UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 20-F

|o  |  | Registration Statement Pursuant to Section 12(b) or 12(g) ofThe Securities Exchange Act of 1934                             
|-- |  | ----------------------------------------------------------------------------------------------------------------------------
|OR
|ý  |  | Annual Report Pursuant to Section 13 or 15(d) ofThe Securities Exchange Act of 1934For the fiscal year ended August 31, 2006
|OR
|o  |  | Transition Report Pursuant to Section 13 or 15(d) ofThe Securities Exchange Act of 1934                                     
|OR
|o  |  | Shell Company Report pursuant to Section 13 or 15(d) ofThe Securities Exchange Act of 1934                                  

Commission file number: 333-134004

CANADIAN SATELLITE RADIO HOLDINGS INC.(Exact Name of Registrant as Specified in its Charter)

Not Applicable(Translation of Registrant's Name into English)

Province of Ontario, Canada(Jurisdiction of incorporation or organization)

590 King Street West
3rd Floor
Toronto, Ontario
CANADA, M5V 1M3(Address of principal executive offices)

Securities
registered or to be registered pursuant to Section 12(b) of the Act: None.

Securities
registered or to be registered pursuant to Section 12(g) of the Act: None

Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:

12.75% Senior Notes due 2014

Indicate
the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

20,482,289 Class A Subordinate Voting Shares
81,428,133 Class B Voting Shares
0 Class C Non-Voting Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o Yes ý No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.o Yes ý No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer
and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large
accelerated filer o                                    
    Accelerated filer o                                    
    Non-accelerated Filer
ý

Indicate by check mark which financial statement item the registrant has elected to follow.o Item 17 ý Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)o Yes ý No



---



CANADIAN SATELLITE RADIO HOLDINGS INC.
FORM 20-F

|         |                                                                                        | Page
|-------- | -------------------------------------------------------------------------------------- | ----
|         | EXPLANATORY NOTES                                                                      |     
|         | FORWARD-LOOKING STATEMENTS                                                             |     
|         | INDUSTRY AND MARKET DATA                                                               |     
|         | PRESENTATION OF FINANCIAL INFORMATION                                                  |     
|         | EXCHANGE RATE INFORMATION                                                              |     
|PART I   |                                                                                        | 4   
|         | ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         |     
|         | ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE                                       |     
|         | ITEM 3  KEY INFORMATION                                                               |     
|         | ITEM 4  INFORMATION ON THE COMPANY                                                    |     
|         | ITEM 4A.  UNRESOLVED STAFF COMMENTS                                                   |     
|         | ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |     
|         | ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    |     
|         | ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             |     
|         | ITEM 8  FINANCIAL INFORMATION                                                         |     
|         | ITEM 9  THE OFFER AND LISTING                                                         |     
|         | ITEM 10  ADDITIONAL INFORMATION                                                       |     
|         | ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |     
|         | ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |     
|PART II  |                                                                                        | 109 
|         | ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |     
|         | ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |     
|         | ITEM 15  CONTROLS AND PROCEDURES                                                      |     
|         | ITEM 16 [RESERVED]                                                                    |     
|         | ITEM 16A  AUDIT COMMITTEE FINANCIAL EXPERT                                            |     
|         | ITEM 16B  CODE OF ETHICS                                                              |     
|         | ITEM 16C  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      |     
|         | ITEM 16D  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  |     
|         | ITEM 16E  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      |     
|PART III |                                                                                        | 112 
|         | ITEM 17  FINANCIAL STATEMENTS                                                         |     
|         | ITEM 18  FINANCIAL STATEMENTS                                                         |     
|         | ITEM 19  EXHIBIT                                                                      |     
|         | SIGNATURE                                                                              |     
|         | INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                             |     

---



Explanatory Notes

References in this annual report to "we", "us", "XM Canada" and the "Company" refer to Canadian Satellite Radio Holdings Inc. and include its
subsidiary, Canadian Satellite Radio Inc., or CSR Inc., where the context requires.

XM Canada
is our trade name, which has been licensed to us by XM Satellite Radio Holdings Inc., or XM. This annual report contains company names, product names,
trade names, trademarks and service marks of the Company and other organizations, all of which are the property of their respective owners.

Forward-Looking Statements

This annual report contains "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical fact, included in this annual report that address activities, events or developments that we expect or anticipate will or may occur in the future,
including, in particular, statements regarding the Company's objectives, plans and goals, including its future operating results, economic performance and subscriber recruitment efforts are or involve
forward-looking statements. These forward-looking statements are based on our current expectations and our projections about future events, including our current expectations regarding:



1

---





These
forward-looking statements can sometimes be identified by our use of forward-looking words such as "believe," "may," "will," "anticipate," "estimate," "expect," "plan," "likely,"
"forecast," "intend" or other similar words or phrases. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to
differ materially from those contemplated by the statements. Some of these risks, uncertainties and other factors include:



Any
forward-looking statements are subject to these factors and other factors discussed elsewhere in this annual report, including under the section "Risk Factors." Although the
forward-looking statements contained in this annual report are based on what management of the Company considers to be reasonable assumptions based on information currently available to it, there can
be no assurance that actual events, performance or results will be consistent with these forward-looking statements, and management's assumptions may prove to be incorrect. The forward-looking
statements included in this annual report are made only as of the date of this annual report and the Company does not intend, and does not assume any obligation, to update or revise them to reflect
new events or circumstances, except as required by law. You are cautioned not to place undue reliance on forward-looking statements.

2

---



Industry and Market Data

This annual report includes market share information and industry data and forecasts, which we obtained from independent industry publications and surveys,
surveys that we commissioned and internal company surveys. Although we believe these sources to be reliable, we have not independently verified any of the data nor ascertained the underlying economic
assumptions relied upon therein. Some data is also based on our estimates, which are derived from our review of internal surveys, as well as independent sources. We cannot and do not provide any
assurance as to the accuracy or completeness of this information. Market forecasts, in particular, are likely to be inaccurate, especially over long periods of time.

This
annual report also includes information relating to the U.S. satellite radio market, which was obtained from publicly available sources, including the corporate filings of
XM, and SIRIUS Satellite Radio Inc., or SIRIUS, with the U.S. Securities and Exchange Commission, or SEC, as well as press releases and corporate websites. XM and SIRIUS do not take any
responsibility for the completeness or accuracy of such information. In compiling information relating to XM and SIRIUS, we have relied upon the accuracy of the information publicly filed.

Information
contained on the Company's website is not part of this annual report and is not incorporated herein by reference and may not be relied upon by you.

Presentation of Financial Information

The financial statements included in this annual report are presented in Canadian dollars. In this annual report, references to "$" or "dollars" are to Canadian
dollars and references to "US$" or "U.S. dollars" are to United States dollars. See "Exchange Rate Information" below.

The
financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles in Canada, or Canadian GAAP. Canadian GAAP differs
in some respects from U.S. generally accepted accounting principles, or U.S. GAAP, and so these financial statements may not be comparable to the financial statements of
U.S. companies. For a discussion of the principal differences between Canadian GAAP and U.S. GAAP as they relate to us, see note 15 to our annual audited financial
statements which are included elsewhere in this annual report.

Exchange Rate Information

In this annual report, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in Canadian dollars. For convenience, in
certain places in this annual report, unless otherwise indicated, we have translated Canadian dollar values to U.S. dollars (or vice versa) using an assumed rate of US$1.00
= $1.11.

3

---



The
following table sets forth, for each period indicated, the high and low exchange rates for Canadian dollars expressed in U.S. dollars, the exchange rate at the end of such
period and, the average of such exchange rates on each business day during such period, based upon the inverse of the noon spot rate on each business day as reported by the Bank of Canada.

|             |  | 12-month period ended August 31,
|------------ |  | --------------------------------
|
|Low          |  | 0.8361                          
|High         |  | 0.9099                          
|Period end   |  | 0.9037                          
|Average rate |  | 0.8713                          

Listed
below, for each month during the previous six months, are the low and high exchange rates for Canadian dollars expressed in U.S. dollars, based upon the inverse of the noon
spot rate on each business day as reported by the Bank of Canada. On November 27, 2006, the noon spot rate published by the Bank of Canada was $1.00 per U.S.$0.8826.

|     |  | One month period ended,
|---- |  | -----------------------
|
|High |  | 0.9099                 
|Low  |  | 0.8902                 

PART I

Item 1  Identity Of Directors, Senior Management And Advisers

Not applicable.

Item 2  Offer Statistics And Expected Timetable

Not applicable.

4

---



Item 3  Key Information

A.    SELECTED FINANCIAL DATA

The following table presents selected historical financial information as at August 31, 2006 and 2005, and for the years ending August 31, 2006,
2005 and 2004 derived from our audited consolidated financial statements included in this annual report, which are comprised of consolidated balance sheets as at August 31, 2006 and 2005 and
the consolidated statements of operations and deficit and cash flows for each of the years in the three-year period ended August 31, 2006 included in this annual report. These
consolidated financial statements have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. PricewaterhouseCoopers LLP's report on our
consolidated financial statements is included in this annual report. Selected data presented below for the years ended August 31, 2003 and 2002 are derived from our consolidated financial
statements not included in this annual report. All information contained in the following table should be read in conjunction with our consolidated financial statements, the notes related to those
financial statements and the section entitled "Item 5  Operating and Financial Review and Prospects."

Our
consolidated financial statements have been prepared in accordance with Canadian GAAP. For a discussion of the principal differences between Canadian GAAP and U.S. GAAP, see
note 15 to our audited consolidated financial statements for the years ended August 31, 2006 and 2005 included elsewhere in this annual report.

|                                                                            |                | Year Ended August 31,
(in thousands, except per share amounts) |         
|--------------------------------------------------------------------------- | -------------- | -------------------------------------------------------------- | --------
|
|Net Sales                                                                   |                | $                                                              | 6,949   
|Loss before interest, revenues, interest expense and foreign exchange gains |                |                                                                | (99,024 
|Net Loss                                                                    |                |                                                                | (102,704
|                                                                            | Loss per Share |                                                                |         
|Total Assets                                                                |                |                                                                | 355,846 
|Net Assets                                                                  |                |                                                                | 227,357 
|Capital Stock                                                               |                |                                                                | 312,595 
|Number of Shares(1)                                                         |                |                                                                | 47,625  
|Dividends declared per share                                                |                |                                                                | 0       
|Net loss per share                                                          |                |                                                                | 3       

---

Notes

5

---



B.    CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D.    RISK FACTORS

This section describes some of the risks that could affect our business, financial condition and results of operation. The factors below
should be considered in connection with any forward-looking statements in this document and with the cautionary statements contained in "Forward-Looking Statements" at the beginning of
this document.

If any of the risks described below materialize, our business, financial condition or results of operation could be materially and adversely affected. The risks
described below are not the only risks facing us and our business. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also materially affect our
business operations and financial condition.

Risks Related to Our Business

We have limited operating history and negative cash flow which makes it difficult to evaluate our prospects.

We have limited operating history. From our inception, we have incurred net losses and we expect such losses to increase. We have expended and will continue to
expend significant funds for marketing, building out our subscriber management systems, maintaining and enhancing our terrestrial repeater network, programming and distribution contracts, royalty fees
and the construction and maintenance of our broadcast and office facilities. In addition, we expect our losses and negative cash flow to continue, and possibly increase, as we incur expenses to build
our subscriber base. If we are unable ultimately to generate sufficient revenues to become profitable and have positive cash flow, you could lose your investment.

6

---



We rely on our exclusive relationship with XM for the provision of the satellite radio service.

We have an exclusive agreement with XM to provide XM's satellite digital audio radio services, or SDARS, in Canada. Our success as a business depends on XM's
cooperation and its programming content, satellite network and underlying technology, as well as XM's operational and marketing efficacy, competitiveness, finances, regulatory status and overall
success in the U.S. Because of our dependency on XM, should XM's business suffer as a result of increased competition, increased costs of programming, satellite malfunctions, regulatory
changes, adverse effects of litigation or other factors, our business may suffer as well. Furthermore, a breach of our agreement with XM or a failure by XM to perform its part of the agreement would
have detrimental financial consequences to our business. Our agreement with XM, which became effective November 17, 2005, is only for an initial term of ten years and we have a right to extend
this exclusive agreement for an additional five years only if certain preconditions are satisfied. If we are unable to renew or extend our agreement with XM at the conclusion of the
ten-year term, it could be impossible to operate our business. Please see below for additional risks related to our relationship with XM.

Damage to XM's satellite network or failure by XM to timely replace its existing satellites could damage our business.

We rely on XM's satellite network for the delivery of our service. XM has publicly disclosed a progressive power degradation problem with two of the four
satellites that it currently has in orbit. As a result of this degradation problem, XM has indicated that the estimated useful life of these two satellites will extend only through the first quarter
of 2008. Although XM has publicly indicated that it has taken steps to address these power degradation problems by launching two additional satellites and planning for the construction of an
additional ground spare satellite, there can be no assurance that the actions they have taken or will take will enable them to maintain adequate broadcast signal strength. There is no guarantee that
the additional satellites or any subsequent satellites will not experience similar problems, or other performance issues. If any of XM's existing satellites fail or suffer performance problems,
degradation or otherwise, it would likely affect the quality of our service, interrupt the continuation of our service and significantly harm our business.

A
number of other factors could decrease the useful lives of XM's satellites, including:



7

---





Our
network of terrestrial repeaters communicates principally with one of XM's satellites. If a satellite fails, we would have to repoint all of our repeaters to communicate with another
of XM's satellites. This would result in a degradation of service that could last several days and could harm our business.

Demand for our service may be insufficient for us to become profitable.

Because we offer a new service, we cannot estimate with any certainty the potential consumer demand for such a service or the degree to which we will meet that
demand. Among other things, consumer acceptance of our satellite radio service in Canada will depend upon:



Any
success experienced by satellite radio companies in the U.S. does not guarantee that we will attract and retain customers in Canada. Canadian subscribers will have diverse
preferences that may not be sufficiently addressed by our originally produced Canadian channels. If demand for our service does not develop as expected, we may not be able to generate enough revenues
to generate positive cash flow or become profitable.

We will be required to pay royalty fees, which may be more costly than expected.

We must negotiate and enter into music programming royalty arrangements with the Society of Composers, Authors and Music Publishers of
Canada/Société canadienne des auteurs, compositeurs et éditeurs de musique (SOCAN), The Society for the Reproduction Rights of Authors, Composers and
Publishers in Canada Inc./Société du droit de reproduction des auteurs, compositeurs, et éditeurs au Canada (SODRAC) Inc. and The Canadian
Musical Reproduction Rights Agency Ltd. (CMRRA). We anticipate that as our number of subscribers increases, these agencies may seek to increase the percentage of royalty fees we are required to
pay. Royalty fees payable under these agreements may be more costly than anticipated and may be significant. As well, we will have to re-negotiate these arrangements once they come up for
renewal. Re-negotiated fees may also be more expensive than anticipated.

8

---



Pursuant
to our licensing arrangements, we must contribute based on a prescribed percentage of our revenue each year to the development of Canadian talent and capabilities. We may not be
able to meet these contribution requirements and, consequently our license may be revoked and we would lose our ability to continue to legally operate in Canada.

We
are responsible for the negotiation of music programming royalty arrangements with a number of Canadian copyright collectives. The royalties payable to Canadian copyright collectives
for the public performance of music and transfer of music to digital form, will be certified by the Copyright Board of Canada, or adjudicated by the Copyright Board in the event that we are not able
to come to a negotiated arrangement with the Canadian collectives. There are no pre-existing tariffs in Canada that govern our consumer subscription satellite radio services. The Copyright
Board generally adjudicates copyright royalties in arrears. This means that a decision could be issued by the Copyright Board, one or more years after we commenced broadcasting, and such fees would be
retroactive to the commencement of the service in Canada. A hearing before the Copyright Board regarding proposed tariffs for SOCAN, NRCC and CMRRA/SODRAC is currently scheduled for October 2,
2007. It is unknown how long after this hearing a written decision of the Copyright Board will be rendered. Copyright royalties in Canada are generally payable on the basis of a percentage of gross
revenue of the broadcasting service, or might be negotiated as a "per subscriber" fee. Decisions of the Copyright Board are subject to appeal in the Federal Court of Canada, which could further delay
finalization of copyright fees. In Canada, copyright tariffs are filed with the Copyright Board before March 31 of each year, and become effective the January of the following
calendar year.

We need to obtain rights to programming, which could be more costly than anticipated.

Third-party content is an important part of the marketing of our satellite radio service. In addition to the content provided to us by XM, we must develop or
acquire content for all Canadian-produced channels on our service. Obtaining third-party content can be expensive. We may not be able to obtain and retain the third-party content we need at all or
within the costs contemplated by our business plan. In addition, XM may be unable to consistently obtain third-party content at a reasonable cost or that is appealing to our customers, which may
adversely affect our marketing efforts, our reputation and brand, our revenues and our business.

Higher than expected subscriber acquisition costs could adversely affect our financial performance.

We anticipate spending substantial funds on advertising, marketing, subsidizing costs of radio devices and in transactions with car and radio manufacturers,
retailers and other parties to obtain or as part of the expense of attracting new subscribers. Our ability to achieve cash flow breakeven depends on our ability to achieve and maintain over time lower
acquisition costs. If the costs of attracting new subscribers and retaining subscribers are greater than expected, our financial performance and results of operations could be adversely affected.

9

---



Our inability to retain future customers, including those who purchase or lease vehicles that include a subscription to our service, could adversely
affect our financial performance.

We experience subscriber turnover, or churn, among our customers. Because we have been in commercial operations for a relatively short period of time, we cannot
reliably predict the amount of churn we will experience over the long term. As such, we have used the experiences of XM as a general guideline, although our experience in this regard may be different.
To the extent our churn is greater than we currently experience and anticipate, it may be more costly for us to acquire a sufficient customer base to generate revenues that will enable us to become
profitable and reach positive cash flow.

In
particular, we cannot predict how successful we will be at retaining customers who purchase or lease vehicles that include a subscription to our service, beyond the promotional
period. We do not know if the percentage will change as the number of customers with promotional subscriptions increases.

Competition from SIRIUS Canada and other traditional and emerging audio entertainment providers could adversely affect our revenues.

In seeking market acceptance, we encounter competition for both listeners and advertising revenues from many sources, including SIRIUS Canada, other Canadian
subscription radio services, Internet based audio providers, direct broadcast satellite television audio service, MP3 players, digital cable systems that carry audio service and traditional
AM/FM radio.

Our
direct competitor in satellite radio service is SIRIUS Canada, the only other licensee for satellite radio service in Canada. SIRIUS Canada is a joint venture between
CBC-Radio Canada, Standard Broadcasting and SIRIUS, the second largest, by number of subscribers, satellite radio provider in the U.S.

SIRIUS
Canada's application for a satellite radio service was approved at the same time as ours. SIRIUS Canada launched its satellite radio service on December 1, 2005. SIRIUS
Canada broadcasts channels and offers programming that we do not offer, and SIRIUS Canada's satellite radio service may be offered as an option on various Canadian car model brands, certain of which
may not offer our service. Like our subsidiary CSR Inc. SIRIUS Canada has filed an application to amend its conditions of license. The Canadian Radio-television and Telecommunications
Commission, or CRTC, has also approved CHUM's application for a license to operate a terrestrial subscription radio service. SIRIUS Canada and/or CHUM may offer a more attractive service or enhanced
features, may have stronger marketing or distribution channels, and either or both may gain a competitive advantage over us.

10

---



In
addition, unlike satellite radio, traditional AM/FM radio already has a well-established and dominant market presence for its services and generally offers free broadcast
reception supported by commercial advertising, rather than by a subscription fee. Many radio stations offer information programming of a local nature, such as traffic and weather reports, which we are
not permitted to offer under our satellite radio license. To the extent that consumers place a high value on these features of traditional AM/FM radio, we are at a competitive disadvantage to the
dominant providers of such audio entertainment services. In the U.S., some radio stations have begun reducing the number of commercials per hour, expanding the range of music played on the air and
experimenting with new formats in order to compete more directly with satellite radio. Further, radio companies may launch an advertising campaign designed to assert the benefits of traditional AM/FM
radio, as compared with satellite radio service.

Internet
radio broadcasts have no geographic limitations and can provide listeners with radio programming from around the country and the world. We expect that improvements from higher
bandwidths, faster modems and wider programming selections will make Internet radio increasingly competitive as well. In light of the increasing popularity of Internet radio, we have added
XM Radio Online, an Internet based version of our service with increased channel selection, as a free service to our subscribers.

Our relationship with auto manufacturers for installing and distributing satellite radios to consumers may not result in as many subscribers.

We have entered into several exclusive arrangements with Canadian auto manufacturers, including General Motors of Canada Limited, or GMCL, Honda Canada, Nissan
Canada, Toyota Canada, Subaru Canada and Suzuki Canada, for installation of XM radios in many of these auto manufacturers' vehicles. We spend a significant amount of money on marketing expenditures
towards auto manufacturers' initiatives, and purchasers of these auto manufacturers' vehicles represents a substantial proportion of our subscriber base. We anticipate that we will reach agreements
with another car manufacturer to install XM radios. To the extent we are unable to reach agreement with said manufacturer, our business may be adversely affected. The customers of auto manufacturers
with which we have reached agreements may not subscribe or be attracted by our service. If any of these auto manufacturers with which we have reached arrangements, lose market share to manufacturers
with whom we do not have distribution arrangements or the market in general experiences a downturn, then our business may also be adversely affected.

11

---



We may be required to install more terrestrial repeaters than currently installed, which would impact our capital requirements.

We have built a terrestrial repeater network. As we complete more detailed testing and receive direct consumer feedback, we may find that we require more
repeaters than originally planned in order to provide a level of signal availability that will be acceptable to our customers. To the extent we need a more robust repeater network than currently
planned, our capital requirements may be higher than we anticipate and we may need to seek additional funding either through bank, equity or debt financing. Such financing may not be available and, if
available, may not be available on commercially reasonable terms. Given our current negative cash flow, if we obtain additional financing we will be further leveraged and we may be less likely to
generate sufficient revenue to repay our debts. As such, you could lose your investment.

We may need additional funding for our business plan and additional financing might not be available.

We may need additional financing due to future developments, changes in our business plan or failure of our business plan to succeed, including increasing
marketing, distribution or programming costs. Our actual funding requirements could vary materially from our current estimates. If additional financing is needed, we may not be able to raise
sufficient funds on favorable terms or at all. If we fail to obtain any necessary financing on a timely basis, our ability to execute our current business plan may be limited, and our business could
be adversely affected. As a result, we could default on our commitments to creditors or others and may have to seek a purchaser for our business or assets. See "Risk
Factors  Risks Related to our Indebtedness."

Weaker than expected market and advertiser acceptance of our satellite radio service in Canada could adversely affect our advertising revenue and
results of operations.

Because we expect to derive a portion of our revenues from advertising, market and advertiser acceptance of our satellite radio service will be important to the
success of our business. Our ability to generate advertising revenues will be directly affected by the number of subscribers to our satellite radio service and the amount of time subscribers spend
listening to our various channels. Our ability to generate advertising revenues also depends on several other factors, including the level and type of market penetration of our service, competition
for advertising dollars from other media and changes in the advertising industry and economy generally. We compete directly for audiences and advertising revenues with SIRIUS Canada, the other
approved Canadian satellite radio licensee, and traditional AM/FM radio stations, some of which maintain longstanding relationships with advertisers and possess greater resources than we do. In
addition, our license restricts us from broadcasting more than six minutes of national advertisements per clock hour on each of our Canadian-produced channels. Because CRTC regulations limit our
ability to offer our satellite radio service other than to subscribers on a pay-for-service basis, certain advertisers may be less likely to advertise on our satellite
radio service.

12

---



We
believe that advertising is a discretionary business expense for many business organizations and industries. Consequently, a potential slowdown in the Canadian economy or in a
particular business sector that represents a significant share of our advertising revenues, could adversely affect our advertising revenues and, therefore, our results of operations. Also, advertising
on the radio, whether through our satellite service or traditional radio, may fall out of favor with the advertisers.

Rapid technological and industry changes could make our service obsolete.

The satellite radio industry and the audio entertainment industry are both characterized by rapid technological change, frequent new product innovations, changes
in customer requirements and expectations, and evolving industry standards. There is no assurance that one or more of the technologies that will be utilized by us may not become obsolete. If we are
unable to keep pace with these changes, our business may be unsuccessful. Products using new technologies, or emerging industry standards, could make our technologies obsolete. In addition, we may
face unforeseen problems in operating the XM system in Canada that could harm our business. Because XM Canada depends on third parties to develop technologies used in key elements of the XM
radio system, more advanced technologies that we may wish to use may not be available to us on reasonable terms or in a timely manner. Further, our competitors may have access to technologies not
available to us, which may enable them to produce entertainment products of greater interest to consumers, or at a more competitive cost.

Our service network, national broadcast studios or other facilities could be damaged by natural catastrophes, which would adversely affect
our business.

Since our ground-based network of terrestrial repeaters is attached to towers, buildings and other structures around the country, an earthquake, tornado, flood,
power outage or other catastrophic event anywhere in Canada could damage our network, interrupt our service and harm our business in the affected area. We do not have replacement or redundant
facilities that can be used to assume the functions of our repeater network or of our central production and broadcast facility in the event of a catastrophic event. Any damage to our repeater network
would likely result in degradation of our service for some subscribers and could result in complete loss of service in affected areas. Damage to our central production and broadcast facility would
also restrict our production of programming and require us to obtain programming from third parties to continue our service.

13

---



Our service could be interrupted in areas where there is no direct line of sight access to a satellite or a terrestrial repeater, which would adversely
affect our business.

Our service may be unavailable or interrupted from time to time at specific locations where radios cease to have direct line of sight access to a satellite or a
terrestrial repeater (e.g., in tunnels, parking garages, or within or next to buildings). Our service could also be subject to occasional interference from other broadcasting sites.

Failure of third parties to perform could affect our revenues.

We need to assure proper manufacturing and distribution of XM radios and the development and provision of programming in connection with our service. Many of
these tasks are dependent on the efforts and performance of third parties that are outside of our control. If one or more of these requirements are not performed in a satisfactory manner, our revenues
could be less than expected and our business may suffer.

We
rely on third party manufacturers and their distributors to manufacture and distribute XM radios. If current manufacturers of XM radios, such as Audiovox Electronic Corporation, or
Audiovox, Delphi Automotive Systems LLC, or Delphi, and Pioneer Electronics, or Pioneer, or going forward, other manufacturers with whom we enter into agreements for the manufacture of XM
radios, fail to develop XM radios for timely commercial sale, at an affordable price and for mass market nationwide distribution, our revenues would be less than expected and our business may suffer.
In addition to the above mentioned manufacturers of XM radios, we expect that we may rely on others to develop, manufacture and market XM radios for car, home and portable use.

A bankruptcy of a third party with whom we have a significant relationship could harm our results of operations.

In the event that any of the third parties with whom we have significant relationships, including any distributor, licensor, OEM or radio supplier, files a
petition in or is assigned into bankruptcy or becomes insolvent, or makes any assignment for the benefit of creditors or makes any arrangements or otherwise becomes subject to any proceedings under
applicable
bankruptcy laws or insolvency laws with a trustee, or receiver appointed in respect of a substantial portion of its property, or in the event that such a third party liquidates or winds up its daily
operations for any reason whatsoever, then our business and results of operations would likely be materially and adversely affected.

14

---



On
October 8, 2005, Delphi announced that it had filed voluntary petitions for business reorganization under Chapter 11 of the U.S. Bankruptcy Code in
New York City. Delphi announced that it expects to complete its U.S. based restructuring and emerge from Chapter 11 business reorganization in early to mid-2007, and
that their global operations, both U.S. and non-U.S., will continue without interruption. However, we cannot estimate with any reasonable assurance the impact, if any, on us that may
ultimately result from Delphi's petition for reorganization under Chapter 11.

We need people with special skills to develop and maintain our new service. If we cannot find and keep these people, our business could suffer.

