbital slot for our GEO satellite.

For the six months ended June 30,2006, cash provided by financing activities was attributable to the sale of ICONorth America Class A common stock and options to purchase shares of ICONorth America Class A common stock to certain holders of our 7.5% Notes.

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**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 ten FCC milestones and our rightto use our assigned MSS spectrum to provide service is conditioned on ourcompletion of two additional FCC milestones. Due to the postponement of ourlaunch slot by Lockheed, we have requested an extension of our remaining twoFCC milestones. There can be no assurance that we will achieve our remaining milestonedates, even if extended, and while we believe that the FCC has grantedmilestone extensions in the past under similar circumstances, there can be noassurance that the FCC will grant our extension request. If we fail tomeet a milestone and we are unable to obtain a waiver or extension, we couldlose our MSS authorization, and a loss of our MSS authorization would be an eventof default under the indenture governing the 7.5% Notes. Substantially all ofthe $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 seekpotential strategic partners to assist us in developing the ATC portion of ourMSS/ATC System. If we chose to complete our MSS/ATC System without partners, wewould need 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 $131 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 June 30, 2007, we have incurredapproximately $11.1 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 theU.K. Office of Communications (“Ofcom”)has requested that we continue to meet our due diligence requirements towardthe deployment of commercial service on our MEO satellite system. Ofcom has requested that we takeconcrete steps in order to maintain Ofcom’s support for us in internationalforums, and we have provided information that we believe satisfies Ofcom’srequirements while preserving our rights as to their legality. If Ofcom doesnot support us in international forums, and if we are unable to preserve ourclaim to priority and legacy rights, we will be entitled to pursueinternational S-band operations on the same terms as all other operators.Depending on the development of a MEO business plan and the associated costs(including the costs to comply with the final milestone or any new milestonesimposed) and the evolution of the regulatory regime for S-band systemsglobally, particulary in Europe, as well as the success of discussions withpotential partners who could provide the funding for the development of the MEOsatellite system, we may or may not proceed with the development of ourphysical 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 June 30, 2007, we hadnot remediated the material weakness identified by our auditors. If we do nothave sufficient adequately trained and experienced tax accounting personnel, wemay be unable to prepare our financial statements on time and may notaccurately reflect our performance or condition, which may adversely affect ourbusiness 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**

Ourprimary contractual obligations include our 7.5% Notes and the obligationsunder our primary agreements for the design, manufacture and launch of our GEOsatellite and procurement of equipment and technology for use in the alphatrial of our MIM services. In the table below, we set forth our contractualobligations as of June 30, 2007 (in millions):

| ** **                         | ** ** | ** ** | ** ** | ** **                    | ** ** | **Years ending December 31,** | ** ** |
|------------------------------------|------------|------------|------------|-------------------------------|------------|----------------------------------------------|------------|
| ** **                         | ** ** | **Total**  | ** ** | **Remainder   of  2007** | ** ** | **2008-2009**                                | ** ** | **2010-2011** | ** ** | **2012 and  Thereafter** | ** ** |
| Long-term debt  obligations(1)     |       | $          | 771.9      |                          |       | $                                            | 24.4       |   |   |   | $ | 747.5 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Capital lease  obligations         |       | 26.4       |       |                          | 20.5       |                                         |       |   | 4.5 |   |   |   | 1.4 |   |   |   | — |   |   |
| SAN operating  lease obligations   |       | 6.0        |       |                          | 0.9        |                                         |       |   | 4.3 |   |   |   | 0.8 |   |   |   | — |   |   |
| Other operating  lease obligations |       | 4.9        |       |                          | 0.5        |                                         |       |   | 2.4 |   |   |   | 1.6 |   |   |   | 0.4 |   |   |
| Purchase  obligations(2)           |       | 119.4      |       |                          | 61.5       |                                         |       |   | 20.9 |   |   |   | 4.9 |   |   |   | 32.1 |   |   |
| Total                              |       | $          | 928.6      |                          |       | $                                            | 107.8      |   |   |   | $ | 779.6 |   |   |   | $ | 8.7 |   |   |   | $ | 32.5 |   |   |

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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 June 30,2007, we had contractual obligations of approximately $119.4 million related tothe contracts described below as well as other secondary agreements related tothe development of our MSS/ATC System. Approximately $93.2 million of thisamount is payable based on the achievement of certain construction, deliveryand deployment milestones related to the development of the MSS/ATC System andthe completion of certain agreed-upon services associated with the alpha trialof our MIM services. Additional payments of $23.3 million, including interest,related to in-orbit satellite performance incentives associated with our GEOsatellite, are payable over 15 years from 2007 through 2022. We also havepurchase commitments of approximately $2.9 million related to our MEO satellitesystem.