We depend on the continued efforts of our executive officers and key employees, who have specialized technical knowledge regarding our repeater network, broadcast
facilities, information technology systems and radio systems and business knowledge regarding the radio industry and subscription services. If we lose the services of one or more of these employees,
or fail to attract qualified replacement personnel, it could harm our business and our future prospects.

Our business depends upon certain on-air talent, the loss of whom could reduce the attractiveness of our XM service to subscribers and
advertisers and could adversely affect our business.

We employ or independently contract with certain on-air talent, such as Mike Bullard and Jeff Fillion, who maintain significant loyal audiences in or
across various demographic groups. The fame of our on-air talent and their ability to retain and grow their respective audiences is a factor in our ability to sell subscriptions and
advertising. Our on-air talent may not attract and/or retain the number of subscribers that we anticipate and, further, on-air talent may offend or alienate subscribers that
are outside of the target audience of such on-air talent. We cannot be certain that our on-air talent will remain with us or will be able to retain their respective audiences.
If we lose the services of one or more of these individuals, and fail to attract comparable on-air talent with similar audience loyalty, the attractiveness of our service to subscribers
and advertisers could decline, and our business could be adversely affected.

Consumers could steal our service.

Like all radio transmissions, the XM radio signal in Canada is subject to interception. Pirates may be able to obtain or rebroadcast XM radio service without
paying the subscription fee. If widespread, signal theft could harm our business.

If we fail to implement effective internal controls meeting the requirements of Section 404 of the Sarbanes-Oxley Act, it could have a material
adverse effect on our business in the future.

Although we are not currently subject to the requirements of Section 404 of the Sarbanes-Oxley Act, we are in the process of documenting and assessing our
internal control procedures so that we can satisfy those requirements in the future, which will entail making certain adjustments to our internal control procedures, including adjustments related to
our computer and accounting systems. We cannot assure you that this process will not be time-consuming or costly. If we fail to maintain an effective internal control environment, there
could be a material adverse effect on our business, results of operations or financial condition.

15

---



Risks Related to our Indebtedness

We have substantial indebtedness and we may be unable to service our indebtedness.

Subsequent to successful completion of our US$100 million senior notes offering, we have substantial indebtedness and significant debt service obligations.

As
of August 31, 2006 we had a total indebtedness of US$100 million (approximately $111 million), all of which consisted of our senior notes. In addition, we have
the ability to borrow up to US$45 million under a standby Credit Facility with XM, or the XM Credit Facility.

Our
substantial indebtedness could have important consequences to you. For example, it could:



In
addition, the indenture governing the notes and XM Credit Facility contain financial and other restrictive covenants that limit our ability to engage in activities that may be
in our long-term best interests. Our failure to comply with those covenants would result in an event of default which, if not cured or waived, could result in the acceleration of all of
our debt.

16

---



The agreements governing our indebtedness contain significant restrictions that limit our operating and financial flexibility.

The indenture governing the notes contains covenants that, among other things, limit our ability to:



In
addition, the XM Credit Facility contains certain restrictive covenants. If we seek to draw on the XM Credit Facility, we will be required to satisfy specific financial
ratios and certain financial condition tests as a condition to the advance of funds. In the event of a default under this facility, XM could seek to declare all amounts outstanding under the
XM Credit Facility, together with accrued and unpaid interest, if any, to be immediately due and payable. This could result in a cross-default under the indenture governing the notes. If the
indebtedness under the XM Credit Facility or the notes were to be accelerated, there can be no assurance that our assets would be sufficient to repay in full that indebtedness or any of our
other indebtedness.

To service our indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make interest payments on and to repay or refinance our indebtedness, including the notes, and to fund planned operating and capital expenditures
will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond
our control.

We
cannot assure you, however, that our business will generate sufficient cash flow from operations to enable us to pay interest on the notes or repay them at maturity or to fund our
other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes on or before maturity.

17

---



Our
ability to refinance our indebtedness or obtain additional financing will depend on, among other things:



As
a result, we may not be able to refinance any of our indebtedness, including the notes, on commercially reasonable terms, or at all. If we do not generate sufficient cash flow from
operations, and additional borrowings or refinancings or proceeds of asset sales are not available to us, we may not have sufficient cash to enable us to meet all of our obligations, including
payments on the notes.

We may be able to incur additional indebtedness, which could further exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the XM Credit Facility and the indenture governing
the notes contain restrictions on the incurrence of additional indebtedness, debt incurred in compliance with these restrictions could be substantial. The XM Credit Facility permits total
borrowings thereunder of up to US$45 million. In addition, the indenture and the XM Credit Facility will not prevent us from incurring obligations that do not constitute indebtedness. If
we and our subsidiaries incur additional indebtedness or other obligations, the related risks that we and they face could be magnified.

Risks Related To Regulatory Matters

Failure to comply with CRTC and Industry Canada requirements could damage our business.

As a licensee under theBroadcasting Act(Canada), CSR Inc. is subject to CRTC policies and regulations,
and the specific conditions of our broadcasting license. Those conditions of license require, amongst other things, that we provide: a minimum of eight original Canadian produced programming channels,
four of which must be programmed in the French language; a minimum of 85% of the total music selections broadcast in any given week on each Canadian produced channel are to be Canadian selections and
a minimum of 85% of the total spoken word programming content broadcast on all Canadian-produced channels must be Canadian spoken word programming; a maximum of nine non-Canadian-produced
channels for each original Canadian-produced channel that CSR Inc. broadcasts; a contribution each year equal to a minimum of 5% of our gross revenues must be made to eligible third parties who
are associated with the development of Canadian musical and other artistic talent, and of such contributions must be divided equally between initiatives in support of English language and French
language Canadian talent. In addition CSR Inc. must not provide any original local programming on any of its Canadian-produced channels, and is restricted to the broadcast of no more than six
minutes per hour of national commercial messages on each Canadian-produced channel and is not permitted to broadcast any local advertising. CSR Inc. is also required to comply with the
provisions of theSex-Role Portrayal Code for Television and Radio Programmingand theBroadcast Code for
Advertising to Children,as well as certain applicable sections of theRadio Regulations, 1986,promulgated pursuant to the Broadcast Act(Canada). Compliance with these conditions of license will be monitored by the CRTC and non-compliance could result in a
mandatory order to comply or license revocation.

18

---



On
February 10, 2006, the CRTC approved CSR Inc.'s application in which CSR Inc. voluntarily applied to have its conditions of license amended to require it to
provide a minimum of four of its eight Canadian-produced programming channels in the French language, (two of the four to be music channels). Since we launched our service in
November 2005 with four French-language channels this new condition to the license has already been satisfied. In addition, other amendments to the license include if certain subscriber
penetration figures are achieved and CSR Inc. has not added two additional Canadian-produced programming channels, for a total of ten, within the three year period following launch of its
service, CSR Inc. will increase to 6% (from 5%) of its gross service revenues as its annual contribution to approved third party initiatives in support of Canadian talent development in both of
Canada's official languages.

As
one of two operators of a commercial satellite radio service in Canada, we are subject to Industry Canada rules and regulations which require us to meet certain conditions including
the power level of radio emissions our receivers may produce; coordination of our satellite radio service with radio systems operating in the same range of frequencies in neighbouring countries; and
coordination of our communications links to our satellites or terrestrial repeaters with other systems that operate in the same frequency band. Non-compliance by us with these conditions
could result in additional costs, fines, additional license conditions, license revocation or other detrimental Industry Canada actions.

The CRTC may not renew our license, which could force us to discontinue operations.

The license granted by the CRTC will be valid for a period of six years and must be renewed prior to August 31, 2011. The CRTC has no obligation to renew
the license and if the license is renewed it may be on conditions different than those existing today. If we are unable to renew this license, then we will be unable to continue legally to carry on a
satellite radio business.

19

---



CRTC content regulations may impact our ability to acquire and retain subscribers.

Given the conditions of our license imposed by the CRTC, we may not be able to offer a service that is sufficiently competitive to other audio offerings, both in
Canada and the U.S. If the XM service in Canada is substantially different from XM's offering in the U.S., or if there are specific channels that are offered in the U.S. but are not
offered by us in Canada, Canadians may choose to subscribe via the U.S. services (XM or SIRIUS in the U.S.) instead of with us. A significant gray market for U.S. based XM radio
has already developed in Canada and its continued strength may have a material adverse effect on our business.

Fees payable by us may increase.

Broadcasting license fees are payable by us to the CRTC, based on the broadcasting regulatory costs incurred each year by the CRTC and other federal departments
or agencies, including spectrum management costs. A failure to pay these fees on a timely basis or at all could result in the loss of our license. Fees may vary from year to year based on increasing
broadcasting regulatory costs incurred by the CRTC and other federal departments or agencies.

Interference from other users could damage our business.

We may be subject to interference from adjacent radio frequency users, such as recently licensed WCS telecommunications services. Further, we may be restricted by
Industry Canada in the transmitting power levels or the location(s) of the terrestrial repeater facilities that we will require to serve urban areas.

Interference with other users could limit our operations.

Industry Canada may require us to correct any interference, at our cost, to existing broadcasting or land-mobile services (including WCS licensees)
occasioned through the operation of our terrestrial repeaters. We may also be required to bear the costs of relocating some incumbent Fixed Service (FS) Operators within the
2320-2356 MHz band, whose stations are within 300 kilometers of the terrestrial repeater transmitter sites. We do not see this as a significant concern as there are currently
a small number of these operators.

We
are required to adhere to Safety Code 6 "Limits of Human Exposure to Radiofrequency Electromagnetic Fields in the Frequency Range from 3 kHz to 300 GHz" ("Safety Code
6") prepared by the Radiation Protection Bureau of Health Canada in 1999, as amended from time to time. We are required to conduct Radio Frequency surveys, at repeater facilities, in order to verify
compliance with Safety Code 6, and if such facilities do not comply with Safety Code 6, we may be required by Industry Canada to reduce power levels or curtail the transmissions from the terrestrial
transmitters. This could result in service interruption to our subscribers in areas where structures impede direct reception of the signals from the XM satellites.

20

---



Risks Related To Our Relationship With XM

We rely heavily on our relationship with XM for continued service.

We have entered into an exclusive license arrangement with XM, pursuant to which it provides our service. We will therefore rely heavily on the services and
relationships provided by XM. A breach of this agreement or a failure by us or XM to perform our respective parts of the agreement could have serious financial consequences to our business. The
agreement with XM, which became effective November 17, 2005, is only for an initial term of ten years and we have a right to extend this exclusive agreement for an additional five years only if
certain preconditions are satisfied. If we are unable to renew or extend the agreement with XM at the conclusion of the ten-year term, it could be impossible to operate
our business.

Additional costs to the business may result based on the outcome of XM's negotiations with third party programmers.

We are responsible for the costs of Canadian distribution rights of third party programming content. XM, however, has the responsibility for negotiating
distribution arrangements with third party programmers. XM has disclosed that third-party content is an important part of marketing the XM service and obtaining third-party content can be more
expensive than formerly anticipated, given the growth of the satellite radio industry and amounts paid for other programming. As a result, agreements that XM enters into with third-party suppliers of
programming, including the amendment or renewal of existing agreements, could involve substantial costs to us. It is difficult to anticipate what the additional costs will be, how often they will need
to be paid and how frequently these third party contracts will need to be re-negotiated. These payment obligations could significantly delay our becoming profitable.

Our business may be impaired by third party intellectual property rights.

We have the exclusive right and license to commercially offer and provide to Canadian subscribers certain XM channels that are offered by XM in the U.S. as
part of its satellite digital audio radio services, in combination with those Canadian channels we supply to XM, as transmitted by the XM satellite system or as retransmitted within Canada using
terrestrial repeaters located in Canada. We do not have a direct interest in the technology comprising the XM system. However, we have agreed to bear a pro rata share of the cost of licensing
necessary third party intellectual property incurred by XM, and this cost could be significant to us. Further, other parties may have patents or pending patent applications which will later mature
into patents or inventions which may block XM's ability to operate its system or may negatively affect our ability to license our technology from XM. The loss of necessary technologies by XM could
require XM to obtain substitute technology of lower quality performance standards, at greater cost or on a delayed basis, which could harm both of our businesses. Litigation that is successfully
brought by a third party against XM could require us to seek alternative licenses from third parties which may offer services of an inferior quality which could adversely affect our business.

21

---



Risk Related to Our Principal Shareholders

A small number of shareholders own a significant percentage of our voting shares and could significantly affect matters requiring a
shareholder vote.

Because a small number of shareholders own a significant percentage of our Subordinate Voting Shares and Class B Voting Shares, they may influence all
major corporate decisions and our other shareholders may not be able to affect these corporate decisions. In addition, under the terms of a shareholders agreement, each of Canadian Satellite Radio
Investments Inc., or CSR Investments, and XM has certain board nomination rights and certain consent rights with respect to fundamental corporate actions. As a result, these shareholders will
be able to directly impact our ability to undertake certain actions.

Item 4  Information on the Company

A.    HISTORY AND DEVELOPMENT OF THE COMPANY

Our legal name is Canadian Satellite Radio Holdings Inc. Our trade name is XM Canada. We were incorporated under the Business Corporations
Act(Ontario) on July 31, 2002, as 2014503 Ontario Inc. Our name was changed to "Canadian Satellite Radio
Holdings Inc." by articles of amendment filed on July 7, 2003 and on December 7, 2005 we amalgamated with 2087609 Ontario Inc., under Part XIV of the Business Corporations Act(Ontario).

Our
head office is located at 590 King Street West, 3rd Floor, Toronto, Ontario, Canada, M5V 1M3, and our telephone number is
(416) 408-6000. Our corporate website can be accessed throughwww.cdnsatrad.com. The information found on our corporate website is,
however, not part of this annual report. Our agent for service of process in the United States with respect to our notes is CT Corporation System, 111 Eighth Avenue, New York,
New York 10011.

On
August 19, 2003, our subsidiary CSR Inc. filed its initial application to the CRTC for a broadcasting license to provide subscription-based satellite radio service in
Canada. On June 16, 2005, the CRTC granted CSR Inc. a broadcasting license, based on certain conditions outlined in this annual report. On September 7, 2005, CSR Inc.
voluntarily applied to amend the CRTC broadcasting license to, among other things, increase the minimum number of Canadian French-language channels that are offered from three to four.

22

---



On
November 21, 2005, the CRTC advised us that it was satisfied that the conditions to the grant of our broadcasting license were fulfilled, and that the license would therefore
be issued when: (i) the Department of Industry notified the CRTC that its technical requirements had been met, and (ii) we confirmed to the CRTC that we were prepared to commence
operations. The Department of Industry notified the CRTC that its technical requirements had been met on November 22, 2005. Similarly, on November 22, 2005, we confirmed to the CRTC that
we were prepared to commence operations. As a result of the satisfaction of these conditions, we fulfilled all regulatory conditions to launch, and we were authorized to launch our service.

On
November 22, 2005, we launched our English and French satellite radio service across Canada.

On
December 12, 2005, we completed our initial public offering.

On
February 10, 2006, we completed our offering of US$100 million senior notes.

On
February 10, 2006, our application to amend the CRTC broadcasting license was approved.

With
the support of our strategic partner, XM, we have signed or negotiated agreements with various suppliers and distributors, including retailers, automotive manufacturers, hardware
manufacturers, infrastructure implementation suppliers, and programming content providers. As we grow the business, we will continue to pursue relationships with other distribution, supplier and
programming partners.

For
a description, including the amount invested, of our principal capital expenditures for fiscal year ended August 31, 2006, see the "Liquidity and Capital Resources" section in
our "Management Discussion and Analysis of Financial Condition and Results of Operation" included in this annual report under "Item 5  Operating
and Financial Review and Prospects."

B.    BUSINESS OVERVIEW

Our Business

We seek to become the market leader in providing subscription-based satellite radio entertainment to the Canadian market, based on the number of satellite radio
subscribers. As of our ninth full month of operation and the completion of our first fiscal year which ended August 31, 2006, we achieved 120,000 subscribers. We are the exclusive
Canadian licensee of XM, a pioneer in satellite radio and the leader, by total subscribers, in the U.S. satellite radio market. XM has publicly stated that it had over 7.19 million
satellite radio subscribers as of October 4, 2006. As the exclusive licensed provider of XM SDARS, in Canada, our service leverages XM's existing satellite network and technology, its
brand and distribution relationships and significant operational know-how. Through XM, we currently offer up to 100 channels, which include commercial-free music, as
well as news, talk, sports and children's programming, including at least eight Canadian channels designed and developed by us from our studios in Toronto, Montréal and
Québec City. The subscription fee for our service is $14.99 per month, or $12.99 per month, until September 1, 2007, for subscribers who signed a subscription agreement with us
prior to September 1, 2006. Each subscriber also has the opportunity to purchase a limited number of additional subscriptions for $9.99 per month. Subscribers are offered a discount on the
monthly subscription rate by prepaying for a fixed term.

23

---



Distribution
of our satellite radios is primarily through automobile OEMs and consumer electronic retailers.

We
have multi-year distribution arrangements with several automobile OEMs, including GMCL, Honda Canada, Nissan Canada, Toyota Canada, Subaru Canada and Suzuki Canada.
Together, these automobile manufacturers sell more than half of the 1.6 million new vehicles sold annually in Canada. As a result of these agreements, XM satellite radios are now available in
more than 90 vehicle models for the 2007 model year. Similar to U.S. OEMs, most Canadian OEMs commence their model year during the summer, such that the 2007 model year started in
the summer of 2006. GMCL, Honda Canada and Nissan Canada each have an equity stake in our Company.

Under
our exclusive 13 year agreement with GMCL, which became effective November 10, 2005 at least 90% of GMCL's vehicle lines for the 2007 model year and
beyond must offer factory-installed XM radios. GMCL is the single largest seller of automobiles in Canada, selling approximately 450,000 vehicles in
2005  over 235,000 more than its closest competitor.

In
addition to our distribution arrangements with automobile OEMs, we have multi-year distribution agreements with Harley-Davidson motorcycles and Pana-Pacific, a
division of The Brix Group, for the installation of XM satellite radios and the marketing of XM satellite radios and accessories through participating truck dealerships and truck outlets throughout
Canada, respectively. XM radios are also available in Canada at national and regional consumer electronics retailers, such as Best Buy, Canadian Tire, Future Shop, The Source, and other large
national, regional and independent retailers that sell consumer electronics in Canada. These retailers represent over 2,800 stores.

On
September 12, 2005, we and XM announced an approximately US$100 million ten-year contract to broadcast National Hockey League, or NHL, games as part of the
XM service. This ten-year contract is non-exclusive to us for the first two years and we will be the exclusive Canadian satellite radio provider of NHL games beginning at the
end of this season. We believe that this transaction will have a significant positive impact on attracting subscribers to the XM service in Canada. We are responsible for a substantial portion of the
fees payable to the NHL under this agreement.

24

---



We
are one of only two applicants who have received approval from the CRTC, for a Canadian broadcasting license to provide subscription-based satellite radio service in Canada. The other
approved satellite license applicant is SIRIUS Canada, a joint venture between CBC-Radio Canada, Standard Broadcasting and SIRIUS. A third applicant, CHUM Limited, or CHUM, also received
approval from the CRTC for a broadcasting license to provide a subscription-based radio service in Canada, but only through terrestrial transmitters.

We
are broadcasting our service using XM's existing satellite network, which covers the continental U.S. and Canada. We are supplementing XM's satellite coverage with a terrestrial
repeater network of approximately 60 repeaters, owned and operated by us. Our repeater deployment is focused on the 16 largest Canadian cities to improve coverage and reduce
interruptions by buildings or other obstacles.

Radios
designed to serve the car, home, portable and wearable stereo markets are available in Canada at national and regional consumer electronic retailers under the Audiovox, Delphi and
Pioneer brand names. The Pioneer inno with MP3 capabilities is the latest portable XM satellite radio receiver and is now available in many stores across Canada. The initial
cost of any of these radios to the consumer ranges from approximately $70 to $500, inclusive of rebates.

For
the fiscal period ending August 31, 2006, we generated revenues of approximately $6,949,282. Nearly all of our revenue comes from subscriptions, activations and sales of
radios from the direct fulfillment channel. Incremental revenue is generated from advertising spots on the non-music channels that we program in Canada and U.S. focused
advertisements that we place on our National Hockey League Talk Channel. As we grow our subscriber base, we expect that our service will become an increasingly attractive medium for advertisers to
target customers on a nationwide basis.

Exclusive XM Relationship

XM offers innovative and diverse radio programming in digital quality sound with 170 channels in the U.S. featuring music, news, talk, sports,
traffic and weather and a variety of other content. We have an initial ten-year agreement with XM, which became effective November 17, 2005, providing us with the exclusive rights
to sell XM's SDARS in Canada. XM has a significant equity interest in our business.

25

---



Our service currently includes up to 100 channels, including commercial-free music, as well as news, talk, sports and children's programming, including at least
90 XM channels and at least 10 Canadian channels developed by us. We believe the content provided on these channels is well suited to Canada's diverse listening population.

We
leverage XM's existing content and existing satellite network, which significantly lowers the capital required to enter and operate in the satellite radio market. In addition to XM's
satellite network, we utilize XM's established programming and broadcasting facilities and benefit from the significant capital invested by XM to date in research and development and on developing its
satellite network. XM has agreed to provide us with technical expertise in connection with our terrestrial repeater network across Canada and our information technology platform and broadcasting
operations.

We
have had, and will continue to have, the benefit of utilizing XM's experience in conducting our business and when making broadcasting, advertising and other arrangements with third
parties. In developing our information technology and business processes, including our call center, we have utilized XM's experiences, and will continue to leverage its relationships. We have worked
closely with XM's management to identify key success factors in both marketing to the consumer and training our distribution forces.

A
summary of the key terms of the operational agreements between us and XM are contained below under the heading "Business  Operational
Agreements."

Competitive Strengths and Business Strategy

We believe that our business benefits from a number of factors as a result of our affiliation with XM and the later launch of our service in Canada. In
particular, we have had the benefit of observing four years of XM's operations in the U.S. before launching our service in Canada and we have been able to leverage many of the economies of
scale XM has already achieved. We believe that other factors benefitting our business include the following:



26

---





27

---





28

---





Our Product

Channel Line-Up

We currently offer up to 100 channels including commercial-free music, as well as news, talk, sports and children's programming, including at
least 90 XM channels and at least 10 Canadian channels designed and developed by us from our studios in Toronto, Montréal and Québec City, for a base
subscription fee of $14.99 per month and additional family subscriptions for $9.99 per subscription. Subscribers are offered a discount on the monthly subscription rate by prepaying for a
fixed term.

Our
service offers a broad range of music genres that are popular but currently unavailable in many Canadian markets. Hallmarks of our channel lineup in Canada include music from a
variety of genres, including:



Our
digital signal transmitted via satellite and our terrestrial repeater network provide coast-to-coast coverage, which is a particular benefit for music formats
that have strong widespread demand on a nationwide basis but have been relegated to AM stations with weaker signals.

29

---



In
addition to music genres, we also offer a broad array of sports, news, comedy and talk entertainment channels. These types of programming are not available in many radio markets and
we believe this makes our service appealing to dedicated sports fans and listeners whose tastes are not served by existing AM/FM radio stations. On September 12, 2005, we and XM announced a
US$100 million (approximately $111 million) ten-year contract to broadcast National Hockey League, or NHL, games as part of the XM service. The ten-year contract
is
non-exclusive for the first two years and we will be the exclusive Canadian satellite radio provider of NHL games at the end of the current season. We believe that the exclusivity of this
deal will have a significant positive impact on attracting subscribers to the XM service in Canada. We are responsible for a substantial portion of the fees payable to the NHL under
this agreement.

In
addition to at least 90 XM channels, we also offer at least 10 Canadian channels designed and developed by us. These 10 channels, of which 6 are English
and 4 are French, are:



30

---





Our
music channels are completely commercial-free and our talk and sports channels have a reduced amount of advertising relative to terrestrial radio. We believe that a
significant portion of the listening market will pay to subscribe to a radio service that provides commercial-free channels and channels with reduced advertising, as demonstrated by the
appeal of limited periods of non-stop music used by some traditional AM/FM stations. Of the at least ten Canadian content channels that we program, those that have advertising do not
broadcast more than six minutes of national commercial messages during any hour, in accordance with our CRTC broadcasting license.

We
believe that our service is an appealing alternative to traditional AM/FM radio in Canada as well as other in-vehicle audio entertainment options. Local radio stations,
even those that are part of national networks, focus on maximizing listener share within local markets. This limits the types of programming they can profitably provide to mass appeal formats. In
contrast, our coast-to-coast coverage and ability to provide up to 100 channels in each radio market allows us to aggregate listeners from markets across the country,
expanding the types of programming we can provide. The following chart indicates some of the principal differences between XM radio in Canada and traditional AM/FM radio.

|                               |  | XM Radio in Canada                                                                                                        |  | Traditional AM/FM Radio                 
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Programming quality and choice |  | Up to 100 channels with an extensive variety of programming                                                               |  | Limited formats in many markets         
|Coverage                       |  | Coast-to-coast coverage in the densely populated regions of Canada                                                        |  | Local area coverage                     
|Audio quality                  |  | Digital quality sound                                                                                                     |  | Analog AM/FM quality sound              
|Commercial Advertising         |  | Features 100% commercial-free music channels. Six minutes or less of commercials per hour on our programmed talk channels |  | Up to 18 minutes of commercials per hour
|Radio Displays                 |  | Text display with title/name of song/artist, as well as sports scores and stock ticker on certain radios                  |  | Limited visual display                  

XM
creates most of its music channels at its studio facilities in Washington, District of Columbia; New York City, New York; and at the Country Music Hall of Fame and
Museum in Nashville, Tennessee. We have broadcasting studios in Toronto, Montréal and Québec City that have technological capabilities comparable to those of XM's studios
in the U.S. We have created our own unique Canadian channels at these Canadian broadcasting facilities. To that end, we have hired key programming and production staff and on-air
talent to prepare our content for broadcast on our Canadian channels. There is a large pool of Canadian talent, and we are very selective in order to ensure that our programming meets the high
standards established by XM.

31

---



Accompanying
the audio portion of the broadcast, the digital display of our radios indicates the channel name, number and category. It also can be adjusted to indicate the name of the
song and artist, or the name of the talk show being aired. A personal stock ticker, sports ticker and clock are also displayed on certain radios.

XM
has announced that it will continue to implement its technology plan, which aims to reduce the cost of XM radios while increasing their functionality. We intend to leverage any cost
reductions and technological innovations achieved by XM.

Other Offerings

Our subscribers and Canadian Non-subscribers can now listen to a live stream of selected XM Canada channels over the internet via our
XM Radio Online Service, located at http://listen.xmradio.ca. XM Radio Online is included as part of the basic subscriber package and a three-day
complimentary trial is available to non-subscribers.

We
recently announced a partnership with TELUS to deliver select XM Canada channels to TELUS mobile phone users. As of June 30, 2006, TELUS had 4.7 million wireless
subscribers. TELUS wireless subscribers can pick a package of 20 channels for a price of $15.00 or it is included on the "Spark Bundle" for $25.00.

Marketing

Our marketing strategy is aimed at educating and building awareness and demand among potential subscribers in Canada of XM's SDARS as the leader in the new
satellite radio category, with XM offering appealing features compared to traditional radio.

Our
commercial launch of XM's service in Canada has been and will continue to be supported by both traditional and non-traditional advertising programs including radio,
print, outdoor and direct marketing and television, some of which may be co-branded (and potentially co-funded) with our distribution, programming and hardware
manufacturer partners. We will focus on educating consumers about XM and satellite radio through hands-on experiences at sites such as retail outlets, automotive dealerships and various
entertainment venues. We have and will continue to offer promotional programs geared to the consumer when the timing and opportunity is appropriate. These opportunities may include discounts on
hardware pricing or multi-year subscription fees, or bundling XM with other related services. We also distribute sample programming and marketing materials at retail outlets, concert
venues and on the Internet to generate consumer interest.

32

---



We
have allocated significant funds to GMCL to be utilized for mutually agreed upon advertising opportunities, dealer promotions, on-site activities, training and vehicle
literature. Some examples of these co-branded opportunities include: direct mail and outbound call programs to new GMCL vehicle owners with information on how to subscribe to the XM
service through us once the three-month trial period is complete; Canadian Auto Show presence; GMCL website representation; and various consumer promotions.

We
recently entered into a multi-year national agreement with Aeroplan to enable our listeners to earn Aeroplan Miles with their subscriptions. This agreement has a period
of exclusivity.

Distribution

We market our satellite radio service through several distribution channels including automotive manufacturers, national and regional electronics retailers, car
audio dealers and mass retailers. During our commercial launch we focused on distribution of radios through retail distributors and automotive manufacturers to promote rapid market penetration.

Automobile OEMs

We have multi-year distribution arrangements with several automobile OEMs, including GMCL, Honda Canada, Nissan Canada, Toyota Canada, Subaru Canada
and Suzuki Canada. Together, these automobile manufacturers sell more than half of the 1.6 million new vehicles sold annually in Canada. As a result of these agreements, XM satellite radios are
now available in more than 90 vehicle models for the 2007 model year. Similar to U.S. OEMs, most Canadian OEMs commence their model year during the summer, such that the 2007
model year started in the summer of 2006. Together with these automobile OEM partners, we generally offer a 3-month trial to all new purchasers of vehicles that are XM enabled. XM has
indicated that its experience to date in the U.S. has been that approximately 52 out of 100 OEM trial customers connect to self-paying subscribers after the
trial period.

Under
our exclusive 13 year agreement with GMCL, which became effective November 10, 2005 at least 90% of GMCL's vehicle lines for the 2007 model year and
beyond must offer factory-installed XM radios. GMCL is the single largest seller of automobiles in Canada, selling approximately 450,000 vehicles in
2005  over 235,000 more than its closest competitor. A summary of the key terms of our distribution agreement with GMCL is contained below under the
heading "Business  GMCL Distribution Arrangement".

33

---



Our
exclusive multi-year agreement with Honda Canada provides that Honda will factory-install XM satellite radios in Honda and Acura models, starting this fall with all 2007
Acura MDX and TL models and expanding to a wider range of products for the 2008 model year. Part of the agreement includes an equity stake in our company. Honda Canada is the country's fifth largest
automobile manufacturer, with sales of more than 150,000 vehicles in 2005.

Our
exclusive 10-year agreement with Nissan Canada includes the factory installation of satellite radios in 2008 model Nissan/Infiniti vehicles, including the
top-selling Nissan Altima, and will eventually include a majority of Nissan/Infiniti's lineup. Nissan Canada also assumed an equity position in our Company as part of
this agreement.

We
have a 5 year distribution agreement with Toyota Canada. Toyota is the fourth largest auto retailer in Canada with sales of over 175,000 vehicles. Toyota auto dealers
have already begun installing XM satellite radio receivers in select Toyota/Lexus models.

Suzuki
Canada will factory-install satellite radios on the 2007 XL-7 JLX and dealer installation kits will be available for the 2007 Grand Vitara and
SX4 models.

Subaru
Canada will commence factory installation in select 2007 model year cars.

National and Regional Consumer Electronics Retailers

XM radios are available at national and regional consumer electronics retailers, such as Best Buy, Canadian Tire, Future Shop, The Source and other large
national, regional and independent retailers that sell consumer electronics in Canada. These retailers represent over 2,800 stores in Canada. We develop in-store merchandising
materials, including fully functional displays for several retailers, and train the sales forces of all major retailers.

Other Distribution Agreements

We have established a multi-year distribution agreement with Pana-Pacific, a division of The Brix Group. Under the agreement, we will
jointly market satellite radios and accessories through participating truck dealerships and truck outlets throughout Canada. In addition, Pana-Pacific will supply Delphi's new heavy duty
integrated XM radios to truck manufacturers including Freightliner, Kenworth, International Truck and Engine, Mack, Peterbilt, Sterling, Volvo and Western Star.

We
have also entered into a multi-year distribution agreement with Harley Davidson Motorcycles.

34

---



The XM Radio System

Overview

The XM radio system broadcasts satellite radio signals over Canada and the United States and their respective coastal waters using radio frequencies. These
radio frequencies are within a range of frequencies called the S-Band. XM reports that its radio system is capable of providing high quality satellite services to XM radios in automobiles,
trucks, recreation vehicles and pleasure craft, as well as to fixed or portable XM radios and personal portable devices. XM reports that the XM radio system uses a network consisting of
high-power satellites in two orbital slots, an uplink facility, and ground-based repeaters in the U.S. primarily in dense urban areas to provide coverage where the satellite signal
is obstructed.

Consumer Hardware

Subscribers access our service through specialized satellite radios that may also receive traditional AM/FM channels. We launched our service with a focus on
three XM radio categories. The XM2go radios were the first portable units available that receive the live satellite feeder that can be used in the home, in the car or on the go, and are currently
available under the Delphi MyFi and Pioneer AirWare or inno brand names. The Pioneer inno also includes MP3 functionality. Second, Plug-n-Play
radios allow subscribers to listen to XM radio in the car, or at home through their home stereo system or portable boom box. We currently market Delphi's SKYFi2 as well as the Delphi RoadyXT
radios. New model Plug-n-Play radios are expected to be available at retailers for the 2006 holiday selling season. Finally, permanent in-car and home radios allow
subscribers to upgrade their existing radios to include XM's service, and are supported by a variety of radio manufacturers including Alpine, Audiovox, Pioneer, Polk Audio, Sony, Yamaha and others.
The initial cost of these radios to the consumer ranges from approximately $70 to $500, inclusive of rebates. XM radios are available in Canada at national consumer electronics retailers such as Best
Buy, Canadian Tire, Future Shop, The Source and other large national, regional and independent retailers.

Advanced Satellite Radio Technology

Since the introduction of the first XM radio in 2001, XM reports that there has been significant advancement in the selection and features of XM hardware. On
August 9, 2005, XM unveiled the Delphi RoadyXT and Audiovox Xpress, the smallest satellite radios ever. In 2006, the Pioneer inno with MP3 capabilities, the next generation
of XM2go portable satellite radio receivers, became available in many stores across Canada. A particularly innovative feature
of the inno allows the user to "bookmark" songs heard on XM, connect the inno to a personal computer, and instantly purchase the songs from the XM + Napster online service. Additionally,
at the 2006 Consumer Electronics Show in Las Vegas, XM introduced several new radios with increased functionality, including MP3 capability.

35

---



Terrestrial Repeaters

The terrestrial repeater system that we have deployed in 16 major cities across Canada supplements the coverage of the XM satellites in Canada. In some
areas, satellite signals may be subject to blockages from tall buildings and other obstructions. XM reports that due to the satellites' longitudinal separation, in most circumstances where reception
is obscured from one satellite, XM radio's signal will still be available from another XM satellite. XM has indicated, however, that in some urban areas with a high concentration of tall buildings,
line-of-sight obstructions to all satellites may be more frequent. Terrestrial repeaters are ground-based electronics equipment installed on rooftops or existing tower
structures that receive the signal from one of the satellites, amplify it and retransmit it at a significantly higher signal strength to overcome any satellite signal obstruction. XM's network
operating center monitors the terrestrial repeater network to ensure that the XM radio system is operating properly. We utilize XM's fault detection diagnostics systems to detect various system
failures before they significantly impact our quality of service.

Satellite Network

XM has reported that it transmits its radio signal throughout the U.S. and Canada from its two satellites XM-1 and XM-2, collocated in one
of its two orbital slots, and its third satellite (XM-3), which was launched in February 2005, and was placed into XM's other orbital slot. On October 30, 2006, XM launched
another satellite, XM-4, to replace the collocated XM-1 and XM-2 satellites, and plans to construct another satellite, XM-5, by the end of 2007
for use as a ground spare or to be available for launch in the event there is an early operations failure with XM-4.

Competition

We face competition for both listeners and advertising dollars. In addition to pre-recorded music purchased for playing in cars, homes and using
portable players, we compete most directly with the following providers of radio or other audio services:

SIRIUS Canada.Our direct competitor in satellite radio service is SIRIUS Canada, the only other CRTC licensee for satellite
radio service in Canada. SIRIUS Canada is a joint venture between CBC-Radio Canada, Standard Broadcasting and SIRIUS, the second largest, by number of subscribers, satellite radio provider
in the U.S. SIRIUS Canada launched its satellite radio service on December 1, 2005. SIRIUS Canada broadcasts channels and offers programming that we do not offer, and SIRIUS Canada's
satellite radio service may be offered as an option on various Canadian car model brands, certain of which may not offer our service.

36

---



CHUM.CHUM, in conjunction with Astral Media Ltd., received CRTC approval to receive a broadcasting license at the
same time that we and SIRIUS Canada received approvals for broadcasting licenses. CHUM's business plan is, however, different from our business plan, as CHUM's system would broadcast channels of audio
programming via terrestrial transmission towers in the L-band. CHUM has applied to the CRTC to amend its license conditions to more closely match the conditions of our broadcasting
license. Should it launch its service, we expect CHUM to become one of our competitors. Astral Media Ltd. has announced that it has agreed to provide certain content to SIRIUS.

Traditional AM/FM Radio.Our competition also includes traditional AM/FM radio. Unlike XM's SDARS, traditional AM/FM radio
already has a well-established market for its services and generally offers free broadcast reception paid for by commercial advertising rather than by a subscription fee. Also, many radio
stations offer information programming of a local nature, such as detailed local traffic and weather reports. The AM/FM radio broadcasting industry is highly competitive. Radio stations compete for
listeners and advertising revenues directly with other radio stations within their markets on the basis of a variety of factors, including program content, on-air talent, transmitter
power, clarity or fidelity of sound, audience characteristics, local program acceptance, and the number and characteristics of other radio stations in the market.

Internet Radio.A number of Internet radio broadcasts provide listeners with radio programming from across the country and
around the world. Although we believe that the current sound quality of Internet radio is below standard and may vary depending on factors that can distort or interrupt the broadcast, such as network
traffic, we expect that improvements from higher bandwidths, faster modems and wider programming selection may make Internet radio a more significant competitor in the future. There are a number of
Internet-based audio formats in existence or in development that could compete directly with XM's SDARS. For example, Internet users with the appropriate hardware and software can download sound files
for free or for a nominal charge and play them from their personal computers or from specialized portable players or compact disc players. Music in the public MP3 audio standard is readily
available and growing with sound files available on the websites of online music retailers, artists and record labels and through numerous file sharing software programs. These MP3 files can be
played instantly, burned to a compact disc or stored in various portable players available to consumers.

Recently,
podcasting has become a popular method of publishing sound files to the Internet, allowing users to subscribe to a feed and receive new audio files automatically. Podcasting
has enabled independent producers to create self-published, syndicated radio shows, and has given broadcast radio programs a new distribution channel.

37

---



Although
presently available formats have drawbacks such as hardware requirements and download bandwidth constraints, which we believe make XM radio a more attractive option to
consumers, Internet-based audio formats may become increasingly competitive as quality improves and costs are reduced. In light of the increasing popularity of Internet radio, we have added
XM Radio Online, an Internet based version of our service with increased channel selection, as a free service to our subscribers.

MP3 Devices.MP3 has become a popular format for saving and storing music files. Portable MP3 players
have become equally commonplace, and are now mass-produced by a wide variety of electronics manufacturers, and have reduced in price significantly in recent years. MP3 players can
store thousands of music files, and can play music in a high quality format to headphones or over speakers. Some recently introduced XM radio devices have the ability to store and play
MP3 files.

Cellphones.Cellular telephones have increased in functionality over the past few years. Many cell phone providers offer
personalized musical ring tones. Some providers also offer streaming music and video services. These streaming services are relatively new to Canadian consumers. We recently announced a partnership
with TELUS to deliver select XM Canada channels to TELUS mobile phone users. As of June 30, 2006, TELUS had 4.7 million wireless subscribers. TELUS wireless subscribers can pick a
package of 20 channels for a price of $15.00 or it is included on the "Spark Bundle" for $25.00.

Direct Broadcast Satellite and Cable Audio.A number of companies provide specialized audio service through either direct
broadcast satellite or cable audio systems. These services are targeted to fixed locations, mostly in-home. The radio service offered by direct broadcast satellite and cable audio is often
included as part of a package of digital services with video service, and video customers therefore generally do not pay an additional monthly charge for the audio service. In addition, cable audio
systems typically offer a limited number of channels with little to no live content and a high level of repetitive program content, however, this could change.

Recent Developments

We launched our service on November 22, 2005. On January 5, 2006 we announced that we projected to end our August 31, 2006 fiscal year with
at least 75,000 subscribers. As of our ninth full month of operation and the completion of our first fiscal year, we achieved 120,000 subscribers. On October 4, 2006, XM announced
that it is on pace with its guidance of 7.7 million to 8.2 million subscribers in the U.S. by the end of 2006 based on new products, its content line-up and growth in
the factory-installed new car market.

38

---



Operational Agreements

XM License Agreement

We and CSR Inc. have entered into a license agreement with XM (the "License Agreement"). The following is a summary of certain material terms of the
License Agreement, and is not intended to be complete. Reference is made to the License Agreement for the full text of its provisions. See "Material Contracts."



The License Agreement gives us an exclusive, non-transferable right and license, on the terms set forth in the License Agreement: (i) to offer
and provide to subscribers in Canada at least 72 programming channels, as selected mutually by XM and us, that are offered by XM as part of its basic services in the U.S., in combination with
the XM Canada Channels (as defined below), (ii) to offer and provide to subscribers in Canada certain premium channels, as selected mutually by XM and us, that are offered by XM
as part of its premium services in the U.S., as applicable, (iii) to sell subscriptions in Canada to our basic Canadian services and, as applicable, our premium Canadian services, and
(iv) to retransmit the signal received within Canada from XM's satellites through our terrestrial repeater network.

Under
the License Agreement, we and XM have agreed that we and they will work together to develop and implement commercially reasonable methods to minimize the number of Canadian gray
market subscribers who subscribe to XM's satellite radio service.



The License Agreement, which became effective November 17, 2005, has an initial term of 10 years. We may, at our option to be exercised at least one
year prior to the termination of the initial term, extend the License Agreement for a further five years, provided that: (i) CSR Inc.'s broadcasting license from the CRTC has been
renewed at the end of the current CRTC license term without any adverse modification (as described below); and (ii) we are not at such time in breach of any provision of the License
Agreement and have not failed to cure any breach of a provision of the License Agreement in accordance with its terms.

If
CSR Inc.'s license from the CRTC is renewed at the end of its current term, but as part of such renewal is modified by the CRTC in a material manner, including without
limitation any manner that adversely affects our ability or the ability of XM to carry out the arrangements made under the License Agreement, or that increases the Canadian content requirements or
imposes additional conditions of license beyond those specified in CSR Inc.'s current CRTC license (as amended to reflect the September 7, 2005 application to the CRTC submitted
by CSR Inc.) that, in XM's reasonable determination, make it technically less feasible or economically less attractive in any significant respect to perform under the License Agreement, then
such modification will be an "adverse modification," and in such event we shall not have the right to automatically extend the License Agreement. If there is such an adverse modification, then under
the terms of the License Agreement we and XM have agreed to negotiate in good faith whether to extend the term of the License Agreement.

39

---





In consideration for the license granted to us by XM, we must, among other charges, pay a monthly fee to XM equal to 15% of all subscriber fees earned by us in
such month in respect of our basic service, and 50% of the net revenues earned by us in such month in respect of our premium service (if any), in each case as determined in accordance with
GAAP, consistently applied. If in any month we are, on a per subscriber basis, based on the number of cumulative activations and deactivations, and less any short-term promotional
subscribers, providing our basic service for less than 70% of the amount that XM charges its subscribers for our basic services (as converted into Canadian dollars based on the average exchange
rate for such month), then for such month we must pay our ongoing subscriber fee as if we had received 70% of the amount charged by XM for its basic services in such month. The monthly basic and
premium fees must be paid by us on a monthly basis in arrears, with payment for each month to be due by the tenth business day of the following month.

Under
the License Agreement, we must pay XM an activation charge each time XM activates a subscriber's radio identification at our request.

All
payments that must be made by us under the License Agreement must be made without any deduction for taxes. To the extent that we are required to withhold any amount in respect of
taxes, other than net income or capital taxes, then we must pay such additional amounts as are necessary to ensure that XM receives a net amount equal to the full amount which it would have received
had payment not been made subject to such tax.



We and XM will mutually select the XM SDARS channels that will form part of the basic services and premium services (if any) to be offered by us. XM
has the right to determine the format, nature, content and quality of the channels chosen by XM and us. The parties have agreed, however, that approximately 50 of the 72 XM SDARS
channels will be music channels.

Under
the License Agreement, XM has sole responsibility for maintaining relationships and negotiating agreements with third party programming providers to acquire Canadian distribution
rights for the XM SDARS channels to be broadcast in Canada as part of our basic and premium services. We must reimburse XM for costs relating to such Canadian distribution rights.

40

---



We
are responsible for all costs and expenses incurred to obtain, maintain, and report on all Canadian performance rights for the XM SDARS, including required payments for the
XM SDARS channels to be broadcast to Canadian subscribers as part of our basic and premium services.



XM, from time to time, activates and deactivates subscribers to our basic service upon our request. XM has agreed that it will process activation and deactivation
requests consistent with the level of effort and with the timing that XM uses for its own subscribers. XM will not, however, have any liability to us for failures to activate or deactivate subscribers
within any specified period.



Under the License Agreement, we have primary responsibility, in consultation with XM, for maintaining relationships and negotiating distribution agreements for
Canada with U.S. based retailers that sell XM's satellite radio services within the U.S. and that have retail operations in Canada, as well as for U.S. based airlines, hotels, cable
companies and similar entities that wish to incorporate XM's satellite radio services within the services offered by such entities to their patrons or customers in Canada. Before entering into such
relationships, however, we and XM must discuss the commission, revenue share or other payment to be paid to each such retailer for generating any new subscribers.

The
License Agreement provides that we will, upon XM's written instructions, authorize one or more automobile manufacturer, radio manufacturer and other OEM to distribute our services
within Canada. XM will have primary responsibility for maintaining relationships and negotiating distribution agreements for Canada with such third parties, and we will have primary responsibility for
negotiating joint or co-marketing arrangements with such third parties in consultation with XM. Prior to authorizing any such third party to distribute our services, we and XM must
mutually agree with respect to the revenue share or other payment to be paid to each such third party for generating any new subscribers, such payments to be set by reference to
then-prevailing market practices with respect to sales of similar types of services and to the payments paid by XM with respect to sales of its satellite radio services within
the U.S.

We
have agreed that with respect to common relationships that we will have with XM and with radio manufacturers, retail distributors, strategic marketing entities, technology providers
and others, we will cooperate and coordinate with XM to the extent and in the manner reasonably requested by XM to enable XM to maintain a successful relationship with such person or entity for the
benefit of both our and XM's service, and to coordinate the terms and conditions for our services with those of XM's service so as to obtain volume discounts and consistent arrangements for particular
technologies, joint advertising and marketing, and the like.

41

---





The License Agreement provides that our license is subject to certain restrictions, including the following:





Under the License Agreement, XM represents, warrants and covenants to us that:



42

---





XM
has also agreed that if at any time there is a disruption in the satellite transmission of our services in the Canadian footprint of XM's satellites for a period of greater than five
minutes as a result of an error, problem or failure with or originating with XM's satellites or XM's satellite network system (and not our terrestrial repeater network), XM will keep us advised
of XM's efforts to resolve such service disruption.

XM
has agreed to indemnify and hold us harmless from any and all loss, liability, cost, damages and expenses suffered, including reasonable legal fees and expenses, with respect to any
third party claim based on (i) any breach or violation by XM or any of its agents of any of its obligations contained in the License Agreement, or (ii) any negligence or willful
misconduct by XM in connection with the License Agreement that results in personal injury, death or tangible property damage. There is no indemnity for any loss of XM service, other than as a result
of negligence or willful misconduct.



XM may, in its sole discretion, terminate the License Agreement by written notice to us in the event that:



43

---





44

---





45

---







Under the License Agreement XM has agreed that it shall not license any other person or entity to provide XM's satellite radio services in Canada, or provide
Canada-focused marketing or promotion of XM's satellite radio services, without our prior written consent. We and XM have also agreed that we shall have a right of first refusal with respect to any
new non-SDARS introduced by XM in Canada.

XM Programming Agreement

We have entered into a programming agreement with XM (the "Programming Agreement"). The following is a summary of certain material terms of the Programming
Agreement, and is not intended to be complete. Reference is made to the Programming Agreement for the full text of its provisions.

Under
the Programming Agreement, we must, at our own expense, develop, produce, deliver and license certain programs to be distributed by XM over audio channels in its satellite system
and terrestrial repeater network (the "XM Canada Channels") in the satellite footprint and over the Internet. So long as we remain in compliance with the Programming Agreement and the
License Agreement, XM will carry the XM Canada Channels as part of its SDARS service made available to subscribers in both the U.S. and Canada. We will not receive a fee or other payment for
the broadcast of the XM Canada Channels to XM subscribers.

We
maintain creative control with respect to the XM Canada Channels. We have agreed to consult with XM regarding general creative direction, concerns and issues in connection with
the nature, subject and production of the XM Canada Channels. Any name branding of the programs on the XM Canada Channels and the XM Canada Channels themselves and any related
slogans ("Channel Brand Names") will be subject to approval by XM, not to be unreasonably withheld. We will have the rights to the Channel Brand Names with respect to Canada and XM will have the
rights to the Channel Brand Names with respect to all areas outside of Canada. We and XM have licensed the Channel Brand Names to each other under the Trademark License Agreement.

46

---



We
are entitled to retain substantially all advertising revenues collected on the XM Canada Channels. In selling advertisements, we have agreed to comply with certain XM and CRTC
policies regarding the amount of advertising that can be included in each broadcast hour on non-music channels and will not include any advertisements on any music-oriented
XM Canada Channel. In addition, advertising included on the XM Canada Channels may not be used to (i) advertise or promote goods or services that are intended to be used or
consumed primarily in the U.S., its territories or possessions without coordinating with XM in advance and obtaining XM's approval to do so, or (ii) advertise or promote other satellite radio
broadcasters, or goods or services that could reasonably be deemed detrimental to the image of our services or XM. We are, however, entitled to place U.S. focused advertisements relating to the
National Hockey League Talk Channel (Home Ice) without the consent or approval of XM.

The
Programming Agreement has the same term as the License Agreement, and will automatically be extended if the License Agreement is extended. Either party may terminate the Programming
Agreement upon written notice to the other in the event that the defaulting party has materially breached its obligations under the Programming Agreement and such breach has not been cured within
60 days after written notice thereof is given by the other party. In addition, the Programming Agreement will terminate if the License Agreement terminates.

Under
the Programming Agreement, we and XM have agreed to indemnify each other for any losses or damages relating to the development, production or supply of their respective programming
and the content of such programming.

Other Agreements

We and XM have also entered into a: (i) repeater purchase agreement (the "Repeater Purchase Agreement"); (ii) technical services agreement
(the "Technical Services Agreement"); and (iii) trademark license agreement (the "Trademark License Agreement"). The following are summaries of certain material terms of these
agreements, and are not intended to be complete.



A total of 60 standard and 18 high power terrestrial repeaters have already been delivered by XM.

The
Repeater Purchase Agreement provides that we may at our option purchase additional terrestrial repeaters from XM from time to time, provided that XM has terrestrial repeaters in
inventory available for sale. The agreement is not exclusive, and we are not precluded from ordering repeaters from alternative sources (subject to XM's technical approval) if XM does not have
sufficient quantities available or if widespread defects in repeater quality are encountered. Any terrestrial repeaters delivered by XM under the Repeater Purchase Agreement are delivered "as is" and
without warranty and will be deemed to be finally accepted by us if we have failed to notify XM of any material defects in the terrestrial repeaters within the earlier of (i) 60 business days
following the date of delivery or (ii) ten business days after completion of the installation and testing of the applicable terrestrial repeaters.

47

---



The
Repeater Purchase Agreement will be in effect until the earlier of the second anniversary of the date of the agreement and the date that XM notifies us that its inventory of
terrestrial repeaters available to be sold to us has been exhausted.



Under the Technical Services Agreement, XM has agreed that it will from time to time provide design, engineering, support and technical services for our
terrestrial repeater system, as well as information technology and broadcast operations. In consideration for these services, we have agreed to pay a monthly fee, initially set at US$100,000 from
September 2005 to December 2005. The rate decreased to US$50,000 in January 2006 and to US$28,000 in April 2006. The current rate of US$28,000 will continue until
December 31, 2006. The parties will then re-evaluate whether a different monthly rate should apply.

In
addition to the general services contemplated by the Technical Service Agreement, we may request from time to time that XM provide services for specific projects not included in the
monthly services. These project requests will be subject to a specific work order made by us to XM and will become binding upon acceptance of the specific work order by XM. In connection with any such
projects, we will pay XM based on a time and materials basis at hourly rates as agreed between the parties.



Under the Trademark License Agreement, each of XM and we have granted a non-transferable license to use within the XM satellite footprint our and XM's
respective trademarks to the other party in association with our and XM's respective SDARS. In addition to granting a license to our and XM's respective trademarks, each of XM and we have also granted
each other a non-transferable license to use any trade name, service mark, logo, design, domain name or business name derived from our and XM's respective trademarks.

The
Trademark License Agreement has the same term as the License Agreement, and will automatically be extended if the License Agreement is extended.

GMCL Distribution Arrangement

CSR Inc., XM and GMCL have entered into an exclusive distribution arrangement (the "GM Distribution Arrangement"). The following is a summary of
certain material terms of the GM Distribution Arrangement, and is not intended to be complete.

48

---



Under
the GM Distribution Arrangement, GMCL will exclusively distribute XM radios configured for Canadian satellite radio subscription services, and will install these radios in certain
specified General Motors branded Canadian vehicles and market our satellite radio service in Canada. GMCL will use commercially reasonable efforts to have all purchasers of enabled General Motors
vehicles subscribe to our satellite radio service. The GM Distribution Arrangement has a term of 13 years from November 10, 2005, the effective date of the agreement.

Under
the GM Distribution Arrangement, GMCL must use commercially reasonable efforts to make XM radios configured for Canadian satellite radio subscription services available as a
factory-installed option in at least ninety percent (90%) of its vehicle lines in the with the 2007 model year.

The
GM Distribution Arrangement provides for the payment of a number of specific fees by us to GMCL, including a revenue share and an incentive payment, all as described below. For the
first three years of the term of the GM Distribution Arrangement following the launch of our service, all payments have been waived by GMCL with the exception of the activation portion of the
incentive payment. If we breach any of our material obligations under the GM Distribution Arrangement and fail to cure such breach in accordance with the terms thereof, however, then we must pay to
GMCL any amounts that were otherwise waived by GMCL.

The
GM Distribution Arrangement authorizes GMCL to offer incentives to induce new vehicle purchasers to subscribe to our satellite radio service. As part of this incentive, GMCL is
authorized to offer such purchasers three months of free trial service. Under this promotional program, GMCL will pay us our regular subscription fee for the second and third months of this trial
service. We expect that the amounts owing by GMCL to us in respect of the second and third months of this trial service will be approximately equal to the amount owing by us to GMCL in respect of the
activation portion of the incentive payment.

Under
the GM Distribution Arrangement, we have agreed that we will pay GMCL an incentive payment for each purchaser of a new General Motors vehicle that is installed with an XM radio who
becomes a subscriber to our satellite radio service within 12 months of the purchase of such vehicle. This incentive payment will consist of an activation charge, which is payable within
30 days after the purchase of a new General Motors vehicle that includes an activated XM Canada radio, and a loyalty payment, which is payable after a purchaser has been a subscriber for
three months. The loyalty payment has been waived for the first three years of the term of the GM Distribution Arrangement following the launch of our service. We have also agreed to pay GMCL a
revenue share based on the revenue billed to GMCL subscribers by us for our basic satellite radio services. This revenue share will resume after the initial three year waiver period, including in
respect of purchasers who became subscribers during the waiver period but who remain subscribers following the waiver period. As an additional incentive, we have agreed to pay GMCL a
one-time lump sum amount if, at the end of the third year of the term, there are a specified number of GMCL/XM Canada subscribers.