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 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 a launch service for our GEO satellite. In February 2007, we selected,in coordination with Lockheed, our launch slot as November 2007. In August 2007,we were informed by Lockheed that out launch slot would be postponedapproximately six weeks: from November 1, 2007—November 30, 2007 to December 15,2007—January 15, 2008. In addition, Lockheed expects that the range datefor the launch will be January 7 or January 8, 2008. 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.

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We have an agreement with HNS to provide gatewayequipment and services for our MSS/ATC System, including the design,manufacture, test and delivery of the radio frequency subsystem, the gatewaysystem controller, the gateway control network and the gateway systeminterconnections. The gateway is located at the HNS facility in North LasVegas, Nevada and is expected to be completed in the third quarterof 2007. We retain an option to purchase a diverse site radio frequencyterminal along with an associated diverse site facility.

On May 1, 2007, we entered into an agreement withHNS to develop user equipment and a GMR satellite gateway for use in the alphatrial of our MIM services. We may terminate this agreement for any reason forour convenience or upon default by HNS under certain circumstances. In the caseof termination for convenience, our liabilities approximate the total amountspaid or payable by us at the time of termination. Under the termination fordefault, HNS is required to refund to us all payments made by us.

On June 22, 2007, we entered into an agreementwith Alcatel-Lucent to provide certain architecture and technical designservices to develop and manufacture equipment, including repeaters, satelliteheadend and gateway core equipment. In addition, Alcatel-Lucent is responsiblefor the delivery, installation and testing of our MIM services, based on DVB-SHtechnology. We may terminate this agreement for any reason for our convenienceor upon default by Alcatel-Lucent under certain circumstances. In the case oftermination for convenience, our liabilities approximate the total amounts paidor payable by us at the time of termination. Under the termination for default,we shall remain liable for payment of previously accepted milestones andotherwise have no further payment obligations to Alcatel-Lucent under theagreement.

We plan to enter into additional contracts withvendors in 2007 related to our alpha trial of MIM services with total costsexpected to be in the range of $2 million to $10 million.

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 the cost of this launch insurance to range fromapproximately $40 million to $60 million.

As a result of the implementationof FIN 48, we have recorded a liability related to reserves for incometaxes of $9.5 million as of June 30, 2007. Settlement of thisliability, including timing of future payment, if any, is currently uncertain.

**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 

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$224 million as of June 30,2007 and $288.5 million as of December 31, 2006. The primaryobjective of our investments in fixed income securities is to preserveprincipal, while maximizing returns and minimizing risk, and our policiesrequire that we make these investments in short-term, highly-rated securities.For available-for-sale securities, unrealized gains and losses are recorded inother 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 $676 million as of June 30, 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 withforeign currency fluctuations is not material to us. We do not enter into anyhedging or derivative transactions to manage our exposure to foreign currencyrisk.

***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 June 30, 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 its principalexecutive and principal financial and accounting officers, as appropriate toallow timely decisions regarding required disclosure. Our management recognizesthat any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving their objectives and managementnecessarily applies its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures. As of June 30, 2007, based on theevaluation of our disclosure controls and procedures, our chief executiveofficer and senior vice president—finance concluded that, as of such date, ourdisclosure controls and procedures were not effective because of the materialweakness 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. This inadequatereview process, including a need for dedicated internal tax personnel,contributed to our inability to identify material misstatements in our 2005 and2006 income tax note disclosures. As of June 30, 2007, we had notremediated the material weakness identified by our independent auditors.

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.

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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 second 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.****                          LegalProceedings*

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 disclosure included under Part I,Item 1A. of our Annual Report on Form 10-K for the fiscal yearended December 31, 2006 has not materially changed other than as notedbelow:

In the Risk Factor in ourAnnual Report on Form 10-K captioned “Risks Related to the ICO NorthAmerica 7.5% Notes—The 7.5% Notes are convertible into shares of ICO NorthAmerica’s common stock, and, if converted, our ownership of ICO North Americawould be reduced to approximately 56%,” we noted that “under the terms of the7.5% Notes, if we do not complete an Initial Public Offering for ICO NorthAmerica by August 15, 2007, our ownership interest of ICO North Americawould be further reduced by approximately one percent if all of the 7.5% Noteswere converted.”  At this time, we do not plan on completing an initialpublic offering for ICO North America.