49

---



The
GM Distribution Arrangement also requires us to allocate to GMCL certain amounts for market support funds, which are to be utilized for mutually agreed marketing efforts.

The
GM Distribution Arrangement provides that any commercial arrangements between us and any other vehicle manufacturer will be no more favorable than the terms provided by us to GMCL,
including, but not limited to, on a timing of payment basis.

Each
party may terminate the GM Distribution Arrangement upon 60 days prior written notice in the event of a breach by the other party of any of its material obligations under the
GM Distribution Arrangement that is not cured within such period. Each of GMCL and we shall also have the right to renegotiate certain terms of the GM Distribution Arrangement, or to be excused from
certain obligations under the GM Distribution Arrangement, in certain circumstances and on the occurrence of certain events, including our failure to satisfy certain financing conditions or the
occurrence of a force majeure event. In addition:



Under
the GM Distribution Arrangement we and XM have agreed not to directly or indirectly market, promote or endorse any company that distributes radio hardware of any description on an
after-market basis to GMCL's authorized motor vehicle dealers without the prior written consent of GMCL.

50

---



Regulatory Matters

CRTC License.On June 16, 2005, the CRTC approved the application of CSR Inc. for a broadcasting license to
offer satellite radio services across Canada subject to certain conditions set out below. On February 10, 2006, the CRTC approved amendments to CSR Inc.'s license, as
outlined below.

In
its approval, the CRTC stated that a broadcasting license would be granted to CSR Inc. only when certain conditions had been fulfilled, including CRTC's approval of the
operating agreements between XM and us. On November 21, 2005, the CRTC advised us that it was satisfied that the conditions to the grant of our broadcasting license were fulfilled, and that the
license would therefore be issued when: (i) the Department of Industry notified the CRTC that its technical requirements had been met, and (ii) we confirmed to the CRTC that we were
prepared to commence operations. The Department of Industry notified the CRTC that its technical requirements had been met on November 22, 2005. Similarly, on November 22, 2005, we
confirmed to the CRTC that we were prepared to commence operations. As a result of the satisfaction of these conditions, we have fulfilled all regulatory conditions to launch, and we have been
authorized to launch our service.

The
satellite radio services offered by us are,inter alia,subject to the following conditions:



51

---





The
term of the broadcasting license is six years and the license must be renewed prior to August 31, 2011. The broadcasting license does not specifically set out the parameters
of spectrum assignment and related issues, however, Industry Canada and the Department of Canadian Heritage have provided some guidance in this respect as well as in respect of repeater licensing
requirements.

Amendments to CRTC Broadcast License.On February 10, 2006, the CRTC approved CSR Inc.'s application to amend
its CRTC broadcasting license to allow it to continue to distribute a minimum of eight original Canadian produced channels, four of which are in the French language and four in the English language.
In that application CSR Inc. proposed adding two more Canadian channels, for a total of ten, provided that certain conditions are satisfied relating to technology and to CSR Inc.'s
subscription base. During the fiscal year ended August 31, 2006, we added two original Canadian produced channels to our programming lineup.

On
March 24th, 2006, CSR Inc. submitted an application to the CRTC requesting the amendment of its conditions of license. The requested amendment would allow for the carry
over of a credit into subsequent broadcast years for contributions to the development of Canadian talent in excess of the prescribed amount.

52

---



Foreign Ownership Restrictions.We own all of the outstanding shares of CSR Inc., which holds the CRTC broadcast
license under theBroadcasting Act(Canada). The Governor General in Council (i.e., the cabinet of the Canadian federal
government) has, pursuant to its authority under theBroadcasting Act(Canada), issued a direction setting out the legal requirements relating to
Canadian ownership and control of broadcasting undertakings entitled the Direction to the CRTC (Ineligibility of Non-Canadians) (the "Direction"). Under the Direction,
non-Canadians are only permitted to own and control, directly or indirectly, up to 331/3% of the voting shares and 331/3% of the votes of a parent company
which has a subsidiary operating company licensed under theBroadcasting Act(Canada). In addition, up to 20% of the voting shares and 20% of the votes
of the operating licensee company may be owned and controlled, directly or indirectly, by non-Canadians. The Direction also provides that the Chief Executive Officer and 80% of the members
of the board of directors of the operating company must be Canadian. In addition, where the parent company is less than 80% Canadian-owned, the parent company and its directors are prohibited from
exercising any control or influence over the programming decisions of a subsidiary operating company. There are no restrictions on the number of non-voting shares that may be held by the
non-Canadians at either the parent company or licensee operating company level. Under all circumstances, the licensee must not be controlled by non-Canadians. The CRTC,
however, retains the discretion under the Direction to determine as a question of fact whether a given licensee is controlled by non-Canadians.

Spectrum.In August 1998, the governments of both the U.S. and Canada signed a spectrum coordination agreement with
respect to broadcasts in the 2320-2345 MHz bands. In essence, this agreement was an acknowledgement by the Canadian government that U.S. SDARS services would be broadcasting
across North America in that spectrum, and that in the future, existing Canadian Mobile Aeronautical Telemetry Services, or MATS, could not claim protection from SDARS interference. As such, Canada
put a moratorium on usage of the SDARS bandwidth within Canada.

Since
our approval to broadcast has been granted by the CRTC, the relevant portion of SDARS bandwidth used by XM in the U.S. has been authorized for our usage in Canada.

U.S. SDARS Operators.Industry Canada mandated that we coordinate with U.S. SDARS operators at all border sites
where broadcast power is over a prescribed minimum level. As our repeater deployment was performed in conjunction with staff at XM, this did not result in any material issues.

Wireless Communication Services Operators.Industry Canada has auctioned off the Wireless Communications Services, or WCS,
spectrum bordering 2320-2345 MHz to various telecom enterprises. These auctions were conducted under a series of policy statements highlighting the possible future existence of
terrestrial repeaters, and the operating parameters of such as described above. As such, on September 21, 2004 Industry Canada issued the following policy statement, in the form of a letter
written to the CRTC by the Director Broadcasting, Multi Media Planning and Technical Policy, Industry Canada:

53

---





We
do not see this as a concern as repeaters are typically not required outside urban areas.

Fixed Service (FS) Operators.Industry Canada requires us to reach a working arrangement with incumbent FS operators within
the 2320-2345 MHz band whose stations are within 300 km of a terrestrial repeater transmitter site. These include the MATS services described above. We do not see this as a
significant concern as there are currently a small number of these operators and the band has all been vacated in the wake of strong interference from the SDARS operators. Furthermore, very few FS
operators have become established in urban areas.



We have not and will not acquire any intellectual property rights in the satellites. We do not own the design of XM's system, including aspects of the technology
used in communicating from the satellites and certain aspects of the design of, and features that may be used in, XM radios.

The XM Trademark

XM has registered the trademark "XM" and "XM Canada," as well as the "XM" logo and certain XM slogans with the Trademarks Branch of the Canadian
Intellectual Property Office. We have an exclusive license from XM to use these trademarks in Canada in connection with satellite radio service.

We
are in the process of registering the titles of our Canadian content channels, as applicable, as trademarks in Canada.

Personnel

As of October 31, 2006, we had 107 full-time equivalent employees, which included 5 members of senior management and
102 employees working in Finance, Human Resources, Sales & Marketing, Programming, Infrastructure and IT. This is an increase of 22 full-time equivalent employees
since February 28, 2006, the disclosure date with respect to our exchange offer of senior notes. We have also engaged Accenture Inc. to design, build, and deploy a subscriber management
system that includes billing, customer care, supply chain, subscriber management and radio provisioning systems. In addition, we rely upon a number of consultants and other advisors. The extent and
timing of any increase in staffing will depend on the availability of qualified personnel and other developments in our business. None of our employees are represented by a labor union, and we believe
that our relationship with our employees is good.

54

---



Legal Matters

We are not aware of any litigation outstanding, threatened or pending as of the date hereof by or against us or relating to our business, which would be material
to our financial condition or results of operations.

C.    ORGANIZATIONAL STRUCTURE

We operate our business through our wholly-owned subsidiary, Canadian Satellite Radio Inc., a corporation incorporated under the Canada Business
Corporations Act (Ontario) on July 6, 2002 as 600455 Canada Inc. It changed its name to "Canadian Satellite Radio Inc." by articles of amendment filed on
July 7, 2003.

D.    PROPERTY, PLANTS AND EQUIPMENT

Our corporate office is located in leased space at 590 King Street West, 3rd Floor, Toronto, Ontario, M5V 1M3.

We
also lease a broadcast studio at 175 Avenue Road, Toronto, Ontario, M5R 2J2; and office space and broadcast studios at 451 de L'Eglise,
3rd Floor, Verdun, Quebec, H4G 2M6, as well as at 432 de L'Eglise, Verdun, Quebec, H4G 2M6.

We
have 60 terrestrial repeaters located across Canada on properties we lease from various parties.

Item 4A.  Unresolved Staff Comments

None.

55

---





Item 5.  Operating and Financial Review and Prospects

MANAGEMENT'S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis of the financial condition and results of operations of Canadian Satellite Radio
Holdings Inc. (the "Company") has been prepared as of November 15, 2006 at which time 20,482,289 Class A Subordinate Voting shares are outstanding, and
81,428,133 Class B Voting shares are outstanding. The discussion and analysis should be read in conjunction with our audited Consolidated Financial Statements and Notes included
herewith. The financial statements of the Company are prepared in accordance with Canadian generally accepted accounting principles (GAAP) and expressed in Canadian dollars.

This discussion contains certain information that may constitute forward-looking statements within the meaning of securities laws. These statements relate to
future events or future performance and reflect management's expectations and assumptions regarding the growth, results of operations, performance and business prospects and opportunities of the
Company on a consolidated basis. In some cases, forward-looking statements can be identified by terminology such as "may", "would", "could", "will", "should", "expect", "plan", "intend", "anticipate",
"believe", "estimate", "predict", "potential", "continue", "seek" or the negative of these terms or other similar expressions concerning matters that are not historical facts. In particular,
statements regarding the Company's objectives, plans and goals, including future operating results, economic performance and subscriber recruitment efforts involve forward-looking statements. A number
of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. Although the forward-looking statements contained in this
discussion are based on what management of the Company considers to be reasonable assumptions based on information currently available to it, there can be no assurance that actual events, performance
or results will be consistent with these forward-looking statements, and management's assumptions may prove to be incorrect. The Company does not intend and does not assume any obligation, to update
or revise any forward-looking statements to reflect new information, future events or otherwise. These forward-looking statements are subject to risks and uncertainties that could cause actual results
or events to differ materially from expectations. These include but are not limited to the risk factors included in our Annual Report in Form 20-F ("Form 20-F")
for the fiscal year ended August 31, 2006, which is incorporated by reference into this MD&A. Readers are advised to review these risk factors for a detailed discussion of the risks and
uncertainties affecting the Company's business.

1.0   Overview

1.1   Our Business

We, through our wholly-owned subsidiary, Canadian Satellite Radio Inc. (CSR Inc.), are the exclusive licensed provider of XM satellite digital audio
radio services, or SDARS, in Canada. We launched the first SDARS in Canada on November 22, 2005. Our service leverages XM's existing satellite network and technology, its brand and distribution
relationships and significant operational know-how. Through XM, we offer up to 100 channels, which include commercial-free music as well as news, talk, sports and
children's programming, and ten Canadian channels designed and developed from studios in Toronto, Montréal and Québec City, for an initial base subscription fee of
$14.99 per month.

56

---



On
December 12, 2005, we completed an initial public offering which yielded net proceeds of $50 million. Immediately prior to the closing of our initial public offering,
Canadian Satellite Radio Investments Inc. ("CSR Investments") provided additional capital of $15 million. On February 10, 2006 we completed a senior note offering with
gross proceeds of US$100 million from the issuance of 12.75% Senior Notes due 2014 (the "Notes"), in a private placement. The indenture governing the notes required that we establish an
interest reserve account in the amount of approximately US$35.5 million to cover the first six interest payments due under the notes. The first interest payment was made on
August 15, 2006.

Pursuant
to the registration rights agreement entered into in connection with our Notes, we agreed to file a registration statement with the United States Securities and
Exchange Commission (the "SEC") and completed an offer to exchange the Notes for SEC registered notes (the "exchange notes") in July 2006. The terms of the exchange notes were
substantially identical to those of the initial notes, except that transfer restrictions and registration rights relating to the initial notes do not apply to the exchange notes.

Our
business plan is based on estimates regarding expected future costs and expected revenue. Our costs may exceed our estimates, and our revenues may be lower than expected. These
estimates may change and may also be affected by future developments. Any of these factors may increase our need for funds, which would require us to seek additional funding.

1.2   National Hockey League Broadcast Rights

On September 12, 2005, we and XM announced an approximately US$100 million ten-year contract to broadcast National Hockey League, or
NHL, games as part of the XM service. The ten-year contract is non-exclusive for the first two years, but XM will be the exclusive satellite radio provider in North America
beginning with the 2007-2008 season. We will fund a substantial portion of the fees payable to the NHL under this agreement.

1.3   XM Agreements

On November 17, 2005, we agreed to terms on a number of agreements with XM which provide us with exclusive rights to offer XM SDARS in Canada. These
rights include the exclusive non-transferable right and license to sell the XM basic channels package to Canadian subscribers, access to the programming on the XM channels, rights to the
use of the XM related trademarks and information and expertise related to matters such as the acquisition of content distribution rights, promotion, marketing, distribution and computer software and
system support.

The
license agreement requires payment of a fee of 15% on recognized subscriber revenue for the basic service. We will also pay to XM an additional fee for any premium services sold to
subscribers, an activation charge, monthly payments for technical support, and will provide XM with the right to use our trademarks and the right to license and transmit to XM subscribers the channels
created by us.

We
have also obtained a $45 million standby credit facility from XM which can be utilized to finance purchases of terrestrial repeaters or for the payment of license fees. The
facility matures on December 31, 2012 and bears an interest rate of 9%. XM has a right to convert unpaid principal amounts into our Class A Subordinate Voting Shares. Currently no
amounts are outstanding under this facility.

57

---



Immediately
prior to the initial public offering, we issued to XM 11,077,500 Class A Subordinate Voting Shares representing a 23.3% equity interest in us following the
completion of the initial public offering.

1.4   Agreements with Original Equipment Manufacturers

GRAPHIC

On
November 30, 2005, we entered into a 13-year exclusive distribution agreement with General Motors of Canada Limited ("GMCL") to install satellite
radios in certain GMCL vehicles and to market our services. In exchange, we will pay consideration to GMCL that includes installation commissions, subscriber commissions, a share of subscription fees
for GMCL subscribers and funds to be used on joint advertising opportunities.

Immediately
prior to the closing of our initial public offering, 3,323,250 Class A Subordinate Voting Shares were issued to GMCL representing a 7% equity interest in us
following completion of the initial public offering. An additional 1,424,250 Class A Subordinate Voting Shares were issued in escrow for other automobile original equipment manufacturers
(OEMs) that enter into distribution agreements on specific terms.

|GRAPHIC |  | GRAPHIC |  | 
|------- |  | ------- |  | 

In
March 2006, the Company entered into exclusive distribution agreements with Honda Canada Inc. ("Honda") and Nissan Canada Inc. ("Nissan") for 8 and
10 years respectively. As part of the distribution agreement with Honda the Company released to Honda 949,500 Class A Subordinate Voting Shares from escrow, which had an aggregate
value of $9,827,325 based on the market price of the shares at the date the shares were released from escrow of $10.35 per share. As part of the distribution agreement with Nissan the Company released
to Nissan 474,750 Class A Subordinate Voting Shares from escrow, which had an aggregate value of $4,913,663 based on the market price of the shares at the date the shares were released
from escrow. As at November 15, 2006, no shares remain in escrow.

GRAPHIC

In
May 2006, the Company entered into a 5-year agreement with Toyota Canada Inc (Toyota) to install satellite receivers in certain Toyota vehicles. This distribution
agreement includes the right to loyalty commissions in lieu of the extended trial period Toyota customers currently receive.

58

---



1.5   Stock Options

In 2003, CSR Investments provided options to acquire shares of CSR Investments to an officer of the Company. In 2005, CSR Investments provided options to acquire
shares of CSR Investments to two consultants, an officer of CSR Holdings Inc. and two other employees of companies related to CSR Investments in return for services provided to the
Company. The exercise prices of the options were not significant. The compensation charges related to these option grants were included in the indirect expenses of the Company for the periods ending
August 31, 2005 and November 30, 2005. Upon the amalgamation of the Company with 2087609 Ontario Inc. (see Note 6), the holders of the options described above
received 1,007,289 Class A Subordinate Voting Shares in exchange for approximately half of their options in CSR Investments. This exchange resulted in an additional compensatory charge
of approximately $3.0 million to the Company.

In
December 2005, CSR Investments provided options to acquire shares of CSR Investments to an officer of CSR Holdings Inc. The exercise prices of the options were
not significant and the vesting may be accelerated if the employee ceases to be employed by CSR Holdings Inc. The options have a total estimated fair market value of approximately
$1.0 million and this has been included as a compensatory charge during the year ended August 31, 2006.

In
November 2005, our Board of Directors approved a stock option plan for our employees, directors and senior officers. Under this plan, we granted certain employees and senior
officers options to purchase 1,100,000 Class A Subordinate Voting Shares with an exercise price of $0.01 and 1,100,000 Class A Subordinate Voting Shares with an exercise
price return equal to the initial public offering price. In December 2005, we also issued 75,000 options for Class A Subordinate Voting Shares to certain of our directors that
will vest in equal one-fifth annual amounts beginning on the first anniversary of the date of grant and ending on the fifth anniversary thereof. The exercise price of these options is
equal to the initial public offering price.

During
the year, we granted 50,000 options for Class A Subordinate Voting Shares that vest over three years. In addition, our Board of Directors approved the issuance of
15,000 restricted share units ("the RSUs") to an employee of the Company. The RSUs vest over a six month period and expire in December 2007. At the option of the Company, the RSUs
may be settled in either Class A Subordinate Voting Shares of the Company or a cash amount equal to the market value of the Company's Class A Subordinate Voting Shares of the Company on
the date of vesting. It is the Company's intention to settle the RSUs through the issuance of Class A Subordinate Voting Shares.

1.6   Reorganization of share capital

Prior to the closing of the initial public offering, our authorized capital consisted of an unlimited number of common shares. Also, prior to the closing of the
initial public offering, we completed a reorganization that involved our amalgamation with 2087609 Ontario Inc., a newly incorporated company owned by CSR Investments and by certain
other current holders of equity interests in CSR Investments. As part of this reorganization: (i) the existing "private company" restrictions in our articles were deleted, (ii) we were
authorized to issue an unlimited number of Class A Subordinate Voting Shares, Class B Voting Shares and Non-Voting Shares, (iii) our existing common shares were
converted into Class B Voting Shares, and (iv) the common shares were deleted as an authorized class of shares. At the time of the closing of the initial public offering, and without
giving effect to the initial public offering, there were 16,832,289 Class A Subordinate Voting Shares of which 1,424,250 were held in escrow, 81,615,633 Class B
Voting Shares and no Non-Voting Shares issued and outstanding. At the time of the closing of the initial public offering, there were also options and other rights to acquire a further
2,587,500 Class A Subordinate Voting Shares issued and outstanding. CSR Investments held 81,615,633 Class B Voting Shares, representing approximately 57.3% of the
outstanding equity capital immediately following the closing of the initial public offering.

59

---



1.7   CRTC License

On August 19, 2003, we, through CSR Inc., filed an initial application to the Canadian Radio-television and Telecommunications Commission ("CRTC")
for a broadcasting license to provide subscription-based satellite radio service in Canada. On June 16, 2005, the CRTC approved the issuance of a broadcasting license for CSR Inc.
containing certain conditions of license as outlined below:



On
September 7, 2005, CSR Inc. applied to amend its CRTC license to allow it to continue to distribute a minimum of eight original Canadian produced channels, four of which
are in the French language and four in the English language. In that application CSR Inc. proposed adding two more Canadian channels, for a total of ten, provided that certain conditions are
satisfied relating to technology and to CSR Inc.'s subscription base.

60

---



On
November 21, 2005, CSR Inc. was advised that the CRTC was satisfied that the conditions to the grant of its broadcasting license were fulfilled, and that the license
would therefore be issued when: (i) the Department of Industry notified the CRTC that certain technical requirements had been met by CSR Inc., and (ii) CSR Inc. confirmed
to the CRTC that it was prepared to commence operations. The Department of Industry notified the CRTC that its technical requirements had been met on November 22, 2005. Similarly, on
November 22, 2005, CSR Inc. confirmed to the CRTC that it was prepared to commence operations.

On
November 22, 2005, we announced the launch of our service.

On
February 10, 2006, the CRTC approved CSR Inc.'s application dated September 7, 2005 to amend its broadcasting license to allow it to continue to distribute a
minimum of eight original Canadian produced channels, four of which are in the French language and four in the English language. The CRTC also approved CSR Inc.'s application to amend its CRTC
broadcasting license to add two more Canadian channels, for a total of ten.

1.8   Significant External Factors

Our results of operations, business prospects and financial condition are subject to a number of risks and uncertainties, and are affected by a number of factors
outside of the control of our management.

Our
future success will depend in large part on our ability to market and sell subscriptions. Successful commercialization of the XM satellite radio system will depend on a number of
factors, including achieving sufficient demand among Canadian subscribers and our ability to successfully market and distribute the service at its projected selling price. The emergence of new or
existing products as competition will also affect our future success.

We
rely on XM for the provision of our satellite radio service. Our success will depend on XM's cooperation and programming content, satellite network and underlying technology, as well
as XM's operational and marketing efficiency, competitiveness, finances, regulatory status and overall success in the U.S. Because of our dependency on XM, should XM's business suffer as a
result of increased competition, increased costs of programming, satellite malfunctions, regulatory changes, adverse effects of litigation or other factors, our business would suffer as well.

2.0   Vision & Strategy

The Company's vision is to be the leading satellite radio provider in Canada. Our strategy is founded on the principles of acquiring subscribers in the near and
long term in the most cost effective manner. We will accomplish this through building awareness for this new and emerging category and converting that interest into subscribers utilizing the OEM,
retail, direct and other ancillary sales channels. The Company will utilize advertising and promotional platforms both on a mass market and on a highly targeted basis through point of sale (POS) in
our distribution channels. We will also utilize our unique programming assets, such as our English language Home Ice hockey channel and French language Sports Plus channel and our English and French
music channels to promote XM in communities across the country. These XM Canada originally-produced, owned and controlled channels will provide unique programming and marketing opportunities
both from studio facilities in Montréal, Toronto and Québec City, and on a mobile remote basis, thus allowing sampling opportunities in the marketplace. The Company is
focused on achieving positive EBITDA as quickly as possible by maximizing our revenues through subscriptions, advertising and other ancillary opportunities as well as maintaining effective cost
controls, managing subscriber acquisition costs and by creating a long-term customer base through quality service. We believe that a premium service will attract a premium customer.

61

---



3.0   Operating Definitions

3.1Subscribers Subscribers are those who are receiving and have agreed to pay for our satellite
radio service through a credit card, prepaid card or invoice. Radio receivers that are revenue generating are counted individually as subscribers.

3.2OEM Promotional Subscribers OEM Promotional Subscribers are subscribers who receive a portion
or their entire subscription fee free for a fixed period following the initial purchase or lease of the vehicle. At the time of sale, vehicle owners generally receive a three month prepaid trial
subscription. We will measure the success of these promotional programs based on the percentage that elect to receive the XM service and convert to self-paying subscribers after the
initial promotion period. We refer to this as the "conversion rate". We will measure conversion rate three months after the period in which the trial service ends.

3.3Subscription Revenue Our revenue consists primarily of monthly subscription fees for our
satellite audio service charged to consumers, commercial establishments and fleets, which are recognized as the service is provided. Promotions and discounts are treated as a reduction to revenue
during the period of the promotion. Subscription revenue growth is predominantly driven by the growth in our subscriber base but is affected by fluctuations in the percentage of subscribers in our
various discount plans and rate changes. Additionally, the timing of subscriber additions affects comparability between years.

3.4.Subscriber Acquisition Costs and SAC Subscriber acquisition costs include subsidies and
distribution costs and net costs related to equipment sold direct to the consumer. Subscriber acquisition costs are divided by the appropriate per unit gross additions or units manufactured to
calculate what we refer to as "SAC". SAC is a measure of operational performance and not a measure of financial performance under generally accepted accounting principles. In our financial statements,
most of our SAC costs are captured in Marketing.

3.5Cost Per Gross Addition ("CPGA") CPGA costs include the amounts in SAC, as well as Advertising
and marketing, which includes advertising, media and other discretionary marketing expenses. CPGA costs do not include the costs of marketing staff. Cost Per Gross Addition is a measure of operational
performance and not a measure of financial performance under generally accepted accounting principles. CPGA costs are primarily captured by the combination of Subsidies & distribution,
Advertising & marketing, plus the negative margins from equipment sales. These costs are divided by the gross additions for the period to calculate Average CPGA.

3.6Average Monthly Subscription Revenue Per Subscriber ("ARPU") Average monthly subscription
revenue per subscriber is derived from the total of earned subscription revenue (net of promotions and rebates) divided by the monthly weighted average number of Subscribers for the period
reported. Average monthly revenue per subscriber is a measure of operational performance and not a measure of financial performance under generally accepted accounting principles. Average monthly
subscription revenue per subscriber will fluctuate based on promotions, changes in our rates, as well as the adoption rate of annual and multi-year prepayment plans, multi-radio discount
plans (such as the family plan), commercial plans and premium services.

62

---



3.7Adjusted Operating Loss Adjusted Operating Loss is defined as Operating loss excluding
amortization, stock-based compensation to employees, directors, officers and service providers, and non-cash costs paid by parent company (see note 6). We believe that
Adjusted Operating Loss, as opposed to Operating loss or Net loss, provides a better measure of our core business operating results and improves comparability. This non-GAAP measure should
be used in addition to, but not as a substitute for, the analysis provided in statement of operations. We believe Adjusted Operating Loss is a useful measure of our operating performance and is a
significant basis used by our management to measure the operating performance of our business. While amortization and stock-based compensation are considered operating costs under generally accepted
accounting principles, these expenses primarily represent non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods
and non-cash employee and service provider compensation. Costs paid by parent company are non-cash costs related to the licence application process and are not related to
ongoing operations of the business. Adjusted Operating Loss is a calculation used as a basis for investors and analysts to evaluate and compare the periodic and future operating performances and value
of similar companies in our industry, although our measure of Adjusted Operating Loss may not be comparable to similarly titled measures of other companies. Adjusted Operating Loss does not purport to
represent operating loss or cash flow from operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those
measurements as an indicator of our performance.

We
do not report Adjusted Operating Loss for periods prior to fiscal 2006 as we were a development stage company focused on obtaining a licence from the CRTC.

|                                                                      |  | Fiscal Year 2006 |  
|--------------------------------------------------------------------- |  | ---------------- | -
|
|Reconciliation of Operating loss to Adjusted Operating Loss           |  |                  |  
|Operating loss as reported                                            |  | (14,607          | )
|Add back non-Adjusted Operating Loss items included in Operating loss |  |                  |  
|Amortization                                                          |  | 479              |  
|Stock-Based Compensation                                              |  | 0                |  
|Costs paid by parent company                                          |  | 2,863            |  
|Adjusted Operating Loss                                               |  | (11,265          | )

|
|

|($000's)                                                              |  | 12 Months Ended
Aug 31, 2006 |  
|--------------------------------------------------------------------- |  | ---------------------------- | -
|Reconciliation of Operating loss to Adjusted Operating Loss           |  |                              |  
|Operating loss as reported                                            |  | (99,024                      | )
|Add back non-Adjusted Operating Loss items included in Operating loss |  |                              |  
|Amortization                                                          |  | 15,914                       |  
|Stock-Based Compensation                                              |  | 23,695                       |  
|Costs paid by parent company                                          |  | 3,049                        |  
|Adjusted Operating Loss                                               |  | (56,366                      | )

63

---



4.0   Results from Financial Operations

The following selected financial information is derived from our consolidated financial statements for each of the three years ended August 31, 2006, 2005
and 2004. The summary information should be read in conjunction with our consolidated financial statements and notes included herewith and in the IPO prospectus.

|                                       |  | Year ended August 31, |  
|-------------------------------------- |  | --------------------- | -
|
|
|Revenue                                |  | 6,949                 |  
|Net loss for the year                  |  | (102,704              | )
|Basic and fully diluted loss per share |  | 3                     |  
|Total assets                           |  | 355,846               |  
|Total long-term debt                   |  | 110,660               |  
|Total shareholders' equity             |  | 227,357               |  

In
fiscal 2005 and 2004 we were in a development stage, focused on obtaining licence approvals from the CRTC. This was accomplished on June 16, 2005 and the activities since then
changed to focus on setting up our infrastructure, launching our business and growing our subscriber base. Costs related to these expenditures were incurred mostly in fiscal 2006.

64

---



The
following selected financial information for the 3 and 12 months ended August 31, 2006 and 2005 has been derived from our audited consolidated financial statements. The
summary information should be read in conjunction with our audited and unaudited consolidated financial statements and related notes included in our Form 20-F.

|                         |                                | 3 Months Ending Aug 31             |             | 12 Months Ending Aug 31 |           
|------------------------ | ------------------------------ | ---------------------------------- | ----------- | ----------------------- | ----------
|
|Revenue                  |                                |                                    |             |                         |           
|                         | Subscription                   |                                    | 2,722,205   |                         |           
|                         | Activation                     |                                    | 98,519      |                         |           
|                         | Equipment sales                |                                    | 436,166     |                         |           
|                         | Advertising sales              |                                    | 102,385     |                         |           
|                         | Other Sales                    |                                    | 58,098      |                         |           
|                         |                                |                                    |             |                         |           
|                         |                                | 3,417,373                          |             | 0                       |           
|Operating expenses       |                                |                                    |             |                         |           
|                         | Cost of revenue                |                                    |             |                         |           
|                         |                                | Revenue share and royalties        |             | 774,201                 |           
|                         |                                | Customer care & billing operations |             | 523,387                 |           
|                         |                                | Cost of merchandise                |             | 527,985                 |           
|                         |                                | Broadcast and operations           |             | 948,655                 |           
|                         |                                | Programming and content            |             | 2,038,730               |           
|                         |                                |                                    |             |                         |           
|                         | Total cost of revenue          |                                    | 4,812,958   |                         | 0         
|                         | Indirect costs                 |                                    | 0           |                         | 1,654,026 
|                         | General and administrative     |                                    | 5,428,765   |                         | 1,940,957 
|                         | Stock based compensation       |                                    | 759,049     |                         |           
|                         | Marketing                      |                                    |             |                         |           
|                         |                                | Support                            |             | 538,572                 |           
|                         |                                | Subsidies and distribution         |             | 1,723,940               |           
|                         |                                | Advertising and marketing          |             | 5,512,362               |           
|                         |                                |                                    |             |                         |           
|                         | Total marketing                |                                    | 7,774,874   |                         | 0         
|                         | Amortization                   |                                    | 5,470,009   |                         | 2,185     
|                         |                                |                                    |             |                         |           
|Total operating expenses |                                | 24,245,655                         |             | 3,597,168               |           
|                         |                                |                                    |             |                         |           
|Operating loss           |                                | (20,828,282                        | )           | (3,597,168              | )         
|                         | Interest income                |                                    | 1,001,512   |                         |           
|                         | Interest expense               |                                    | (3,773,180  | )                       |           
|                         | Foreign exchange gain / (loss) |                                    | (131,858    | )                       |           
|                         | Net loss for the period        |                                    | (23,731,808 | )                       | (3,597,168

65

---



The
following is a summary of our quarterly results for the past two fiscal years.

|                                                    |  | Fiscal Year 2006 |  
|--------------------------------------------------- |  | ---------------- | -
|
|Revenue                                             |  | 3,417            |  
|Net income (loss)                                   |  | (23,732          | )
|Net income (loss) per basic and fully diluted share |  | (1               | )

|
|

|                                                    |  | Fiscal Year 2005 |  
|--------------------------------------------------- |  | ---------------- | -
|
|Revenue                                             |  | 0                |  
|Net income (loss)                                   |  | (3,597           | )
|Net income (loss) per basic and fully diluted share |  | (9,567           | )

We
launched operations during fiscal Q1 2006 and therefore did not generate any revenue prior to that quarter. Revenue doubled from Q2 2006 to Q3 2006 and then grew by nearly 50% between
Q3 2006 and Q4 2006. This is a direct result of our growing subscriber base.

We
incurred significant expenses during the launch phase of the business. As our subscriber base grows, we expect our losses to improve.

66

---



Results of Operations

For the three 3 months ended August 31, 2006 (fourth quarter) and twelve months ended August 31, 2006 (fiscal year end)



We
launched our service on November 22, 2005 and as at August 31, 2006 we had 91,200 Subscribers, and 28,600 OEM Promotional Subscribers, thereby achieving
our publicly disclosed Subscriber guidance of 75,000 by August 31, 2006. Subscribers are the primary source of our revenues. We have seen a steady rate of subscriber activations and
expect this to trend upwards into fiscal year 2007. Our target market is the over 25 million registered vehicles, 1.5 million vehicles sold annually and over 12 million households
in Canada. We expect subscribers in OEM promotional periods to become a significant contributor to our self-paying subscriber base after their promotional period ends. In addition, our
existing OEM partner agreements include an increase in the number of models offering our services which will increase the production of XM enabled vehicles.



Effective
September 1, 2006, the basic monthly subscription is priced at $14.99 per subscriber, the family plan (up to four additional radios for the same household) at
$9.99 per subscriber and Commercial establishments at $35.99 per establishment. All Subscribers on the $12.99 basic monthly subscription plan prior to August 31, 2006 will maintain the $12.99
price through August 31, 2007. ARPU for the fourth quarter was $11.78, lower than the previous quarter due a number of factors, including; a) a Father's Day consumer promotion for the
month of June, offering 3 months of complimentary service with a purchase of 3 months; b) the launch of our Multi-Year Plans to existing and new subscribers giving the
option to prepay for the service for a duration of one year and longer at a discount to the basic monthly subscription plan and 3) approximately 5,300 subscribers on the family plan as
of August 31, 2006.

67

---



Revenue
for the fourth quarter was $3.4 million, of which Subscriber Revenue comprised $2.7 million and the balance came from activation fees, the sale of merchandise
through our direct fulfillment channel and advertising revenue on our Canadian-produced channels. Year to date revenue was $6.9 million.

Cost of Revenue

For the fourth quarter we incurred $4.8 million in cost of revenue. Year to date we incurred $19.1 million in cost of revenue. These expenses are
comprised of the following:



68

---





Marketing Total marketing expenses for the fourth quarter was $7.8 million. Year to date
costs were $28.0 million. The increase in this quarter over the third quarter is attributable to the Father's Day Promotion. Marketing costs consist of the direct cost to acquire a subscriber,
which include subsidies to drive hardware price points and distribution commissions, as well as discretionary costs consisting of advertising and brand development and promotion of the launch of our
service. Marketing also includes the cost of marketing staff.



69

---





General & Administrative During the quarter approximately $5.4 million were incurred
for General & Administrative. Year to date, General & Administrative totaled $18.5 million. General & Administrative expense primarily include management's salaries and
benefits, professional fees, general business insurance as well as other corporate expenses. These costs have been predominantly driven by personnel costs and infrastructure expenses to support our
growing subscriber base. In the fourth quarter, we expensed $1 million of capital tax. This represented the required tax for the entire fiscal year. Going forward, we expect to expense capital
tax on a monthly basis.

Stock based compensation During the fourth quarter we incurred $0.8 million in stock option
expense related to the issuance of stock options at the time of the initial public offering. Year to date we have incurred $23.7 million in stock option expense.



70

---



Adjusted Operating Loss During the fourth quarter of fiscal 2006, Adjusted Operating Loss was
$14.4 million. Year to date Adjusted Operating Loss was $56.4 million. As we continue to grow our subscriber base and manage General & Administrative and Marketing costs, we
expect Adjusted Operating Loss to improve.

Net Non-operating Expenses

Interest Expense Interest expense includes costs associated with our
Notes. For the quarter, we incurred $3.8 million in interest expense. Year to date we incurred $8.3 million.

Interest Income Interest income includes income from our cash balances and restricted investments.
For the quarter, we received $1.0 million in interest income. Year to date we received $2.6 million.

Foreign Exchange Gain Includes costs or gains associated with our notes, restricted investment and
cash balances which are denominated in US$. For the quarter, we lost $0.1 million from foreign exchange and year to date we gained $2.0 million as the Canadian dollar strengthened versus
the US$ over these periods.

71

---



Liquidity and Capital Resources

Our current balance of unrestricted cash and cash equivalents is approximately $45.2 million. Provided that we meet the revenue, expense and cash flow
projections of our business plan, we expect to be fully funded and will not need to raise additional financing to continue operations. Our business plan is based on estimates regarding expected future
costs and expected future revenue. Our costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these
factors may increase our need for funds, which would require us to seek additional financing to continue implementing our current business plan. Revenue, expenses and cash flow projections of our
business plan are based on, but are not limited to:



We
are pursuing a plan designed to increase our subscribers and revenues at a significantly higher rate than the related increases in our operating costs. In addition, we expect to have
significantly reduced capital expenditure requirements in
fiscal 2007 as compared to fiscal 2006. Our plan contemplates focusing on the new automobile market where we have relationships with automobile manufacturers, the continuing introduction of innovative
yet affordable technology in the retail aftermarket and the use of our most productive distribution channels.

The
following table presents a summary of our cash flows, beginning and ending cash balances for years ended August 31, 2006, 2005 and 2004

|                                                       |  | Year ended August 31,
|------------------------------------------------------ |  | ---------------------
|
|
|Net cash used in operating activities                  |  | (62,247              
|Net cash used in investing activities                  |  | (66,245              
|Net cash provided by financing activities              |  | 174,942              
|Foreign exchange loss on cash held in foreign currency |  | (1,262               
|                                                       |  |                      
|Change in cash and cash equivalents during the year    |  | 45,188               
|Cash and cash equivalents  beginning of year          |  | 0                    
|                                                       |  |                      
|Cash and cash equivalents  end of year                |  | 45,188               

72

---



Operating Activities Operating activities primarily consist of net loss adjusted for certain
non-cash items including amortization, stock-based compensation, unrealized foreign exchange gains and losses and the effect of changes in working capital.



Investing Activities Investing activities primarily consist of capital expenditures and activity
in our restricted investment accounts.



Financing Activities Financing activities primarily consist of net proceeds from debt and equity
financing.



As
stated in our previous filings, we planned to use $30 million of the proceeds from our initial public offering for the purchase and rollout of our terrestrial repeater network
and other capital infrastructure costs. These amounts are included in the $32.6 million of capital expenditures described above. The remainder of the proceeds from our initial public offering
and the proceeds from our debt offering are being used for operating expenses as planned, including marketing expenses, general administrative expenses and other operating expenses directly related to
the launch of our services.

As
described above, we have issued US$100 million of senior notes. At the time of issuance of the notes, approximately US$35.5 million of the proceeds were placed in trust
in an interest reserve account to cover the first six interest payments due under the notes over the first three years of the term of the debt. We plan to be able to fund future interest payments due
thereafter through our operating activities. We plan to investigate the opportunity to use hedging instruments to manage potential currency exposures related to the requirement to make payments under
the debt agreement in US$ while our operations are predominantly Canadian dollar based.

73

---



Contractual Commitments

We have entered into a number of leases and other contractual commitments. The following table summarizes our outstanding contractual commitments as of
August 31, 2006 (in 000's):

|                                                       |  | Total(1) |  | Less than
1 Year |  | 1 - 3 Years |  | 4 - 5 Years |  | More than
5 Years
|------------------------------------------------------ |  | -------- |  | ---------------- |  | ----------- |  | ----------- |  | -----------------
|NHL Agreement                                          |  | 70,656   |  | 6,086            |  | 15,880      |  | 15,769      |  | 32,921           
|Principal and Interest payments on 12.75% Senior Notes |  | 216,479  |  | 14,109           |  | 28,218      |  | 28,218      |  | 145,933          
|Operating leases                                       |  | 7,325    |  | 1,579            |  | 2,271       |  | 1,770       |  | 1,705            
|Marketing & Advertising(2)                             |  | 32,580   |  | 5,670            |  | 9,861       |  | 3,303       |  | 13,746           
|Information Technology                                 |  | 11,259   |  | 5,161            |  | 6,098       |  | 0           |  | 0                
|Other                                                  |  | 1,284    |  | 325              |  | 537         |  | 422         |  | 0                
|                                                       |  |          |  |                  |  |             |  |             |  |                  
|                                                       |  | 339,583  |  | 32,930           |  | 62,865      |  | 49,482      |  | 194,306          
|                                                       |  |          |  |                  |  |             |  |             |  |                  

---

Notes:

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Arrangements, Relationships and Transactions with Related Parties

A description of related party transactions and disclosure of the transaction and amounts due to related parties is included in note 6 to the
interim consolidated financial statements. John I. Bitove, our Chairman, Chief Executive Officer and controlling shareholder, provided, through companies he controls, all the initial funding for
our activities.

As
at December 12, 2005, XM had a 23.3% ownership interest in the Company. As described under recent developments above, we have entered into certain agreements with XM.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. We believe that
the accounting estimates used to assess the carrying value of intangibles and long-lived assets is a critical accounting estimate. We believe the estimates for royalties to artists will be
a critical estimate in future periods.

74

---



Intangibles and Long-Lived Assets

We review the carrying value of our amortizable intangible assets and capital assets whenever events and circumstances indicate that the carrying value of an
asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Significant management judgment is required in the forecasting of future
operating results, which are used in the preparation of the projected cash flows. Any change in estimate which causes the undiscounted expected future cash flows to be less than the carrying value
would result in an impairment loss being recognized equal to the amount by which the carrying value of the asset exceeds the fair value of the asset.

Stock-based Compensation

The estimated fair value of stock awards granted to employees as of the date of grant is recognized as compensation expense over the period in which the related
employee services are rendered. For stock options granted to non-employees, the estimated fair value of stock awards granted to non-employees is recognized as expense over the
period in which the related goods or services are rendered. The determination of the fair value of stock awards includes the use of option pricing models and the use of the following estimates:
expected volatility, expected option life and expected interest rates.

Disclosure Controls and Procedures

Management has designed disclosure controls and procedures to provide reasonable assurance that material information relating to the Company is made known to it
by others. As at August 31, 2006, the Chief Executive Officer and the Chief Financial Officer, with participation of the Company's management, have concluded that the design and operation of
the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the United States
Securities Exchange Act of 1934 and applicable Canadian securities laws is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and
(ii) accumulated and communicated to our management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Due to the
inherent limitations in control systems and procedures, their evaluation can provide only reasonable, not absolute, assurance that such disclosure controls and procedures are operating effectively. A
control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Internal Controls

During the fiscal year ended August 31, 2006, there were no changes in the Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

75

---



Recent Accounting Pronouncements

Financial Instruments, Comprehensive Income, Hedges  the Accounting Standards Board has issued CICA Handbook
section 1530Comprehensive Income("Section 1530"), Handbook Section 3855Financial
Instruments  Recognition and Measurement("Section 3855") and Handbook Section 3865 Hedges("Section 3865"). Section 3855 expands on CICA
Handbook section 3860 Financial
Instruments  Disclosure and Presentation by prescribing when a financial instrument is to be recognized on the balance sheet and at what amount. It also
specifies how financial instrument gains and losses are to be presented. Section 3865 is optional. It provides alternative treatments to Section 3855 for entities that choose to
designate qualifying transactions as hedges for accounting purposes and specifies how hedge accounting is applied and what disclosures are necessary when it is applied. Section 1530 introduced
a new requirement to present temporarily certain gains and losses outside net income in a new component of shareholders' equity entitled Comprehensive Income. These standards are effective for us and
will be adopted beginning September 1, 2007 The Company is currently assessing the implications of these new standards on their financial statements.

Accounting
Changes  the CICA has reissued Handbook Section 1506, "Accounting Changes" ("CICA 1506"). CICA 1506 requires that all
companies comply with the revised Handbook Section for fiscal years beginning on or after January 1, 2007. CICA 1506 requires that voluntary changes in accounting policy are only made if
they results in the financial statements providing reliable and more relevant information; changes in accounting policy are applied retrospectively unless doing to is impracticable or the change in
accounting policy is made on initial application of a primary source of GAAP; a change in accounting estimate is generally recognized prospectively; material prior period errors are corrected
retrospectively; new disclosures required in respect of changes in accounting policies, changes in accounting estimates, and correction of errors. The adoption of CICA 1506 is not expected to
have a significant effect on our consolidated financial statements.

Outstanding Share Data and Other Information

The Company is authorized to issue an unlimited number of Class A Subordinate Voting Shares, an unlimited number of Class B Voting Shares and an
unlimited number of Class C non-voting shares. As at November 15, 2006, we had 20,482,289 fully paid and non-assessable Class A Subordinate Voting
Shares and 81,428,133 fully paid and non-assessable Class B Voting Shares. There are currently no Class C non-voting shares outstanding. A total of
2,516,250 stock options are outstanding under our stock option plan. Additional information concerning the Company, including our Form 20-F for the fiscal year ended
August 31, 2006, is available on SEDAR at www.sedar.com.

76

---



Item 6  Directors, Senior Management And Employees

A.    DIRECTORS AND SENIOR MANAGEMENT

The following table provides certain information regarding our directors and executive officers as of November 15, 2006.

|Name & Place of Principal Residence           |  | Age |  | Position with the Company                       
|--------------------------------------------- |  | --- |  | ------------------------------------------------
|John I. Bitove Toronto, Ontario               |  | 46  |  | Director, Chairman and Chief Executive Officer  
|Stephen Tapp Toronto,Ontario                  |  | 45  |  | President and Chief Operating Officer           
|Michael Washinushi Toronto,Ontario            |  | 37  |  | Chief Financial Officer, Treasurer and Secretary
|Ross Davies Toronto,Ontario                   |  | 53  |  | Vice President, Programming                     
|Stewart Lyons Toronto,Ontario                 |  | 33  |  | Executive Vice President                        
|Donald McKenzie Toronto,Ontario               |  | 49  |  | Senior Vice-President, Marketing and Sales      
|Philip Evershed Toronto, Ontario              |  | 46  |  | Director                                        
|Mat Wilcox Vancouver, British Columbia        |  | 45  |  | Director                                        
|Gary M. Parsons Potomac, Maryland             |  | 56  |  | Director                                        
|Joseph A. Verbrugge Silver Spring, Maryland   |  | 37  |  | Director                                        
|Marc Comeau Courtice, Ontario                 |  | 47  |  | Director                                        
|Robert Storey(1)(2)(3) Ottawa, Ontario        |  | 64  |  | Director                                        
|James W. McCutcheon(1)(2)(3) Toronto, Ontario |  | 70  |  | Director                                        
|Pierre Boivin(1)(2)(3) Mount Royal, Québec    |  | 53  |  | Director                                        

---

Notes:

77

---



John I. Bitove.John I. Bitove is our Chairman and Chief Executive Officer and controls CSR Investments, our
controlling shareholder. Mr. Bitove has also been our Director since 2003. He is also the Chairman and Chief Executive Officer of Priszm Canadian Income Fund (TSX:QSR.UN), the owner and
operator of 481 KFC, Pizza Hut and Taco Bell restaurants in seven provinces across Canada, and Chairman and Chief Executive Officer of Scott's Real Estate
Investment Trust (TSX:SRQ.UN). In 1993, he founded the Toronto Raptors Basketball Club. While with the Raptors, Mr. Bitove helped to launch what is now Raptors TV almost eleven years ago.
Mr. Bitove has been associated in various broadcasting ventures for more than a decade.

Stephen Tapp.Stephen Tapp is our President and Chief Operating Officer. Mr. Tapp came to us from CHUM, where he
oversaw the company's television division, consisting of 26 channels including leading stations such as Citytv and MuchMusic. He has international experience, having been responsible for
developing and managing CHUM's global distribution arm in his role as the vice president and general manager Citytv and ChumCity International. Mr. Tapp oversaw several international joint
ventures and channel launches for both MuchMusic and Citytv in the U.S., Europe, South America and Asia. In addition, Mr. Tapp has a background in new technology and product launches. Prior to
joining CHUM, he was the executive vice president and general manager of Viewer's Choice Canada Pay Per View, from 1991 to 1995, where he was responsible for launching the service and managing all
areas of network operations. He held senior programming roles at Canada's first subscriber based pay television sports channel, TSN, The Sports Network, from its launch in 1984 until 1991. Stephen
began his television career as production manager at CTV's CFTO in Toronto in 1983. Representing the second generation of a Canadian broadcasting family, Mr. Tapp started his media career in
radio at CFQR Montréal and CFLY Kingston.

Michael Washinushi.Michael Washinushi is our Chief Financial Officer, Treasurer and Secretary. Prior to joining us in 2005,
Mr. Washinushi served as the Director of Development and Acquisitions for KIT Limited Partnership where he was responsible for managing the firm's existing real estate portfolio and identifying
new real estate opportunities, from 2003 to 2005. From 2000 to 2003, Mr. Washinushi served as the Director of Finance for Priszm Brandz where he was responsible for the planning and corporate
finance of the company. Mr. Washinushi holds a Bachelor of Arts degree in Economics from York University.

Ross Davies.Ross Davies is our Vice President, Programming. Mr. Davies, previously of the Davies Company consulting
firm, has over 30 years experience in the broadcast industry. Prior to heading up his own consulting firm, from 2002 to 2005, Mr. Davies worked at CHUM as Vice President, Programming,
CHUM Group Radio, where he was directly responsible for all programming aspects of the CHUM radio division. Mr. Davies served as President of the Ontario Association of Broadcasters, was the
inaugural Chair of the Radio Starmaker Fund in 2001, first Vice President of the Canadian Academy of Recording Arts and Sciences ("CARAS") from 1997 to 1999 and is currently a member of the Music
Education Committee of CARAS.

78

---



Stewart Lyons.Stewart Lyons is our Executive Vice President. Mr. Lyons joined us at inception and worked with XM
throughout its critical launch and early growth period. Mr. Lyons joined us while he was employed at Scotia Capital Inc., where, from 2003 to 2005, he served as an interest rate
derivatives trader in Global Trading. From 1999 to 2001, Mr. Lyons worked as the Director of Operations for the Toronto 2008 Olympic Bid. Mr. Lyons has an MBA from the University of
Toronto and an LLB from Osgoode Hall Law School.

Donald McKenzie.Donald McKenzie is our Senior Vice President Sales and Marketing. Mr. McKenzie has more than
22 years experience in sales and marketing in a variety of industries, including the past 10 years in Canada's wireless telecommunications arena where he played a prominent role in the
design and build of distribution channels for Clearnet, now TELUS Mobility. Mr. McKenzie began his career in advertising and product marketing where he worked with Ogilvy & Mather,
Young & Rubicam, Faberge, Cadbury Beverages and CPAS Systems

Philip Evershed.Philip Evershed has been our Director since 2005. Mr. Evershed is a principal of Genuity, a Canadian
investment bank. Prior to co-founding Genuity, Mr. Evershed spent 14 years at CIBC World Markets, most recently as Co-Head of Investment Banking and Head
of Mergers and Acquisitions. Prior to joining CIBC, Mr. Evershed was Chief of Staff to the Deputy Prime Minister of Canada. Mr. Evershed has an MA (Economics) from the University of
Toronto and a BA (School of Business and Economics) from Wilfrid Laurier University.

Mat Wilcox.Mat Wilcox has been our Director since 2005. Ms. Wilcox oversees all operations at Wilcox Group, one of
Canada's largest national, independent public relations firms with offices in Toronto and Vancouver. Ms. Wilcox has provided strategic communications advice and support to CEOs of leading
Canadian companies. She has also counseled global corporations entering the Canadian marketplace and provided growth strategies as they expanded across Canada.

Gary M. Parsons.Gary M. Parsons has been our Director since 2005. Mr. Parsons has served as Chairman of the Board of
Directors of XM since May 1997. Mr. Parsons is Chairman and was previously Chief Executive Officer of Mobile Satellite Ventures L.P., and serves on the board of
WorldSpace, Inc. Mr. Parsons was Chairman of the Board of Directors of Motient Corporation from March 1998 to May 2002. Previously, Mr. Parsons was with MCI
Communications Corporation where he served in a variety of roles from 1990 to 1996, including most recently as Executive Vice President of MCI Communications, and as Chief Executive Officer of MCI's
subsidiary MCImetro, Inc. From 1984 to 1990, Mr. Parsons was one of the principals of Telecom*USA, which was acquired by MCI. Prior to the recruitment of Hugh Panero, Mr. Parsons
served as XM's Chief Executive Officer.

79

---



Joseph A. Verbrugge.Joseph A. Verbrugge has been our Director since 2005. Dr. Verbrugge is Senior Vice President,
International Operations for XM, reporting directly to XM's Chief Executive Officer, Hugh Panero. During the eight years prior to joining XM, Dr. Verbrugge was a management consultant with The
Dealy Strategy Group LLC, a Washington, DC-based advisory firm providing financial/negotiating/strategic consulting services and operational support primarily to satellite
communications companies (including XM), as well as private equity and investment banking firms active in the satellite industry. For the past year, Dr. Verbrugge has been XM's executive
working closely with our management team, leveraging XM's experience and strategic relationships to implement critical aspects of our business. Dr. Verbrugge holds an MBA from Georgetown
University and a Ph.D. in Management Studies from Oxford University.

Marc Comeau.Marc J. Comeau joined our board in 2006. Mr. Comeau began his career with General Motors in 1983 as a
Product Distribution Specialist in the Montreal Zone. He served in a variety of assignments leading to a District Manager position. In 1988, Marc became the Distribution Manager and in 1989 was
appointed Regional Human Resources Development Manager. Mr. Comeau also served as the Regional Marketing/Business Planning Manager, Area Marketing
Manager, and Montreal Zone Manager. In 1995, Marc was appointed Director Strategic Marketing and Research for Buick Motor Division in Flint. In 1997, he returned to General Motors of Canada as the
General Director  Sales. Marc J. Comeau was appointed to his current position of Vice President, Sales, Service & Marketing effective April 1,
2002, and a member of the Board of Directors for General Motors of Canada Limited. In 2005, Mr. Comeau was an award recipient of Marketing Magazine's "Marketers That Mattered".

Robert Storey.Robert Storey has been our Director since 2005. Mr. Storey is Chairman of the consulting company MASABE
and Company and President of Teraca Communications Corporation. He has worked in the broadcasting and communications industry in Canada and abroad for more than 30 years. Mr. Storey is
the founding officer of South Fraser Broadcasting Ltd. and has served on the board of several private companies with broadcast and cable interests in Canada and the
U.S. Mr. Storey is a two time Olympian; President of the Fédération Internationale de Bobsleigh et de Tobogganing; director of the Association of
International Olympic Winter Sports Federation; director of the Canadian Olympic Committee; a member of the Canadian Olympic Committee Hall of Fame and several International Olympic Committee
commissions. Mr. Storey was the Chief International Strategist for the successful Vancouver 2010 Olympic Bid.

80

---



James W. McCutcheon, Q.C.James W. McCutcheon has been our Director since 2005. Mr. McCutcheon practices law as
independent Counsel and is an active Corporate Director. He was Counsel to McCarthy Tétrault LLP from 1990 until December 31, 2005. Mr. McCutcheon was called to the
Ontario Bar in 1962. He was a founding partner of Shibley, Righton & McCutcheon in 1964. For some ten years Mr. McCutcheon practiced predominantly civil litigation before Ontario courts
and tribunals. His practice was diversified to include commercial real estate, insurance, trust and corporate law. As independent Counsel, he now advises on a broad variety of litigation, corporate,
individual and charity issues. Mr. McCutcheon has served as a director of many public corporations, presently CAE Inc., Dominion of Canada General Insurance Company, Empire Life
Insurance Company and Guardian Capital Group Limited. Mr. McCutcheon has also served on boards of the Art Gallery of Ontario Foundation, Canadian Institute of International Affairs, Eglinton
St. George's United Church, Royal Agricultural Winter Fair, Royal Ontario Museum, University Health Network Toronto, Victoria University in the University of Toronto and World Wildlife
Fund (Canada).