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

Management believes that the securities issuancesdescribed in the table below were exempt from the registration requirements ofthe Securities Act of 1933, as amended, pursuant to Section 4(2) as atransaction not involving any public offering. The number of investors waslimited, the investors were either accredited or otherwise qualified and hadaccess to material information about the registrant, and restrictions wereplaced on the resale of the securities sold.

| **Date**          | ** ** | ** **                 | ** ** | **Title** | ** ** | **Number  of shares** | ** ** | **Consideration** | ** ** | **Recipient** | ** ** |
|-------------------|------------|----------------------------|------------|-----------|------------|----------------------------|------------|-------------------|------------|---------------|------------|
| June 4, 2007 |       | Class A common  stock |       |      | 30,487     |                       |       |              | —     |          |       | Eagle River, Inc. | (1) |
|                   |            |                            |            |           |            |                            |            |                   |            |               |            |  |  |  |  |

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(1)          Issuedas compensation for advisory services performed from March 1, 2007 throughMay 31, 2007.

***Item 3.****                          DefaultsUpon Senior Securities*

None.

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

An annual meeting ofstockholders of the Company was held on June 15, 2007 for the followingpurposes: (1) the election of directors; (2) the approval of theCompany’s Amended and Restated 2000 Stock Incentive Plan; and (3) theratification of the Audit Committee’s selection of the independent registeredpublic accounting firm of Deloitte & Touche LLP as the Company’sindependent auditors for the fiscal year ending December 31, 2007. Thetable below shows the results of the stockholders’ voting:

**Proposal 1:  Election of Directors.**

| ** **        | ** ** | **Votes For** | ** ** | **Withheld** | ** ** |
|-------------------|------------|---------------|------------|--------------|------------|
| Craig O. McCaw    |       | 645,453,981   |       | 8,539,802    |       |
| J. Timothy Bryan  |       | 645,453,981   |       | 8,539,802    |       |
| Donna P. Alderman |       | 645,368,115   |       | 8,625,668    |       |
| Samuel L. Ginn    |       | 649,488,787   |       | 4,504,996    |       |
| Barry L. Rowan    |       | 649,429,759   |       | 4,564,024    |       |
| R. Gerard Salemme |       | 645,410,159   |       | 8,583,624    |       |
| David Wasserman   |       | 649,488,787   |       | 4,504,996    |       |
| Benjamin G. Wolff |       | 645,355,502   |       | 8,638,281    |       |

 

In addition, in accordancewith the Company’s bylaws and at the direction of the Board of Directors, H. BrianThompson was added to the slate of directors and elected a director to servefor the ensuing year by the stockholders present by proxy, receiving583,706,160 votes for and no votes withheld.

**Proposal 2: Approval of the Company’s Amended and Restated 2000 Stock IncentivePlan.**

| ** **  | **Votes For** | ** ** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** |
|-------------|--------------------|------------|------------|------------------------|------------|-----------------|------------|
| 616,224,868 |               |       | 17,230,914 |                   |       |            | 792        |   |   |
|             |                    |            |            |                        |            |                 |            |  |  |  |  |

 

**Proposal3:  Ratification of the selection by theAudit Committee of the Board of Directors of the   independent registered public account firmof Deloitte & Touche LLP as independent auditor of the Company for itsfiscal year ending December 31, 2007.**

| ** **  | **Votes For** | ** ** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** |
|-------------|--------------------|------------|------------|------------------------|------------|-----------------|------------|
| 653,991,133 |               |       | 1,963      |                   |       |            | 688        |   |   |
|             |                    |            |            |                        |            |                 |            |  |  |  |  |

 

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

None.

***Item 6.****                          Exhibits*
| Ex.  10.20.1*+ |   | ICO Global Communications (Holdings) Limited 2000  Stock Incentive Plan as amended and restated effective June 15, 2007.  |
|----------------|--------|--------------------------------------------------------------------------------------------------------------------------------|
| Ex. 10.35.1*+  |   | Amendment No. 1 to  Consulting Services Agreement between ICO and R. Gerard Salemme.                                      |
| 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). |

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| 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: August 14,  2007 | By:                                                | /s/ J. TIMOTHY BRYAN |
|                         |                                               | J. Timothy Bryan |
| * *                     | * *                                           | *Chief Executive Officer (principal executive  officer)* |
|                              |                                                    |  |  |

 

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