Pierre Boivin.Pierre Boivin has been our Director since 2005. Mr. Boivin is President of the Montréal
Canadiens, L'Arena des Canadiens Inc. and Gillett Entertainment Group. In 1994, Mr. Boivin was appointed President and Chief Executive Officer of Canstar
Sports Inc., a Montréal-based public company in the hockey equipment industry. In 1995, Canstar was acquired by Nike, Inc. and formed Bauer Nike Hockey Inc., and
Mr. Boivin remained Chief Executive Officer of the new company until 1999. Mr. Boivin is a member of the Board of Governors of the National Hockey League. He is Chairman of the Board of
Directors of Kangaroo Media Inc. and a member of the Board of Directors of Med-Eng Inc. Mr. Boivin is also Chairman of the Sainte-Justine Hospital Foundation and
member of the Board of Directors for Special Olympics Quebec as well as a member of the Centraide of Greater Montréal Campaign Committee for 2006.

B.    COMPENSATION

Remuneration of Directors

Each of the independent directors will initially be paid an annual fee of $25,000 for serving on the board, as well as $1,000 per director for each regularly
scheduled meeting of the board of directors, or a committee thereof, attended in person, and $250 for each meeting of the board of directors, or a committee thereof, attended by teleconference. In
addition, the chair of each committee of the board of directors will be paid an annual fee of $10,000 ($15,000 in the case of the chair of the audit committee). We issued 25,000 options to
acquire Subordinate Voting Shares to each of the independent directors. The exercise price of these options is our initial public offering price of the Subordinate Voting Shares, or $16 per
Subordinate Voting Share. These options vested immediately. We intend to issue a further 25,000 options to acquire Subordinate Voting Shares to each of the independent directors on the first
and second anniversary of the closing of our initial public offering. The exercise price of these options will be the then current market price of the Subordinate Voting Shares. We expect that these
additional options will also vest immediately.

81

---



Executive Compensation

The following table provides a summary of the compensation of the President and Chief Executive Officer and the Chief Financial Officer of the Company and the
three most highly compensated individuals who served as executive officers of the Company (collectively, the "Named Executive Officers") for the fiscal
years ended August 31, 2006 and August 31, 2005, respectively, whose total bonus and salary exceeded $150,000(1).

|                                                                     |  |           |  |    |                 |        |   |             |  | Long-Term Compensation
|-------------------------------------------------------------------- |  | --------- |  | -- | --------------- | ------ | - | ----------- |  | ----------------------
|
|
|
|John I. Bitove,
Chairman and Chief Executive Officer                 |  | 2006
2005 |  | $$ | 250,000
250,000 |        | $ | 75,000
Nil  |  | Nil
Nil               
|Stephen Tapp,
President and Chief Operating Officer                  |  | 2006
2005 |  | $$ | 400,000
183,000 | (3)    | $ | 120,000
Nil |  | Nil
Nil               
|Michael Washinushi,
Chief Financial Officer, Treasurer and Secretary |  | 2006
2005 |  | $$ | 244,583
77,000  | (4)(5) | $ | 40,000
Nil  |  | Nil
Nil               
|Ross Davies,
Vice President, Programming                             |  | 2006
2005 |  | $  | 250,000
N/A     |        | $ | 56,600
N/A  |  | Nil
N/A               
|Stewart Lyons,
Executive Vice President                              |  | 2006
2005 |  | $  | 150,000
Nil     |        | $ | 34,800
Nil  |  | Nil
Nil               

---

Notes:

82

---



Long-Term Compensation  Option Grants from December 12, 2005 to August 31, 2006

During the most recently completed financial year, we have issued to our directors, officers and employees a total of 1,391,250 options to acquire
Subordinate Voting Shares, of which 1,065,000 options were issued to the Named Executive Officers, as described below. Of these 1,065,000 options: (i) 1,050,000 options will vest
in equal one-fourth annual amounts beginning on the date of the closing of our initial public offering, or December 12, 2005, and ending on the third anniversary thereof and will
all vest immediately on a cessation of employment, unless employment is terminated as a result of fraud; and (ii) two-thirds of 15,000 options will vest upon the achievement
by one of the Named Executive Officers, Ross Davies, of certain personal and collective performance criteria and one-ninth of 15,000 options will vest annually beginning on the date
of the grant, or July 13, 2006, and ending on the second anniversary of the date of grant. We, prior to the closing of our initial public offering on December 12, 2005, issued to our
directors, officers and employees a further 1,125,000 options to acquire Subordinate Voting Shares, of which 1,050,000 were issued to the Named Executive Officers, as described below.

|Name                                                             |  | Subordinate
Voting
Shares
Under
Options |  | Per Cent
of Total
Options(1) |  | Exercise
Price |            | Market Value of
Subordinate
Voting Shares
Underlying
Options at the
Date of Grant |                | Expiration Date
|---------------------------------------------------------------- |  | --------------------------------------- |  | ---------------------------- |  | -------------- | ---------- | --------------------------------------------------------------------------------- | -------------- | ---------------
|John I. Bitove,
Chairman and Chief Executive Officer             |  | 500,000
500,000                         |  | 19.87%
19.87%                |  | $$             | 0.01
16.00 |                                                                                   | N/A
$8,000,000 |                
|Stephen Tapp,
President and Chief Operating Officer              |  | 250,000
250,000                         |  | 9.94%
9.94%                  |  | $$             | 0.01
16.00 |                                                                                   | N/A
$4,000,000 |                
|Michael Washinushi,
Chief Financial Officer, Treasurer
Secretary |  | 150,000
150,000                         |  | 5.96%
5.96%                  |  | $$             | 0.01
16.00 |                                                                                   | N/A
$2,400,000 |                
|Ross Davies,
Vice President, Programming                         |  | 15,000                                  |  | 0.60%                        |  | $              | 8.74       |                                                                                   | $131,100       |                
|Stewart Lyons,
Executive Vice President                          |  | 150,000
150,000                         |  | 5.96%
5.96%                  |  | $$             | 0.01
16.00 |                                                                                   | N/A
$2,400,000 |                

---

Notes:

83

---



Long-Term Compensation  Option Grants During The Current Financial Year

No options have yet been granted to the Named Executive Officers during the 2007 fiscal year.

Employment Agreements

We have entered into employment agreements with the Named Executive Officers and other members of senior management, certain material terms of which are
summarized below.

John I. Bitove.The employment agreement with Mr. Bitove is for an indefinite term, subject to the provisions within
the agreement. The agreement provides for a current base salary of $250,000 and eligibility to receive a maximum annual bonus of up to 100% of his base salary based on the goals established pursuant
to the bonus plan. The agreement contains non-solicitation and non-competition covenants in our favor, which apply during the term of Mr. Bitove's employment and for a
period of 24 months following the termination of his employment, and confidentiality covenants in our favor, which apply indefinitely. In addition, if Mr. Bitove's employment is
terminated for any reason other than for cause, Mr. Bitove will receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of
24 months following the date of such termination. If Mr. Bitove's employment is terminated, or if he resigns for good reason, within 12 months following a change of control,
Mr. Bitove will receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of 24 months following the date of such
termination.

Stephen Tapp.The employment agreement with Mr. Tapp is for an indefinite term, subject to the provisions within the
agreement. The agreement provides for a current base salary of $400,000 and eligibility to receive a maximum annual bonus of up to 100% of his base salary based on the goals established pursuant to
the bonus plan. The agreement contains non-solicitation and non-competition covenants in our favor, which apply during the term of Mr. Tapp's employment and for a period
of 24 months following the termination of his employment, and confidentiality covenants in our favor, which apply indefinitely. In addition, if Mr. Tapp's employment is terminated for
any reason other than for cause, Mr. Tapp will receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of 24 months
following the date of such termination. If Mr. Tapp's employment is terminated, or if he resigns for good reason, within 12 months following a change of control, Mr. Tapp will
receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of 24 months following the date of such termination.

84

---



Michael Washinushi.The employment agreement with Mr. Washinushi is for an indefinite term, subject to the provisions
within the agreement. The agreement provides for a current base salary of $250,000 and eligibility to receive a maximum annual bonus of up to 60% of his base salary based on the goals established
pursuant to the bonus plan. The agreement contains non-solicitation and non-competition covenants in our favor, which apply during the term of Mr. Washinushi's
employment and for a period of 12 months following the termination of his employment, and confidentiality covenants in our favor, which apply indefinitely. In addition, if
Mr. Washinushi's employment is terminated for any reason other than for cause, Mr. Washinushi will receive his base salary (and a pro rata share of his bonus and other
forms of compensation) for a period of 12 months following the date of such termination. If Mr. Washinushi's employment is terminated, or if he resigns for good reason, within
12 months following a change of control, Mr. Washinushi will receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of
18 months following the date of such termination.

Ross Davies.The employment agreement with Mr. Davies is for an indefinite term, subject to the provisions within the
agreement. The agreement provides for a current base salary of $250,000 and eligibility to receive a maximum annual bonus of up to 60% of his base salary based on the goals established pursuant to the
bonus plan. The agreement contains non-solicitation and non-competition covenants in our favor, which apply during the term of Mr. Davies's employment and for a period
of 12 months following the termination of his employment, and confidentiality covenants in our favor, which apply indefinitely. In addition, if Mr. Davies's employment is terminated for
any reason other than for cause, Mr. Davies will receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of 12 months
following the date of such termination. If Mr. Davies's employment is terminated, or if he resigns for good reason, within 12 months following a change of control, Mr. Davies will
receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of 18 months following the date of such termination.

Stewart Lyons.The employment agreement with Mr. Lyons is for an indefinite term, subject to the provisions within the
agreement. The agreement provides for a current base salary of $150,000 and eligibility to receive a maximum annual bonus of up to 50% of his base salary based on the goals established pursuant to the
bonus plan. The agreement contains non-solicitation and non-competition covenants in our favor, which apply during the term of Mr. Lyons' employment and for a period of
12 months following the termination of his employment, and confidentiality covenants in our favor, which apply indefinitely. In addition, if Mr. Lyons' employment is terminated for any
reason other than for cause, Mr. Lyons will receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of 12 months following
the date of such termination. If Mr. Lyons' employment is terminated, or if he resigns for good reason, within 12 months following a change of control, Mr. Lyons will receive his
base salary (and a pro rata share of his bonus and other forms of compensation) for a period of 18 months following the date of such termination.

85

---



Donald McKenzie.The employment agreement with Mr. McKenzie is for an indefinite term, subject to the provisions
within the agreement. The agreement provides for a current base salary of $250,000 and an annual target bonus of 50% of his base salary based on the goals established pursuant to the bonus plan. The
agreement contains non-solicitation and non-competition covenants in our favor, which apply during the term of Mr. McKenzie's employment and for a period of
12 months following the termination of his employment, and confidentiality covenants in our favor, which apply indefinitely. In addition, if Mr. McKenzie's employment is terminated for
any reason other than for cause, Mr. McKenzie will receive his base salary (and a pro rata share of his bonus and other forms of compensation) for a period of 12 months
following the date of such termination.

C.    BOARD PRACTICES

Our board of directors has three committees: an audit committee (the "Audit Committee"); a compensation
committee (the "Compensation Committee"); and a corporate governance committee (the "Corporate Governance
Committee"), all of which are comprised entirely of independent directors.

Audit Committee

The Directors appointed the Audit Committee, which consists of three (3) Directors, all of whom are independent and financially literate within the meaning
of applicable securities laws. The Audit Committee is responsible for the oversight and supervision of:



In
addition, the Audit Committee is responsible for the appointment, compensation, retention and oversight of the external auditor, as well as the pre-approval of all
non-audit services provided by the external auditor, and for directing the auditor's examination into specific areas of our business. The Audit Committee has a written charter and
procedures to address complaints regarding accounting, internal accounting controls or auditing matters and has established a procedure to address confidential, anonymous employee submissions of
concerns regarding questionable accounting or auditing matters.

86

---



During
the fiscal year ended August 31, 2006, the Audit Committee of the Company consisted of the following three directors: Pierre Boivin; James W. McCutcheon; and Robert Storey.
Pierre Boivin serves as Chairman of the Audit Committee. During the fiscal year ended August 31, 2006, the Audit Committee met 3 times.

Compensation Committee

The Compensation Committee reviews and makes recommendations to the board concerning the appointment of our officers and the hiring, compensation, benefits and
termination of our senior executive officers and all other key employees. The committee will annually review the Chief Executive Officer's goals and objectives for the upcoming year and provide an
appraisal of the Chief Executive Officer's performance. The committee administers and makes recommendations regarding the operation of our stock option plan as previously described.

Our
Compensation Committee Charter provides that profitable growth is fundamental to our long-term viability. In each year of profitable operation, a nominal percentage
(as determined by the Compensation Committee) of our pre-tax profits for that year, shall be included as part of the overall annual compensation plan for our senior officers
(as recommended by the Chief Executive Officer with concurrence by the Compensation Committee). For the purposes of determining the amount of this payment, any compensation earned by any
officer in the corresponding year under any existing compensation arrangement shall be deducted from the amount otherwise payable to such officer under these profit sharing arrangements. The
Compensation Committee Charter additionally provides that a nominal percentage of pre-tax profits in each profitable year shall be allocated to charitable foundations or social causes
(as recommended by the Chief Executive Officer with concurrence by the Compensation Committee). The Compensation Committee, in exercising its fiduciary obligation, shall ensure that these
nominal profit sharing allocations remain consistent with appropriate overall executive compensation levels and annual budget objectives and performance.

All
members of this committee are directors who are independent within the meaning of applicable securities laws.

Corporate Governance Committee

The Corporate Governance Committee is responsible for developing our approach to corporate governance issues, advising the board in filling vacancies on the board
and periodically reviewing the composition and effectiveness of the board and the contribution of individual directors. All members of this committee are directors who are independent within the
meaning of applicable securities laws.

87

---



During
the fiscal year ended August 31, 2006, the Compensation and Corporate Governance Committee consisted of the following three directors: Pierre Boivin; James W. McCutcheon;
and Robert Storey. James W. McCutcheon serves as Chairman of the Corporate Governance Committee.

D.    EMPLOYEES

As of October 31, 2006, we had 107 full-time equivalent employees, which included 5 members of senior management and
102 employees working in Finance, Human Resources, Sales & Marketing, Programming, Infrastructure and IT. This is an increase of 22 full-time equivalent employees
since February 28, 2006, the disclosure date with respect to our exchange offer of senior notes. We have also engaged Accenture Inc. to design, build, and deploy a subscriber management
system that includes billing, customer care, supply chain, subscriber management and radio provisioning systems. In addition, we rely upon a number of consultants and other advisors. The extent and
timing of any increase in staffing will depend on the availability of qualified personnel and other developments in our business. None of our employees are represented by a labor union, and we believe
that our relationship with our employees is good.

E.    SHARE OWNERSHIP

The following table sets forth the names of the Company's Named Executive Officers and directors and the number of Subordinate Voting Shares, assuming conversion
of all Class B Voting Shares into Subordinate Voting Shares, beneficially owned, directly or indirectly, or over which control or direction is exercised by each of them as at the
date hereof.

|Name                  |  | Subordinate Voting Shares
Beneficially Owned or
Controlled as of November 15, 2006(1) |  | Percent of total shares held
|--------------------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------
|John I. Bitove        |  | 27,248,561(2)                                                                         |  | 57.21%                      
|Stephen Tapp(3)       |  | N/A                                                                                   |  | N/A                         
|Michael Washinushi(3) |  | N/A                                                                                   |  | N/A                         
|Ross Davies(3)        |  | N/A                                                                                   |  | N/A                         
|Stewart Lyons(3)      |  | N/A                                                                                   |  | N/A                         
|Philip Evershed       |  | Nil                                                                                   |  | Nil                         
|Mat Wilcox            |  | 156,555                                                                               |  | 0.33%                       
|Gary M. Parsons       |  | Nil                                                                                   |  | Nil                         
|Joseph A. Verbrugge   |  | Nil                                                                                   |  | Nil                         
|Marc Comeau           |  | Nil                                                                                   |  | Nil                         
|Robert Storey         |  | 5,000                                                                                 |  | 0.01%                       
|James W. McCutcheon   |  | 10,000                                                                                |  | 0.02%                       
|Pierre Boivin         |  | Nil                                                                                   |  | Nil                         

---

Notes

88

---



Stock Option Plan

We have established a stock option plan (the "Plan") for our employees, directors, senior officers and
consultants and our affiliates. The Plan was established to provide additional incentives for us and our affiliates to attract and retain employees, directors, senior officers and consultants.

Under
the Plan, options to purchase our Subordinate Voting Shares may be granted by the board of directors to our, and our affiliates, directors, senior officers, employees and
consultants. Options granted under the Plan will have an exercise price of not less than the volume weighted average trading price of the Subordinate Voting Shares on the stock exchange on which the
Subordinate Voting Shares are traded for the five trading days immediately preceding the day on which the option is granted. The maximum aggregate number of Subordinate Voting Shares which may be
subject to options under the Plan is 10% of our shares outstanding from time to time. As a result, any increase in the issued and outstanding shares will result in an increase in the available number
of the Subordinate Voting Shares issuable under the Plan, and any exercises of options will make new grants available under the Plan, effectively resulting in a re-loading of the number of
options available to grant under the Plan. The number of shares issuable to insiders, at any time, under all our security-based compensation arrangements, cannot exceed 10% of the number of shares in
our capital that are outstanding from time to time. Similarly, the number of shares issued to insiders, within any one year period, under all security based compensation arrangements, cannot exceed
10% of the number of shares in our capital that are outstanding from time to time.

Unless
the Board decides otherwise, options granted under the Plan will vest over a five-year period and may be exercised in whole or in part at any time as to
one-fifth on each anniversary of the grant date for the five-year period. Unless the Board decides otherwise, options will expire on the seventh anniversary of the grant date.
Any option not exercised prior to the expiry date will become null and void.

89

---



In
connection with certain change of control transactions, including a take-over bid, merger or other structured acquisition, the board of directors may accelerate the
vesting date of all unvested options such that all optionees will be entitled to exercise their full allocation of options and in certain circumstances where such optionee's employment is terminated
in connection with such transactions, such accelerated vesting will be automatic.

Unless
the Board decides otherwise, options granted under the Plan terminate on the earlier of the expiration date of the option or 180 days following the death of the optionee,
termination of the optionee's employment because of permanent disability, termination of the optionee's employment because of the retirement of an optionee or as a result of such optionee ceasing to
be a director, 30 days following termination of an optionee's employment without cause or immediately upon an optionee's employment being terminated for cause.

We
have issued to our directors, officers and employees a total of 2,516,250 options to acquire Subordinate Voting Shares. On or after the closing of our initial public offering
on December 12, 2005, we issued to our directors, officers and employees a total of 1,391,250 options to acquire Subordinate Voting Shares. Of these 1,391,250 options:
(i) 1,075,000 options will vest in equal one-fourth annual amounts beginning on the date of the closing of our initial public offering, or December 12, 2005, and ending on
the third anniversary thereof and will all vest immediately on a cessation of employment, unless employment is terminated as a result of fraud; (ii) 10,000 options will vest on July 1,
2007, 20,000 options will vest on the first anniversary thereafter, and 20,000 options will vest on the second anniversary thereafter; (iii) 25,000 options vested immediately on
the date of the closing of our initial public offering on December 12, 2005; (iv) two-thirds of 241,250 options will vest upon the achievement by the key employees of
certain personal and collective performance criteria and one-ninth of 241,250 options will vest annually beginning on the date of the grant, or July 13, 2006, and ending on
the second anniversary of the date of grant. We, prior to the closing of our initial public offering on December 12, 2005, issued to our directors, officers and employees a further
1,125,000 options to acquire Subordinate Voting Shares. The following chart sets out the number of options to purchase Subordinate Voting Shares issued to the groups of individuals identified
below:

|Group                                                               |  | Number of
Persons Holding
Option |  | Number of
Options            |  | Exercise Price |                      | Market Value on
Date of Grant |     | Expiration Dates             
|------------------------------------------------------------------- |  | -------------------------------- |  | ---------------------------- |  | -------------- | -------------------- | ----------------------------- | --- | -----------------------------
|Named Executive Officers and Former Named Executive Officers        |  | 4
4
1                            |  | 1,050,000
1,050,000
15,000   |  | $$$            | 0.01
16.00
8.74      |                               | $$  | N/A
16,800,000
131,100       
|Directors and Former Directors who are not Named Executive Officers |  | 3                                |  | 75,000                       |  | $              | 16.00                |                               | $   | 1,200,000                    
|Current and Former Employees                                        |  | 1
1
1
Greater than 10            |  | 50,000
25,000
25,000
226,250 |  | $$$$           | 8.74
0.01
16.00
8.74 |                               | $$$ | 437,000
N/A
400,000
1,977,425
|Consultants                                                         |  |                                 |  |                             |  |                |                     |                               |     |                             

---

Notes:

90

---



As at the date hereof, our directors and Named Executive Officers hold options to acquire an aggregate of 2,190,000 of our Subordinate Voting
Shares, our employees hold options to acquire an aggregate of 326,250 of our Subordinate Voting Shares, and no consultants hold any options.

Reference
is made to "Item 6  Directors, Senior Management and
Employees  Compensation  Executive Compensation" above for information regarding the number of options held by each of the
Named Executive Officers, including the exercise price, the percent of options outstanding and the expiration date of the options.

Item 7  Major Shareholders And Related Party Transactions

A.    MAJOR SHAREHOLDERS

The following table shows the name of each person or company who, as at November 23, 2006, owned of record, or who, to our knowledge, owned beneficially,
directly or indirectly, more than 5% of our Subordinate Voting Shares, assuming conversion of all Class B Voting Shares into Subordinate Voting Shares.

|Principal Shareholder            |  | Type of
Ownership |  | Number of
Subordinate
Voting Shares |  | Percentage of
Subordinate
Voting Shares
Outstanding
|-------------------------------- |  | ----------------- |  | ----------------------------------- |  | ---------------------------------------------------
|CSR Investments(1)               |  | Direct            |  | 27,142,711                          |  | 56.99%                                             
|XM Holdings                      |  | Direct            |  | 11,077,500                          |  | 23.26%                                             
|General Motors of Canada Limited |  | Direct            |  | 3,323,250                           |  | 6.98%                                              

---

Notes:

91

---



B.    RELATED PARTY TRANSACTIONS

John I. Bitove is the Chairman and Chief Executive Officer of the Company and the controlling shareholder of CSR Investments, the controlling shareholder of the
Company. The Company was established for the purpose of making satellite radio service available to the Canadian public on a commercial basis. To achieve this purpose, John I. Bitove and the Company
entered into an Memorandum of Agreement with XM dated August 7, 2003. Prior to completing the Memorandum of Agreement, the Company commenced some initial assessments and investigation of
satellite radio for Canada. The Memorandum of Agreement confirmed the binding arrangements for the parties to work together to obtain a Canadian broadcast licence to operate a subscription-based
satellite radio service in Canada. In addition, the Memorandum of Agreement also included the non-binding arrangements with respect to a future licence arrangement between the parties, the
equity structure, corporate governance and other matters impacting the launch, marketing and operations of the satellite radio service in Canada.

The
Company contracted the services of another company controlled by John I. Bitove to manage and fund the process of applying for and obtaining a Canadian broadcast licence for its
planned satellite radio service. The Company was required to reimburse all direct costs as they were incurred throughout the period of the licence application and up to the time of the initial public
offering of Class B Non-Voting Shares. An additional amount was payable based on the level of direct costs. This total amount, reported as indirect costs in the consolidated
statements of operations and deficit, includes an element for all indirect costs incurred by John I. Bitove or any company controlled by John I. Bitove during the periods presented. As at
August 31, 2006, the amount owing was $nil (2005  $10,528,029).

In
2003, CSR Investments granted 34,918 options to acquire shares of CSR Investments at a nominal exercise price to a director of CSR Investments who, in fiscal 2005, became an
officer of the Company. The grant included anti-dilution provisions which entitled the director to a 5% interest in CSR Investments. These options vested upon receiving the regulatory
approval for the CRTC licence. The grant date fair value of each option was $15.75. The compensation cost related to these options has been included in indirect costs in fiscal 2005, 2004 and 2003.
The estimated fair value of the options was based on the same value arising from the $15 million of equity contributed to the Company by CSR Investments.

92

---



In
June 2005, CSR Investments granted 21,868 options to acquire shares of CSR Investments at $7.54 per share to certain consultants that provided services to the Company,
employees of a company related to CSR Investments and an officer of the Company. These options had a grant date fair value of $152 per option and a total estimated fair value of $3.3 million.
Approximately 75% of these options were vested and exercisable immediately and, accordingly, the compensation cost has been included in indirect costs in fiscal 2005. These options expire in
June 2008. The remaining options vest in June 2008, expire in December 2008 and compensation costs are being expensed as stock-based compensation, starting with fiscal 2005, over
the three-year vesting period. The estimated fair market value of the options was determined using the Black-Scholes valuation model using the following assumptions: estimated fair value
of CSR Investments of $160 per share; risk-free interest rate of 5%; expected lives of 3 years; dividend yield of nil%; and volatility of 82.5%.

In
December 2005, through a series of steps including the amalgamation of the Company with 2087609 Ontario Inc., the existing option holders exercised half of their
options and received 1,007,289 Class A Subordinate Voting Shares. This series of steps represented a modification of the options and has resulted in an additional stock-based
compensatory expense of approximately $3 million in the three months ended February 28, 2006. The Company did not receive any consideration on the exercise of these options.

In
December 2005, 2,403 options of CSR Investments were granted to an officer of the Company with a nominal exercise price. These options vest over three years but may be
accelerated if the employee ceases to be employed by the Company. Accordingly, an additional stock-based compensatory expense of approximately $1 million was recorded in the year ended
August 31, 2006. These options were valued using the Black-Scholes valuation model using the following assumptions: fair value of CSR Investments of $416 per share, risk-free
interest rate of 5%; expected life of 3 years; dividend yield of nil%; and volatility of 82.5%.

As
described in note 8 to the annual audited financial statements (see Item 18), XM has a 23.30% interest in the Company. See notes 7 and 13 of
the annual audited financial statements (see Item 18) for transactions with and amounts owed to XM.

During
the year ended August 31, 2006, CSR Investments advanced $300,000 to the Company. This loan is non-interest-bearing, has no fixed terms of repayment and is
included in accounts payable. In addition, during the year ended August 31, 2006, CSR Investments incurred $3,049,291 of costs related to the Company's licence application process. This amount
has been included in contributed surplus.

During
the year ended August 31, 2006, the Company received printing services from AMI Printing valued at approximately $1,776,926. An affiliate of CSR Investments holds an
indirect minority interest in AMI Printing.

93

---



During
the year ended August 31, 2006, the Company entered into a payroll service agreement with KIT LP for an annual amount of $20,000. In addition, the Company sold
approximately $55,000 of advertising to KIT LP during the year. KIT LP is owned, directly and indirectly, approximately 60% by Priszm Canadian Income Fund and approximately 40% by a
company controlled by John I. Bitove.

During
the year ended August 31, 2006, the Company entered into a marketing agreement with Vision Group of Companies (Vision), under which the Company received field marketing
services valued at approximately $1,965,735. The principal of Vision is related to John I. Bitove.

The
related party transactions described above have been recorded at the exchange amount, which is the consideration paid or received as established and agreed to by the related parties.

The
Company believes that the terms of the related party transactions described below were no less favorable than reasonably could be expected to be obtained from unaffiliated parties
based on data obtained from independent sources of the fair market value of similar transactions.

During
the year ended August 31, 2006, the Company incurred consulting services related to public relations from the Wilcox Group totalling $725,015. A director of the Company is
the principal of the Wilcox Group.

During
the year ended August 31, 2006, the Company incurred $143,326 of expenses related to the lease of its Toronto studio from a company controlled by John I. Bitove. The
Company has leased this property for a 15-year period for a total amount of approximately $1.9 million.

C.    INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

Item 8  Financial Information

A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Our consolidated balance sheets as at August 31, 2005 and 2006 and consolidated statements of operations shareholder's equity and cash flows for the years
ended August 31, 2004, 2005 and 2006, including the notes thereto and together with the auditors' report thereon, are presented at Item 18 of this annual report.

94

---



B.    SIGNIFICANT CHANGES

Except as otherwise disclosed in this annual report, there have been no material changes in our financial position, operations or cash flows since
August 31, 2006.

Item 9  The Offer And Listing

A.    OFFER AND LISTING DETAILS

Not applicable.

B.    PLAN OF DISTRIBUTION

Not applicable.

C.    MARKETS

Not applicable.

D.    SELLING SHAREHOLDERS

Not applicable.

E.    DILUTION

Not applicable.

F.     EXPENSES OF THE ISSUER

Not applicable.

Item 10  Additional Information

A.    SHARE CAPITAL

Not applicable.

B.    MEMORANDUM AND ARTICLES OF ASSOCIATION

The Articles of Amalgamation of the Company have been previously filed by us as Exhibit 3.1 of Canadian Satellite Radio Holdings Inc.'s Amendment
No.1 to the Registration Statement on Form F-4 dated June 28 2006, Registration Statement No. 333-134004. Our Articles of Amalgamation are referred to as
our "Articles". The following is a summary of certain provisions of our Articles and bylaws:

95

---



1.
On December 8, 2005, Canadian Satellite Radio Holdings Inc. and 2087609 Ontario Inc. amalgamated under Part XIV of the Business Corporations Act (Ontario), into a
single company using the name "Canadian Satellite Radio Holdings Inc." with the Ontario Corporation Number 1681731. The Articles provide no restrictions on the business that the Company
may carry on or on the powers that the Company may exercise.

2.
Subject to any restriction which may from time to time be include in the Articles or our bylaws, or the terms, rights or restrictions of any of our shares or securities outstanding, our directors
may authorize us, by simple resolution to: (i) borrow money on the credit of the Company; (ii) issue, reissue, sell or pledge bonds, debentures, notes or other evidences of indebtedness
or guarantee of the Company, whether secured or unsecured; (iii) to the extend permitted by the Business Corporations Act (Ontario), give a guarantee on behalf of the Company to secure
performance of any present or future indebtedness, liability or obligation of any person; and (iv) mortgage, hypothecate, pledge or otherwise create a security interest in al or any currently
owned or subsequently acquired real or personal, movable or immovable, property of the Company including book debts, rights, powers, franchises and undertakings, to secure any such bond, debentures,
notes or other evidences of indebtedness or guarantee or any other present or future indebtedness, liability or obligation of the Company.

Neither
the Articles nor our bylaws contain provisions with respect to (i) directors' power to vote on a proposal, arrangement or contract in which the director is materially
interested; (ii) directors' power, in the absence of an independent quorum, to vote compensation themselves or any members of their body; (iii) the retirement or
non-retirement of our directors under an age limit requirement; or (iv) the number of shares, if any, required for the qualification of our directors.

3.
The rights, preferences and restrictions attaching to our Class A Subordinate Voting Shares, Class B Voting Shares and Class C Non-Voting Shares are set
forth below:

(a)
Dividend rights: Subject to the prior rights of the holders of any other shares ranking senior to the Class A Subordinate Voting Shares, the Class B Voting Shares and the
Class C Non-Voting Shares in respect of priority in the payment of dividends, the holders of Class A Subordinate Voting Shares, Class B Voting Shares and
Class C Non-Voting Shares shall be entitled to participate at the same time in any dividend, whether in cash, in shares of the Corporation or otherwise, which may be declared or
paid on any class of such shares, such participation to be, with respect to the Class A Subordinate Voting Shares and the Class C Non-Voting Shares, on an equal per share
basis, including without limitation with respect to the amount per share of the dividend (the "Dividend Amount"), and to be, with respect to the Class B Voting Shares, an amount per
share equal to one-third (1/3) of the Dividend Amount.

96

---



(b)
Voting rights: At all meetings of shareholders of the Company, except meetings at which only holders of another class of shares are entitled to vote, the holders of the Class A Subordinate
Voting Shares shall be entitled to one (1) vote in respect of each Class A Subordinate Voting Share and the holders of the Class B Voting Shares shall be entitled to one
(1) vote in respect of each Class B Voting Share.

The
holders of the Class C Non-Voting Shares shall be not be entitled to vote at any meetings of the shareholders of the Company (except where the holders of a
specified class of shares are entitled to vote separately as a class as provided in the Business Corporations Act (Ontario), in which case each holder of Class C Non-Voting Shares
shall be entitled to one (1) vote in respect of each Class C Non-Voting Share). The holders of the Class C Non-Voting Shares shall not be entitled to vote
separately as a class or series or to dissent upon a proposal to amend the articles of the Corporation to:



(c)
Rights to share in our profits: Other than as described in paragraph (a) above and paragraph (d) below, None.

(d)
Rights upon liquidation: In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other distribution of assets of the Corporation
among its shareholders for the purpose of winding up its affairs, all of the remaining property of the Corporation available for distribution to the holders of the Class A Subordinate Voting
Shares, the Class B Voting Shares and the Class C Non-Voting Shares (the "Remaining Property") shall, subject to the prior rights of the holders of any shares ranking
senior to the Class A Subordinate Voting Shares, the Class B Voting Shares and the Class C Non-Voting Shares in respect of any such distribution, liquidation,
dissolution or winding-up of the Corporation or other distribution of assets among its shareholders for the purpose of winding-up its affairs, whether voluntary or involuntary,
be paid or distributed to the holders of the Class A Subordinate Voting Shares, the Class B Voting Shares and the Class C Non-Voting Shares such that the holders of
the Class A Subordinate Voting Shares and the Class C Non-Voting Shares share equally in the Remaining Property on a per share basis, and the holders of the Class B
Voting Shares each receive, on a per share basis, one-third of the amount paid or distributed, on a per share basis, to the holders of the Class A Subordinate Voting Shares and the
Class C Non-Voting Shares.

97

---



(e)
Redemption provisions: None.

(f)
Sinking fund provisions: None.

(g)
Liability to further capital calls by us: None.

(h)
Provisions discriminating against existing or prospective holders of shares as a result of such holder owning a substantial number of shares: None.

4.
Under the Business Corporations Act (Ontario), (i) the Articles may be amended by the affirmative vote of the holders of two-thirds of the votes cast by the shareholders at a
special meeting called for that purpose; and (ii) our bylaws may be amended by the directors, by resolution.

5.
The directors and each of the chair of the board, the president and the chief executive officer have the power to call annual meetings of shareholders and special meetings of shareholders. Annual
meetings of shareholders and special meetings of shareholders will be held on the date and at the time and place in or outside Ontario as the person(s) calling the meeting determine.

If
the Company is not a distributing corporation, the time period to provide notice of the time and place of a meeting of shareholders is not less than twenty-one
(21) days and not more than sixty (60) days before the meeting.

The
only persons entitled to be present at a meeting of shareholders are those persons entitled to vote at the meeting, the directors, the officers, the auditor of the Company and others
who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting. Any other person may be admitted with
the consent of the chair of the meeting or the persons present who are entitled to vote at the meeting.

A
quorum of shareholders is present at a meeting of shareholders if the holders of not less than five (5)% of the shares entitled to vote at the meeting are present in person or
represented by proxy, and at least two persons entitled to vote at the meeting are actually present at the meeting.

The
chair of any meeting of shareholders is the first mentioned of the following officers that is present at the meeting: (i) the chair of the board; (ii) the president; or
(iii) a vice-president (in order of corporate seniority). If no such person is present at the meeting, the persons present who are entitled to vote shall choose a director
who is present, or a shareholder who is present, to chair the meeting.

98

---



6.
The Company owns all of the outstanding shares of CSR Inc., which holds the licence from the CRTC under the Broadcasting Act (Canada). The Governor General in Council (i.e., the
cabinet of the Canadian federal government) has, pursuant to its authority under the Broadcasting Act, issued a direction setting out the legal requirements relating to Canadian ownership and control
of broadcasting undertakings entitled the Direction to the CRTC (Ineligibility of Non-Canadians) (the "Direction"). Under the Direction, non-Canadians are permitted to
own and control, directly or indirectly, up to 331/3% of the voting shares and 331/3% of the votes of a parent company which has a subsidiary operating company licenced
under the Broadcasting Act. In addition, up to 20% of the voting shares and 20% of the votes of the operating licensee company may be owned and controlled, directly or indirectly, by
non-Canadians. The Direction also provides that the Chief Executive Officer and 80% of the members of the board of directors of the operating company must be Canadian. In addition, where
the parent company is less than 80% Canadian-owned, the parent company and its directors are prohibited from exercising any control or influence over the programming decisions of a subsidiary
operating company. CSR Inc. has formed a programming committee. There are no restrictions on the number of non-voting shares that may be held by the non-Canadians at
either the parent company or licensee operating company level. The CRTC, however, retains the discretion under the Direction to determine as a question of fact whether a given licensee is controlled
by non-Canadians.

The
Articles give our board of directors the authority to restrict the issue, transfer and voting of our Class A Subordinate Voting Shares and Class B Voting Shares, and
the issue and transfer of our Class C Non-Voting Shares, for the purpose of ensuring that we remain qualified to hold, obtain, maintain, renew or amend any licence pursuant to any
broadcasting legislation or other licence required in order to carry on any broadcasting undertaking.

7.
The Board of Directors can refuse to register a transfer of any Class A Subordinate Voting Share or Class B Voting Share, if the transfer would, in the opinion of the Board of
Directors, jeopardize the Company remaining qualified to hold, obtain, maintain, renew or amend any licence pursuant to any broadcasting legislation or other licence required in order to carry on any
business related to business and ensuring that the Corporation, or any corporation in which the corporation has a direct or indirect interest though the holding of shares in that or other
corporations, is not in breach of any Broadcasting Legislation or the terms of any Licence held by the Corporation, or such corporation in which the Corporation has a direct or indirect interest
through the holding of shares in that or other corporations, required in order to carry on a Broadcasting Business.

99

---



8.
Not applicable.

9.
Not applicable.

10.
Not applicable.

C.    MATERIAL CONTRACTS

The following is a summary of each material contract, other than contracts entered into in the ordinary course of business, to which we or our subsidiary is
a party:

(a) XM System License Agreement, effective as of November 17, 2005, by and among XM Satellite Radio Inc. and Canadian Satellite Radio
Holdings Inc. and Canadian Satellite Radio Inc.

Reference
is made to "Item 4  Information on the Company  Business
Overview  Operational Agreements".

(b) Programming Agreement, effective as of November 17, 2005, by and among XM Satellite Radio Inc. and Canadian Satellite Radio Holdings Inc. and
Canadian Satellite Radio Inc.

Reference
is made to "Item 4  Information on the Company  Business
Overview  Operational Agreements".

(c) Repeater Purchase Agreement, effective as of November 17, 2005, by and among XM Satellite Radio Inc. and Canadian Satellite Radio Holdings Inc.
and Canadian Satellite Radio Inc.

Reference
is made to "Item 4  Information on the Company  Business
Overview  Other Agreements".

(d) Technical Services Agreement, effective as of November 17, 2005, by and among XM Satellite Radio Inc. and Canadian Satellite Radio Holdings Inc.
and Canadian Satellite Radio Inc.

Reference
is made to "Item 4  Information on the Company  Business
Overview  Other Agreements".

(e) Trademark License Agreement, effective as of November 17, 2005, by and among XM Satellite Radio Inc. and Canadian Satellite Radio Holdings Inc.
and Canadian Satellite Radio Inc.

Reference
is made to "Item 4  Information on the Company  Business
Overview  Other Agreements".

100

---



(f) Distribution Agreement, effective as of November 10, 2005, by and among General Motors of Canada Limited, Canadian Satellite Radio Inc. and
XM Satellite Radio Inc.

Reference
is made to "Item 4  Information on the Company  Business
Overview  GMCL Distribution Arrangement".

(g) Credit Agreement, effective November 17, 2005, by and among Canadian Satellite Radio Inc., Canadian Satellite Radio Holdings Inc. and
XM Satellite Radio Holdings Inc. (the "XM Credit Facility")

We
have a commitment for a US$45 million standby credit facility from XM for the purchase of terrestrial repeaters and the payment of subscription royalties to XM and interest on
outstanding debt on the credit facility as these are incurred. The following is a summary of certain material terms of the XM Credit Facility, and is not intended to be complete.

Interest
on amounts outstanding under the XM Credit Facility will accrue quarterly at a rate of 9.0% per annum and be payable through additional borrowings under the
XM Credit Facility until availability under the XM Credit Facility is exhausted, and thereafter in cash. We have also guaranteed the obligations outstanding under the XM Credit
Facility.

XM
has the right to convert any amount outstanding under the XM Credit Facility into our Subordinate Voting Shares at any time at the initial public offering price. In addition,
any amount outstanding under the XM Credit Facility shall be automatically converted into Subordinate Voting Shares upon the occurrence of: (i) our having three consecutive quarters of
positive EBITDA; (ii) our shares being listed on a major U.S. or Canadian stock exchange following an initial public offering of our securities for gross proceeds in excess of
$25 million; and (iii) our publicly traded shares having an average closing price over any ten consecutive trading days that is greater than 250% of the price at which our securities
were issued and sold pursuant to our initial public offering. The conversion price shall be our initial public offering price.

The
XM Credit Facility permits us to incur up to US$125 million of unsecured bond debt. For so long as any notes issued under the Indenture (as defined below) are
outstanding and unsecured (other than the lien on the interest reserve account), the XM Credit Facility will not be secured. As an alternative to unsecured bond debt, if in the future we cease
to have unsecured bond debt outstanding, the XM Credit Facility permits the incurrence of senior bank indebtedness in an aggregate principal amount up to $75 million and pari passusecured indebtedness up to US$5 million (approximately $6 million). In that event, the XM Credit Facility would
become secured by a first priority lien on any terrestrial repeaters purchased with funds from the credit facility and a lien on all the remaining assets of CSR Inc. (excluding the CRTC license
and the stock of any subsidiary holding the CRTC license). The XM Credit Facility liens on the remaining assets of CSR Inc. would be subordinated to security for senior bank
indebtedness.

101

---



The
XM Credit Facility has a maturity date of December 31, 2012. The XM Credit Facility contains customary covenants and financial condition tests and periodic and
episodic reporting obligations. The various covenants, financial ratios and financial condition tests are not in effect until funds have been drawn under the XM Credit Facility. These covenants
include, without limitation, restrictions on our ability to pay dividends. The breach of any of these covenants could result in a breach under the XM Credit Facility.

(h) Indenture (the "Indenture") relating to US$100 million aggregate principal amount of 12.75% Senior Notes due February 15, 2014, dated
February 10, 2006, by and among Canadian Satellite Radio Holdings Inc., the guarantors party thereto and The Bank of Nova Scotia Trust Company of New York,
as trustee.

On
February 10, 2006, we issued US$100 million aggregate principal amount of 12.75% Senior Notes with a 3 year interest reserve (as described below), due
February 15, 2014. Interest on these notes is payable in cash on February 15 and August 15 of each year, beginning on August 15, 2006.

These
notes are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by all of our current restricted subsidiaries and each of our future material restricted
subsidiaries.

These
notes are senior unsecured obligations. They rank equal in right of payment to any future senior indebtedness, senior in right of payment with any future subordinated indebtedness and
effectively subordinated to any secured indebtedness to the extent of any collateral securing such indebtedness. Before February 15, 2009, we may, at our option, redeem up to 25% of the notes
with the proceeds of certain sales of our equity.

At
any time on or after February 15, 2010, we may redeem all or a part of the notes at the redemption prices specified in the Indenture, plus accrued and unpaid interest, liquidated damages, if
any, and additional amounts, if any, to the date of redemption. In addition, prior to February 15, 2009, we may redeem up to 25% of the notes with the net proceeds of certain equity offerings
at 112.75% of the aggregate principal amount thereof, plus accrued and unpaid interest, liquidated damages, if any, and additional amounts, if any, to the date of redemption, provided at least 75% of
the aggregate principal amount of the notes remains outstanding after the redemption.

Subject
certain exceptions and qualifications, the Indenture, among other things, limits our ability and the ability of our restricted subsidiaries to:



102

---





(i) Interest Reserve and Security Agreement, dated February 10, 2006, by and among Canadian Satellite Radio Holdings Inc., as guarantor, Canadian Satellite
Radio Inc. and The Bank of Nova Scotia Trust Company of New York, as Interest Reserve Agent and Trustee.

Approximately
US$35.5 million of the proceeds of our offering of notes was deposited into an interest reserve account in the United States. Funds in this account are
invested in U.S. government securities, of which we are the beneficial owners. Funds and other assets held in the interest reserve account have been pledged to secure the payment and
performance when due of our obligations under the Indenture with respect to the notes and we have also granted to the trustee for the benefit of itself and the holders of the notes, a first priority
security interest in the interest reserve account. These funds have been designated for the first six payments of interest on the notes. Any funds remaining in the interest reserve account after the
sixth interest payment on the notes has been made, in accordance with the Indenture, will be disbursed from the interest reserve account to us.

D.    EXCHANGE CONTROLS

None.

103

---



E.    TAXATION

ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES SET FORTH IS INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, BY ANY PERSON FOR THE
PURPOSE OF AVOIDING ANY U.S. FEDERAL TAX PENALTIES THAT MAY BE IMPOSED ON SUCH PERSON. EACH U.S. HOLDER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT
TAX ADVISOR.

Certain U.S. Federal Income Tax Considerations

The following summary describes certain U.S. federal income tax consequences to U.S. persons (as defined below) of the ownership and
disposition of exchange notes acquired in the exchange offer. Subject to the exceptions, assumptions and qualifications set forth below, the discussion accurately reflects the material
U.S. federal income tax consequences to U.S. Holders (as defined below) of the ownership and disposition of exchange notes acquired in the exchange offer. This discussion is based
on currently existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing, temporary and proposed Treasury regulations promulgated thereunder, and administrative
and judicial interpretations thereof, all as in effect or proposed on the date hereof and all of which are subject to change, possibly with retroactive effect, or different interpretations. This
discussion assumes that U.S. persons holds the exchange notes as capital assets ("U.S. Holders") within the meaning of Section 1221 of the Code. Moreover, this discussion is for
general information only and does not address the tax consequences to holders that are not U.S. Holders or the tax consequences that may be relevant to particular initial investors in light of
their personal circumstances or to certain types of initial investors subject to special tax rules (such as brokers, banks and other financial institutions, insurance companies, tax-exempt
entities, dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment
companies, real estate investment trusts, U.S. expatriates or former long-term residents of the U.S., investors liable for the alternative minimum tax, individual retirement
accounts and other tax-deferred accounts, investors that hold notes as part of straddles, hedging transactions or conversion transactions for U.S. federal income tax purposes or
investors whose functional currency is not the U.S. dollar). In addition, this discussion does not include any description of estate and gift tax consequences, or the tax laws of any state,
local or foreign government that may he applicable to the exchange notes.

No
rulings from the U.S. Internal Revenue Service (the "IRS") have been or will be sought with respect to the matters discussed below. There can be no assurance that the
IRS will not disagree with or challenge any position taken herein regarding the tax consequences of the ownership or disposition of the exchange notes, or that any such position, if challenged, would
be sustained.

EACH U.S. HOLDER SHOULD CONSULT ITS TAX ADVISOR REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO SUCH HOLDER IN LIGHT OF ITS
PARTICULAR SITUATION WITH RESPECT TO THE OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY OTHER RELEVANT FOREIGN, STATE, LOCAL, OR
OTHER TAXING JURISDICTION.

104

---



As
used herein, the term "U.S. person" means a beneficial owner of an exchange note that is, for U.S. federal income tax purposes, (i) an individual who is a citizen
or resident of the U.S., (ii) a corporation or other entity taxable as a corporation created or organized in the U.S. or under the laws of the U.S. or of any state thereof (including the
District of Columbia), (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust (A) if a U.S. court is
able to exercise primary supervision over the trust's administration and one or more "United States persons" (within the meaning of the Code) have authority to control all substantial decisions
of such trust, or (B) that was in existence on August 20, 1996, was treated as a U.S. person under the Code on the previous day, and has a valid election in effect to continue to
be so treated.

If
a partnership or other pass-through entity holds the exchange notes, the tax treatment of a partner in or owner of the partnership or pass-through entity will
generally depend upon the status of the partner or owner and the activities of the entity. If you are a partner in or owner of a partnership or other pass-through entity that holds
exchange notes, you should consult your tax advisor.

Taxation of Interest on Exchange Notes

Stated interest on an exchange note will generally be taxable to a U.S. Holder as ordinary income at the time it is paid or accrued in accordance with the
U.S. Holder's method of accounting for tax purposes. In addition to interest on the exchange notes, a U.S. Holder will be required to include as income any Additional Amounts paid as a
result of the imposition of foreign withholding taxes (see "Description of Exchange Notes-Additional Amounts"). As a result, a U.S. Holder may be required to include more interest in
gross income than the amount of cash it actually receives.

Market Discount

If a U.S. holder acquired an exchange note for an amount that is less than its principal amount, then subject to a statutoryde
minimusrule, the difference will be treated as market discount. Market discount generally accrues on a straight-line basis over the remaining term of the exchange
note. Upon an irrevocable election, however, market discount will accrue on a constant yield basis. A U.S. Holder might be required to defer all or a portion of the interest expense on
indebtedness incurred or continued to purchase or carry an exchange note. If a U.S. Holder elects to include market discount in gross income currently as it accrues, the preceding rules
relating to the recognition of market discount and deferral of interest expense will not apply. An election made to include market discount in gross income as it accrues will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the taxable year to which the election applies and may be revoked only with the consent of the IRS.

105

---



Sale, Redemption or Retirement of the Exchange Notes

Upon the sale, redemption, retirement at maturity or other taxable disposition of an exchange note, a U.S. Holder generally will recognize gain or loss
equal to the difference between the sum of cash plus the fair market value of all other property received on such disposition (except to the extent such cash or property is attributable to accrued but
unpaid interest, which will be taxable as ordinary income) and such U.S. Holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in an exchange note generally will be
its cost for the note increased by any accrued market discount previously included in income through the date of disposition. A gain or loss recognized on the disposition of an exchange note generally
will be capital gain or loss and will be long-term capital gain or loss if, at the time of such disposition, the note is treated as having been held for more than one year. In the case of
a U.S. Holder who is a non-corporate taxpayer, including an individual, the maximum US federal income tax rate on net long-term capital gain is 15%. The deductibility of
capital losses is subject to limitations.

Foreign Tax Credit Considerations

If interest payments on the exchange notes become subject to Canadian withholding taxes, a U.S. Holder may be able, subject to generally applicable
limitations, to claim a foreign tax credit or take a deduction for such withholding taxes imposed on interest payments (including any Additional Amounts). Interest (including any Additional Amounts)
will constitute income from sources without the U.S. for U.S. foreign tax credit limitation purposes. For taxable years beginning before January 1, 2007, interest income
(including any Additional Amounts) generally will constitute "passive income" or, in the case of certain U.S. Holders, "financial services income" for U.S. foreign tax credit limitation
purposes. If, however, such withholding tax is imposed at a rate of 5% or more, such income will constitute "high withholding tax interest." The rules governing the U.S. foreign tax credit are
complex, and U.S. Holders are urged to consult their tax advisors regarding the application of such rules to their particular circumstances.

If
the U.S. Holder is a U.S. resident (as defined in section 865 of the Code), gains realized upon disposition of an exchange note by such U.S. Holder
generally will be U.S. source income, and disposition losses generally will be allocated to reduce U.S. source income.

106

---



Backup Withholding and Information Reporting

Backup withholding currently at a rate of 28% and information reporting requirements may apply to certain payments of principal of, and interest on, an exchange
note and to proceeds of the sale or other disposition of an exchange note before maturity, if a U.S. Holder:



Certain
U.S. Holders, including corporations, are generally not subject to backup withholding and information reporting requirements provided their exemptions from backup
withholding and information reporting are properly established. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder will be allowed as a credit against such
holder's U.S. federal income tax and may entitle the holder to a refund, provided that the required information is furnished to the IRS.

Canadian Material Federal Income Tax Considerations for Non-Residents of Canada

The following summary fairly describes the main Canadian federal income tax consequences applicable to you if you exchanged old notes for new notes pursuant to
any of our exchange offers or invested, as initial purchaser, in the notes, and if, for purposes of the Income Tax Act (Canada) (which we refer to as the Act) you are not resident in Canada and
do not use or hold the notes in carrying on business in Canada. This summary does not apply to you if you are an insurer who carries on business in Canada and elsewhere or an "authorized foreign bank"
(as defined in the Act). This summary is based on the relevant provisions of the Act and the Regulations thereunder as in force on the date hereof, and our understanding of the administrative
practices of the Canada Revenue Agency. It also assumes that specific proposals to amend the Act and the Regulations publicly announced by the Minister of Finance of Canada prior to the date of this
annual report are enacted in their present form. This summary does not address provincial, territorial or foreign income tax considerations. Changes in the law or administrative practices or future
court decisions may affect your tax treatment.

Based
on the foregoing, amounts that we pay to you as interest, principal or premium on the notes will be exempt from Canadian withholding tax provided that you deal at arm's length with
us at the time we make the payments, and no other taxes on income (including taxable capital gains) will be payable under the Act in respect of the holding, redemption or disposition of notes.

107

---



F.     DIVIDENDS AND PAYING AGENTS

Not applicable.

G.    STATEMENT BY EXPERTS

Not applicable.

H.    DOCUMENTS ON DISPLAY

We file periodic reports and other information with the SEC. These reports include certain financial and statistical information about us and may be accompanied
by exhibits. You may read and copy this information at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or obtain copies of this
information by mail from the public reference room at the prescribed rates. You may call the SEC at 1-800-SEC-0330 for further information on the SEC's
Public Reference Room. The SEC also maintains an Internet website that contains reports and other information about issuers like us who file electronically with the SEC. The URL of that website is
http://www.sec.gov. Any documents referred to in this annual report may also be inspected at our offices at 590 King Street West, 3rd Floor, Toronto, Ontario,
M5V 1M3.

I.     SUBSIDIARY INFORMATION

Not applicable.

Item 11  Quantitative and Qualitative Disclosures About Market Risk

The Company has formed an Investment Committee, consisting of directors and senior officers of the Company, in order monitor and account for the risks associated
with fluctuations in interest rates, foreign currency exchange rates and other credit risk factors.

To
perform sensitivity analysis, we assess the risk of loss in fair values due to the impact of hypothetical changes in interest rates and foreign currency exchange rates on
market-sensitive instruments. Information provided by the analysis does not represent our view of future market changes, nor does it necessarily represent the actual changes in fair value that we
would incur under normal market conditions because, of necessity, all variables other than the specific market risk factor are held constant. In reality, changes in one factor may result in change in
another, which may magnify or counteract the sensitivities. The results of sensitivity analysis at August 31, 2006 follow.

108

---



Foreign Currency Exchange Rate Risk

Most of our revenues and expenses are received or denominated in Canadian dollars. Under the XM License Agreement, we are not exposed to material foreign
currency exchange rate risk as the monthly fees due under this agreement are payable in Canadian dollars. We are exposed to material foreign currency exchange rate risk only with respect to payments
due to XM under the broadcasting agreement with the NHL and with respect to the interest payments on our U.S. dollar-denominated notes. However, until August 2009, our foreign currency
exchange rate risk is reduced because the first six interest payments on our notes will be drawn from our interest reserve account, which is held in the United States in a
U.S. dollar account.

At
August 31, 2006, a 10% change in the exchange rate of the U.S. dollar against the Canadian dollar, with all other variables remaining constant, would result in a
$18.1 million change in the fair market value of our notes and a $7.1 million change in the value of our obligations due under the broadcasting agreement with the NHL.

Interest Rate Risk

We are not exposed to material interest rate risk from changes in interest rates as the interest payments on our notes are fixed payments. We do however run the
risk that market rates will decline and the required payments will exceed those based on current market rates. Under our current policies, we do not use interest rate derivative instruments to manage
our exposure to interest rate fluctuations.

Equity Price Risk

As of August 31, 2006, we were not exposed to material market risk from changes in the market value of long-term investments, as we did not
hold any significant publicly traded long-term investments.

Item 12  Description of Securities Other Than Equity Securities

Not applicable.

PART II

Item 13  Defaults, Dividend Arrearages and Delinquencies

None.

109

---



Item 14  Material Modifications to The Rights Of Security Holders And Use Of Proceeds

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS

There have been no modifications to the rights of security holders.

USE OF PROCEEDS

Not applicable.

Item 15  Controls and Procedures

Management has designed disclosure controls and procedures to provide reasonable assurance that material information relating to the Company is made known to them
by others. As at August 31, 2006, the Chief Executive Officer and the Chief Financial Officer, with participation of the Company's management, have concluded that the design and operation of
the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the United States
Securities Exchange Act of 1934 and applicable Canadian securities laws is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and
(ii) accumulated and communicated to our management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. A control
system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Since
the beginning of our 2006 fiscal year we have undertaken a number of actions related to our internal control over financial reporting. These actions, which we believe are
consistent with the rate of growth our company experienced during the 2006 fiscal year, included increasing our staffing levels, segregating employment duties, adding an in-house legal
counsel, creating a disclosure committee and adopting a policy of requiring a review of financial statements by individual department heads.

Item 16  [RESERVED]

Item 16A  Audit Committee Financial Expert

Our Board of Directors has determined that Pierre Boivin is an "audit committee financial expert" (as defined in Item 16A of
Form 20-F) serving on our Audit Committee. Our Board of Directors has determined that Pierre Boivin is an "independent" director, as defined under SEC rules.

110

---



Item 16B  Code of Ethics

We have adopted a code of ethics (as defined in Item 16B of Form 20-F) that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions. We have filed a copy of this code of ethics as Exhibit 11.1 to this annual report.
Any person who would like a copy of our code of ethics may request so, without charge, by contacting us at 590 King Street West, 3rd Floor, Toronto, Ontario,
M5V 1M3.

We
have not made any amendments to or granted a waiver from a provision of the code of ethics with respect to any of our director, officer or employees.

Item 16C  Principal Accountant Fees and Services

PricewaterhouseCoopers LLP has served as our independent public accountant for the fiscal year ending August 31, 2006, for which audited
consolidated financial statements appear in this annual report on Form 20-F.

The
Audit Committee of our Board of Directors establishes the external auditors' compensation. In 2006, our Audit Committee also established policies and procedures to
pre-approve all audit and non-audit services to be performed by the external auditors, but only to the extent those services are permitted by the Sarbanes-Oxley Act of 2002 and
Canadian law.

For
the fiscal year ended August 31, 2006, all of the non-audit services described below were approved by the Audit Committee of our Board of Directors pursuant to
this "de minimis exception" under the Sarbanes-Oxley Act of 2002. The following table presents the aggregate fees for professional services and other services rendered by our independent auditor,
PricewaterhouseCoopers LLP, for the fiscal year ended August 31, 2006 and 2005.

|                   |  | 2006    |  | 2005   
|------------------ |  | ------- |  | -------
|Audit Fees(1)      |  | 883,500 |  | 124,000
|Audit-Related Fees |  |        |  | 298,000
|Tax Fees           |  | 38,356  |  | 152,000
|All Other Fees     |  |        |  |       
|Total Fees         |  | 921,856 |  | 574,000

---

Note:

Item 16D  Exemptions from the Listing Standards for Audit Committees

Not applicable.

111

---



Item 16E  Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

PART III

Item 17  Financial Statements

Not applicable.

Item 18  Financial Statements

Our audited balance sheets as at August 31, 2006 and our audited statement of operations and deficit and cash flows for the fiscal period ending
August 31, 2006, including the notes thereto and together with auditor's report thereon, are included in this annual report beginning on page F-1.

112

---



Item 19  Exhibit

|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1            |  | Articles of Amalgamation of Canadian Satellite Radio Holdings Inc. (incorporated by reference to Exhibit 3.1 of Canadian Satellite Radio Holdings Inc.'s Post-Effective Amendment No.1 to the Registration
Statement on Form F-4 dated July 14, 2006, Registration Statement No. 333-134004).                                                                                                                                 
|1.2            |  | Articles of Incorporation of Canadian Satellite Radio Inc. (incorporated by reference to Exhibit 3.2 of Canadian Satellite Radio Holdings Inc.'s Post-Effective Amendment No.1 to the Registration Statement on Form F-4 dated
July 14, 2006, Registration Statement No. 333-134004).                                                                                                                                         
|1.3            |  | By-laws of Canadian Satellite Radio Holdings Inc. (incorporated by reference to Exhibit 3.3 of Canadian Satellite Radio Holdings Inc.'s Post-Effective Amendment No.1 to the Registration Statement on Form F-4 dated July 14,
2006, Registration Statement No. 333-134004).                                                                                                                                                  
|1.4            |  | By-laws of Canadian Satellite Radio Inc. (incorporated by reference to Exhibit 3.4 of Canadian Satellite Radio Holdings Inc.'s Post-Effective Amendment No.1 to the Registration Statement on Form F-4 dated July 14, 2006,
Registration Statement No. 333-134004).                                                                                                                                                           
|2.1            |  | Indenture, dated February 10, 2006, among Canadian Satellite Radio Holdings Inc., Canadian Satellite Radio Inc. and The Bank of Nova Scotia Trust Company of New York, as Trustee, relating to the 12.75% Senior Notes due 2014
(incorporated by reference to Exhibit 4.1 of Canadian Satellite Radio Holdings Inc.'s Registration Statement on Form F-4 dated May 11, 2006, Registration Statement No. 333-134004).          
|2.2            |  | Form of 12.75% Senior Notes due 2014 and Guarantee (incorporated by reference to Exhibit 4.2 of Canadian Satellite Radio Holdings Inc.'s Registration Statement on Form F-4 dated May 11, 2006, Registration Statement
No. 333-134004).                                                                                                                                                                                       
|2.3            |  | Interest Reserve and Security Agreement, dated February 10, 2006 among Canadian Satellite Radio Holdings Inc., Canadian Satellite Radio Inc. and The Bank of Nova Scotia Trust Company of New York, as Interest Reserve Agent and
Trustee (incorporated by reference to Exhibit 4.3 of Canadian Satellite Radio Holdings Inc.'s Registration Statement on Form F-4 dated May 11, 2006, Registration Statement No. 333-134004).
|4.1            |  | Credit Agreement, dated November 17, 2005 among Canadian Satellite Radio Holdings Inc., Canadian Satellite Radio Inc. and XM Satellite Radio Holdings Inc. (incorporated by reference to Exhibit 10.1 of Canadian Satellite
Radio Holdings Inc.'s Amendment No.1 to the Registration Statement on Form F-4 dated June 28, 2006, Registration Statement No. 333-134004).                                                       
|4.2            |  | XM System License Agreement, dated November 17, 2005 among Canadian Satellite Radio Holdings Inc., Canadian Satellite Radio Inc. and XM Satellite Radio Inc. (incorporated by reference to Exhibit 10.2 of Canadian
Satellite Radio Holdings Inc.'s Amendment No.1 to the Registration Statement on Form F-4 dated June 28, 2006, Registration Statement No. 333-134004).                                                     
|4.3            |  | Programming Agreement, dated November 17, 2005 among Canadian Satellite Radio Holdings Inc., Canadian Satellite Radio Inc. and XM Satellite Radio Inc. (incorporated by reference to Exhibit 10.3 of Canadian Satellite
Radio Holdings Inc.'s Amendment No.1 to the Registration Statement on Form F-4 dated June 28, 2006, Registration Statement No. 333-134004).                                                           

113

---



|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.4            |  | Distribution Agreement, dated November 10, 2005 among Canadian Satellite Radio Inc., General Motors Of Canada Limited and XM Satellite Radio Inc. (incorporated by reference to Exhibit 10.4 of
Canadian Satellite Radio Holdings Inc.'s Amendment No.1 to the Registration Statement on Form F-4 dated June 28, 2006, Registration Statement No. 333-134004).
|8.1            |  | List of subsidiaries (incorporated by reference to Exhibit 21.1 of Canadian Satellite Radio Holdings Inc.'s Amendment No. 1 to the Registration Statement on Form F-4 dated June 28, 2006, Registration Statement
No. 333-134004).                                                                                                                            
|11.1           |  | Code of Ethics                                                                                                                                                                                                                                                                                                                                                
|12.1           |  | Certification of John I. Bitove, President and Chief Executive Officer of Canadian Satellite Radio Holdings Inc., pursuant to 15 U.S.C. Section 78(m)(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                               
|12.2           |  | Certification of Michael Washinushi, Chief Financial Officer of Canadian Satellite Radio Holdings Inc., pursuant to 15 U.S.C. Section 78(m)(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                         
|13.1           |  | Certification of John I. Bitove, President and Chief Executive Officer of Canadian Satellite Radio Holdings Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                    
|13.2           |  | Certification of Michael Washinushi, Chief Financial Officer of Canadian Satellite Radio Holdings Inc. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                               

114

---



Signature

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.

| |  |                                        |  |                                                                                         
| |  | -------------------------------------- |  | ----------------------------------------------------------------------------------------
| |  | Canadian Satellite Radio Holdings Inc.
| |  |                                        |  |                                                                                         
| |  | By:                                    |  | /s/MICHAEL WASHINUSHIMichael Washinushi
Chief Financial Officer, Treasurer and Secretary

Dated:
November 28, 2006

115

---





Index to Consolidated Financial Statements  Canadian Satellite Radio Holdings Inc.

|Annual Consolidated Financial Information as at August 31, 2006 and 2005, and for the Years Ended August 31, 2006, 2005 and 2004. |  |    
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm                                                                           |  | F-2
|Consolidated Balance Sheet as at August 31, 2006 and 2005                                                                         |  | F-3
|Consolidated Statements of Operations and Deficit for the years ended August 31, 2006, 2005 and 2004                              |  | F-4
|Consolidated Statement of Cash Flows for the years ended August 31, 2006, 2005 and 2004                                           |  | F-5
|Notes to Consolidated Financial Statements for the years ended August 31, 2006 and 2005                                           |  | F-6

F-1

---



LOGO

November 15,
2006

|
|

Auditors' Report

To the Shareholders of
Canadian Satellite Radio Holdings Inc.

We
have audited the consolidated balance sheets ofCanadian Satellite Radio Holdings Inc.as at August 31, 2006 and 2005 and
the consolidated statements of operations and deficit and cash flows for each of the years in the three-year period ended August 31, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2006 and 2005 and the
results of its operations and its cash flows for each of the years in the three-year period ended August 31, 2006 in accordance with Canadian generally accepted accounting
principles.

LOGO

Chartered Accountants

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International
Limited, each of which is a separate and independent legal entity.

F-2

---





CANADIAN SATELLITE RADIO HOLDINGS INC.  (formerly a development stage company)        CONSOLIDATED BALANCE SHEETS  As at August 31, 2006 and 2005

|                                                                   |  | 2006         |   | 2005       |  
|------------------------------------------------------------------ |  | ------------ | - | ---------- | -
|
|Assets                                                             |  |              |   |            |  
|Current assets                                                     |  |              |   |            |  
|Cash and cash equivalents                                          |  | 45,188,214   |   | 20         |  
|Accounts receivable                                                |  | 2,125,367    |   |           |  
|Inventory                                                          |  | 600,124      |   |           |  
|Prepaid expenses and other assets                                  |  | 6,882,247    |   |           |  
|Restricted investments (note 3)                                    |  | 13,663,023   |   |           |  
|                                                                   |  |              |   |            |  
|                                                                   |  | 68,458,975   |   | 20         |  
|Restricted investments(note 3)                                     |  | 19,370,939   |   |           |  
|Deferred financing costs(note 3)                                   |  | 5,146,280    |   |           |  
|Property and equipment(note 4)                                     |  | 23,221,760   |   | 1,996,606  |  
|Contract rights, distribution rights and computer software(note 5) |  | 239,648,067  |   | 1,006,634  |  
|                                                                   |  |              |   |            |  
|Total assets                                                       |  | 355,846,021  |   | 3,003,260  |  
|                                                                   |  |              |   |            |  
|Liabilities and Shareholders' Equity (Deficiency)                  |  |              |   |            |  
|Current liabilities                                                |  |              |   |            |  
|Accounts payable and accrued liabilities (notes 6 and 13)          |  | 13,516,770   |   | 11,864,983 |  
|Deferred revenue                                                   |  | 2,969,366    |   |           |  
|                                                                   |  |              |   |            |  
|                                                                   |  | 16,486,136   |   | 11,864,983 |  
|Long-term debt(note 3)                                             |  | 110,660,000  |   |           |  
|Deferred revenue                                                   |  | 1,032,289    |   |           |  
|Long-term obligations(note 2)                                      |  | 310,405      |   | 16,987     |  
|                                                                   |  |              |   |            |  
|Total liabilities                                                  |  | 128,488,830  |   | 11,881,970 |  
|                                                                   |  |              |   |            |  
|Shareholders' Equity (Deficiency)                                  |  |              |   |            |  
|Share capital (note 8)                                             |  | 312,595,362  |   | 20         |  
|Contributed surplus (notes 6 and 8)                                |  | 26,344,137   |   |           |  
|Deficit                                                            |  | (111,582,308 | ) | (8,878,730 | )
|                                                                   |  |              |   |            |  
|Total shareholders' equity (deficiency)                            |  | 227,357,191  |   | (8,878,710 | )
|                                                                   |  |              |   |            |  
|Total liabilities and shareholders' equity (deficiency)            |  | 355,846,021  |   | 3,003,260  |  
|                                                                   |  |              |   |            |  
|Contracts and commitments(note 7)                                  |  |              |   |            |  

Approved by the Board of Directors

|(signed) John I. Bitove  |  | (signed) Pierre Boivin 
|------------------------ |  | -----------------------
|                         |  |                        
|John I. Bitove, Director |  | Pierre Boivin, Director

F-3

---



CANADIAN SATELLITE RADIO HOLDINGS INC.  (formerly a development stage company)        CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT  For the years ended August 31, 2006, 2005 and 2004

|                                                             |  | 2006         |   | 2005       |   | 2004       |  
|------------------------------------------------------------ |  | ------------ | - | ---------- | - | ---------- | -
|
|Revenue                                                      |  | 6,949,282    |   |           |   |           |  
|                                                             |  |              |   |            |   |            |  
|Operating expenses                                           |  |              |   |            |   |            |  
|Cost of revenue                                              |  | 19,050,684   |   |           |   |           |  
|Indirect costs (note 6)                                      |  | 827,125      |   | 3,528,914  |   | 907,606    |  
|General and administrative (note 6)                          |  | 18,465,217   |   | 3,172,480  |   | 779,692    |  
|Stock-based compensation (notes 6 and 8)                     |  | 23,694,846   |   |           |   |           |  
|Marketing                                                    |  | 28,021,159   |   |           |   |           |  
|Amortization of intangible assets and property and equipment |  | 15,914,239   |   | 3,865      |   | 747        |  
|                                                             |  |              |   |            |   |            |  
|                                                             |  | 105,973,270  |   | 6,705,259  |   | 1,688,045  |  
|                                                             |  |              |   |            |   |            |  
|Loss before the undernoted                                   |  | (99,023,988  | ) | (6,705,259 | ) | (1,688,045 | )
|Interest revenue                                             |  | 2,619,481    |   |           |   |           |  
|Interest expenses                                            |  | (8,279,303   | ) |           |   |           |  
|Foreign exchange gains                                       |  | 1,980,232    |   |           |   |           |  
|                                                             |  |              |   |            |   |            |  
|Net loss for the year                                        |  | (102,703,578 | ) | (6,705,259 | ) | (1,688,045 | )
|Deficit  Beginning of year                                  |  | (8,878,730   | ) | (2,173,471 | ) | (485,426   | )
|                                                             |  |              |   |            |   |            |  
|Deficit  End of year                                        |  | (111,582,308 | ) | (8,878,730 | ) | (2,173,471 | )
|                                                             |  |              |   |            |   |            |  
|Basic and fully diluted loss per share(note 9)               |  | (2.99        | ) | (17,833    | ) | (4,489     | )
|                                                             |  |              |   |            |   |            |  

F-4

---



CANADIAN SATELLITE RADIO HOLDINGS INC.  (formerly a development stage company)        CONSOLIDATED STATEMENTS OF CASH FLOWS  For the years ended August 31, 2006, 2005 and 2004

|                                                                                               |                                          | 2006         |            | 2005       |       | 2004       |    
|---------------------------------------------------------------------------------------------- | ---------------------------------------- | ------------ | ---------- | ---------- | ----- | ---------- | ---
|
|Cash provided by (used in)                                                                     |                                          |              |            |            |       |            |    
|Operating activities                                                                           |                                          |              |            |            |       |            |    
|Net loss for the year                                                                          |                                          | (102,703,578 | )          | (6,705,259 | )     | (1,688,045 | )  
|Add (deduct): Non-cash items                                                                   |                                          |              |            |            |       |            |    
|                                                                                               | Costs paid by parent company             |              | 3,049,041  |            |      |            |   
|                                                                                               | Stock-based compensation expense         |              | 23,694,846 |            |      |            |   
|                                                                                               | Amortization of intangible assets        |              | 14,075,636 |            |      |            |   
|                                                                                               | Amortization of property and equipment   |              | 1,838,603  |            | 3,865 |            | 747
|                                                                                               | Accrued interest  debt                  |              | 519,161    |            |      |            |   
|                                                                                               | Accrued interest receivable              |              | (814,774   | )          |      |            |   
|                                                                                               | Amortization of deferred financing costs |              | 373,752    |            |      |            |   
|                                                                                               | Interest accretion expense               |              | 25,299     |            |      |            |   
|                                                                                               | Unrealized foreign exchange gains        |              | (2,098,253 | )          |      |            |   
|Net change in non-cash working capital related to operations (note 10)                         |                                          | (206,745     | )          | 6,701,394  |       | 1,687,298  |    
|                                                                                               |                                          |              |            |            |       |            |    
|Net cash used in operating activities                                                          |                                          | (62,247,012  | )          |           |       |           |    
|                                                                                               |                                          |              |            |            |       |            |    
|Investing activities                                                                           |                                          |              |            |            |       |            |    
|Restricted investments                                                                         |                                          | (41,015,595  | )          |           |       |           |    
|Payment of interest expense from restricted investments                                        |                                          | 7,396,855    |            |           |       |           |    
|Purchase of property and equipment                                                             |                                          | (24,055,466  | )          |           |       |           |    
|Purchase of computer software                                                                  |                                          | (8,570,715   | )          |           |       |           |    
|                                                                                               |                                          |              |            |            |       |            |    
|Net cash used in investing activities                                                          |                                          | (66,244,921  | )          |           |       |           |    
|                                                                                               |                                          |              |            |            |       |            |    
|Financing activities                                                                           |                                          |              |            |            |       |            |    
|Initial public offering - net of issuance costs                                                |                                          | 50,042,354   |            |           |       |           |    
|Shares issued to CSR Investments                                                               |                                          | 15,000,000   |            |           |       |           |    
|Deferred financing costs                                                                       |                                          | (5,520,032   | )          |           |       |           |    
|Proceeds from long-term debt                                                                   |                                          | 115,420,000  |            |           |       |           |    
|                                                                                               |                                          |              |            |            |       |            |    
|Net cash provided by financing activities                                                      |                                          | 174,942,322  |            |           |       |           |    
|                                                                                               |                                          |              |            |            |       |            |    
|Foreign exchange loss on cash held in foreign currency                                         |                                          | (1,262,195   | )          |           |       |           |    
|                                                                                               |                                          |              |            |            |       |            |    
|Change in cash and cash equivalents during the year                                            |                                          | 45,188,194   |            |           |       |           |    
|Cash and cash equivalents  Beginning of year                                                  |                                          | 20           |            | 20         |       | 20         |    
|                                                                                               |                                          |              |            |            |       |            |    
|Cash and cash equivalents  End of year                                                        |                                          | 45,188,214   |            | 20         |       | 20         |    
|                                                                                               |                                          |              |            |            |       |            |    
|Supplemental cash flow disclosures                                                             |                                          |              |            |            |       |            |    
|Rights acquired through issuance of shares                                                     |                                          | 245,152,988  |            |           |       |           |    
|Property and equipment purchases in accounts payable                                           |                                          | 736,778      |            | 1,729,148  |       | 255,083    |    
|Computer software purchases in accounts payable                                                |                                          |             |            | 1,006,634  |       |           |    
|Prepaid advertising purchased through issuance of equity                                       |                                          | 2,000,000    |            |           |       |           |    
|Additions to property and equipment and long-term obligations for asset retirement obligations |                                          | 268,119      |            | 16,987     |       |           |    

F-5

---



CANADIAN SATELLITE RADIO HOLDINGS INC.
(formerly a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2006 and 2005

1.     ORGANIZATION AND NATURE OF BUSINESS



2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



F-6

---





Terrestrial repeater network

5 to 10 yearsLeaseholds

initial lease termBroadcast studio equipment

3 to 10 yearsComputer hardware

3 to 5 yearsFurnishings and equipment

3 to 10 years




F-7

---





XM rights

15 yearsGMCL distribution rights

13 yearsHonda distribution rights

8 yearsNissan distribution rights

10 yearsComputer software

5 years




F-8

---





F-9

---





F-10

---





3.     NOTES OFFERING



F-11

---



4.     PROPERTY AND EQUIPMENT



2006Cost

Accumulated
amortization

Net$

$

$Terrestrial repeater network

14,224,908

982,774

13,242,134Leaseholds

7,374,217

439,182

6,935,035Broadcast studio equipment

1,437,812

197,987

1,239,825Computer hardware

753,453

112,649

640,804Furnishings and equipment

1,274,585

110,623

1,163,96225,064,975

1,843,215

23,221,760


|
|

2005Cost

Accumulated
amortization

Net$

$

$Terrestrial repeater network

1,885,164



1,885,164Leaseholds

81,312



81,312Computer hardware

34,742

4,612

30,1302,001,218

4,612

1,996,606




F-12

---



5.     CONTRACT RIGHTS, DISTRIBUTION RIGHTS AND COMPUTER SOFTWARE



2006Cost

Accumulated amortization

Net$

$

$XM rights (notes 8 and 13)

177,610,410

9,292,962

168,317,448GMCL distribution rights (notes 8 and 14)

53,172,000

3,067,615

50,104,385Honda distribution rights (notes 8 and 14)

9,827,325

511,840

9,315,485Nissan distribution rights (notes 8 and 14)

4,913,663

204,735

4,708,928Computer software

8,200,305

998,484

7,201,821253,723,703

14,075,636

239,648,067


|
|

2005Cost

Accumulated
amortization

Net$

$

$Computer software

1,006,634



1,006,634




6.     RELATED PARTY ACCOUNTS AND TRANSACTIONS



F-13

---





F-14

---





7.     CONTRACTS AND COMMITMENTS



$2007

1,579,2702008

1,214,8662009

1,057,2562010

1,056,1912011

713,810Thereafter

1,705,0927,326,485




$2007

5,500,0002008

7,250,0002009

7,100,0002010

7,000,0002011

7,250,000Thereafter

29,750,00063,850,000




F-15

---





$2007

5,670,0002008

5,270,0002009

4,580,0002010

1,630,0002011

1,680,000Thereafter

13,750,00032,580,000


8.     SHARE CAPITAL AND OTHER ACTIVITY



Class A Subordinate Voting Shares

unlimitedClass B Voting Shares

unlimitedClass C Non-Voting Shares

unlimited




F-16

---





Number of shares

Value of sharesCommon shares

Class A Subordinate Voting Shares

Class B Voting Shares

Common shares

Class A Subordinate Voting Shares

Class B Voting Shares

Contributed surplus

Total$

$

$

$

$Balance as atAugust 31, 2003,
    2004 and 2005

200





20







20Costs incurred by CSR
    Investments (note 6)













3,049,041

3,049,041Issuance of common
    shares to CSR
    Investments

15,000,000





15,000,000







15,000,000Issuance of Class A
    Subordinate Voting
    Shares to XM



11,077,500





177,240,000





177,240,000Issuance of Class A
    Subordinate Voting
    Shares to GMCL



3,323,250





53,172,000





53,172,000Conversion of common
    shares to
    81,615,633 Class B
    Voting Shares

(15,000,200
)


81,615,633

(15,000,020
)


15,000,020



Issuance of Class A
    Subordinate Voting
    Shares as part of
    the amalgamation
    with
    2087609 Ontario Inc.



1,007,289











Issuance of Class A
    Subordinate Voting
    Shares in exchange
    for the purchase of
    radio advertising
    services



125,000





2,000,000





2,000,000Stock-based
    compensation
    expense













23,694,846

23,694,846Issuance of Class A
    Subordinate Voting
    Shares in an initial
    public offering
    (less issuance
    costs of $4,957,646)



3,437,500





50,042,354





50,042,354Issuance of Class A
    Subordinate Voting
    Shares to Honda



949,500





9,827,325





9,827,325Issuance of Class A
    Subordinate Voting
    Shares to Nissan



474,750





4,913,663





4,913,663Exercise of stock
    options



25,000





400,000



(399,750
)
250Conversion of Class B
    Voting Shares to
    Class A
    Subordinate Voting
    Shares



62,500

(187,500
)


34,460

(34,460
)


Balance as at August 31,
    2006



20,482,289

81,428,133



297,629,802

14,965,560

26,344,137

338,939,499


F-17

---







F-18

---





Number of options

Weighted average exercise price$Balance as at August 31, 2005



Granted

2,325,000

8.20Exercised

(25,000
)
0.01Forfeited

(25,000
)
16.00Balance as at August 31, 2006

2,275,000

8.20


F-19

---





Exercise price

Number
outstanding

Remaining
contractual life
(years)

Number
exercisable$0.01

1,075,000

6.3

473,43816.00

1,150,000

6.3

8.74

50,000

6.8

2,275,000




9.     LOSS PER SHARE



F-20

---



10.   SUPPLEMENTAL CASH FLOW DISCLOSURES



2006

2005

2004$

$

$Increase in current assetsAccounts receivable

(2,125,367
)


Inventory

(600,124
)


Prepaid expenses and other assets

(4,882,247
)


Increase in current liabilitiesAccounts payable and accrued liabilities

3,399,338

6,701,394

1,687,298Deferred revenue

4,001,655



Net change in non-cash working capital related to operations

(206,745
)
6,701,394

1,687,298


11.   BROADCAST LICENCE



12.   INCOME TAXES



F-21

---





2006

2005

2004$

$

$Net loss for the year

102,703,578

6,705,259

1,688,045Combined federal and provincial income taxes at statutory rates  2006  35.22%; 2005 and 2004  36.12%

(36,172,200
)
(2,421,940
)
(609,722
)Differences in income taxes resulting fromLosses not recognized

27,444,937

2,418,603

604,254Permanent differences

8,727,263

3,337

5,468Provision for income taxes










2006

2005$

$Future income tax assetsNon-capital losses

25,573,254

3,050,633Property and equipment

783,190

138,857Intangible assets

4,960,499

Other

809,192

Valuation allowance

(32,126,135
)
(3,189,490
)Net future income tax asset








F-22

---



13.   XM AGREEMENTS





F-23

---





2006

2005$

$Accounts payable to XM

628,234

1,336,954


14.   AGREEMENTS WITH ORIGINAL EQUIPMENT MANUFACTURERS (OEM)



15.   CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES



F-24

---





2006

2005$

$Trade creditors

10,123,578

1,336,954Amounts due to related parties

2,003,528

10,528,029Amounts related to employees

870,503

Interest accrual on long-term debt

519,161

13,516,770

11,864,983




F-25

---



QuickLinks