UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

¨	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                to

Commission File Number: 001-33546

TERRESTAR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	93-0976127
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
12010 Sunset Hills Road, 6th Floor, Reston, VA	20190
(Address of Principal Executive Offices)	(Zip Code)

703-483-7800

(Registrant’s telephone number, including area code)

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

Common Stock, $0.01 par value	The NASDAQ Global Market
(Title of Each Class)	(Name of Each Exchange on Which Registered)

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 report(s), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)	Smaller reporting company  ¨

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

Number of shares of common stock outstanding at August 1, 2008: 121,815,888

TERRESTAR CORPORATION

TABLE OF CONTENTS

		Page
PART I – Financial Information
Item 1.	Condensed Financial Statements
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008      and 2007	4
	Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Controls and Procedures	41
PART II – Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Submission of Matters to a Vote of Security Holders	57
Item 5.	Other Information	57
Item 6.	Exhibits	57
Exhibit Index		58
Signatures		59

Caution Regarding Forward-Looking Information; Risk Factors

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of United States securities laws, including the United States Private Securities Litigation Reform Act of 1995. From time to time, our public filings, press releases and other communications will contain forward-looking statements. Forward-looking information is often, but not always identified by the use of words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “forecast”, “target”, “project”, “may”, “will”, “should”, “could”, “estimate”, “predict” or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in this quarterly report on Form 10-Q include, but are not limited to, statements with respect to expectations of our prospects, future revenues, earnings, activities and technical results.

Forward-looking statements and information are based on current beliefs as well as assumptions made by, and information currently available to us concerning anticipated financial performance, business prospects, strategies and regulatory developments. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements in this quarterly report on Form 10-Q are made as of the date it was issued and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that outcomes implied by forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. These risks and uncertainties may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. When relying on our forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.

Our public filings are available at www.terrestarcorp.com and on EDGAR at www.sec.gov.

Basis of Presentation

In this report:

• the terms “we”, “our”, “us”, “TerreStar”, and the “Company” refer to TerreStar Corporation and its subsidiaries, except where the context otherwise requires or as otherwise indicated.

• “TerreStar Networks” refers to TerreStar Networks Inc., an indirect, majority-owned subsidiary of TerreStar Corporation.

• “BCE” refers to BCE Inc., a Canadian corporation.

• “TerreStar Canada Holdings” refers to TerreStar Networks Holdings (Canada) Inc., a Canadian corporation and parent company of TerreStar Canada.

• “TerreStar Canada” refers to TerreStar Networks (Canada) Inc., a Canadian corporation.

• “SkyTerra” refers to SkyTerra Communications, Inc.

• “MSV” refers to Mobile Satellite Ventures LP.

• “TerreStar Global” refers to TerreStar Global Ltd., an indirect, majority-owned subsidiary of TerreStar Corporation.

• “Port” refers to Port Merger Corp.

• “CCTV” refers to CCTV Wireless I, LLC.

3

PART 1—FINANCIAL INFORMATION

Item 1. Financial Statements

TERRESTAR CORPORATION

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2008 and 2007

(in thousands, except per share amounts)

Unaudited

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Operating expenses:
General and administrative (including expenses related to MSV, a related party, of $162,
$130, $321and $289 and Hughes, a related party, of $233, $217, $466 and $617
for the three months and six months ended June 30, 2008 and 2007, respectively)		29,955			36,573			61,553			54,879
Research and development		21,706			8,583			51,848			19,741
Depreciation and amortization		5,619			4,643			11,073			7,941
Loss on impairment of intangibles		-			499			-			6,699
Total operating expenses		57,280			50,298			124,474			89,260
Operating loss from operations		(57,280	)		(50,298	)		(124,474	)		(89,260	)
Other income (expense):
Interest expense		(13,013	)		(12,408	)		(23,372	)		(31,563	)
Interest income		1,146			2,225			2,278			7,615
Other income (expense)		263			(3	)		354			(33	)
Equity in losses of MSV		-			(1,594	)		-			(4,610	)
Realized loss on investment in SkyTerra		-			-			(27,374	)		-
Minority interests in losses of TerreStar Networks		2,169			4,744			10,545			12,273
Minority interests in losses of TerreStar Global		-			346			-			714
Decrease in dividend liability		-			-			-			40,473
Other than temporary impairment-SkyTerra		-			-			-			(58,937	)
Loss before income taxes		(66,715	)		(56,988	)		(162,043	)		(123,328	)
Income tax benefit (expense)		-			820			754			(430	)
Net loss from operations		(66,715	)		(56,168	)		(161,289	)		(123,758	)
Less:
Dividends on Series A and Series B cumulative convertible preferred stock		(5,792	)		(5,933	)		(11,584	)		(11,789	)
Accretion of issuance costs associated with Series A and Series B		(1,133	)		(1,054	)		(2,266	)		(2,084	)
Net loss available to common stockholders	$	(73,640	)	$	(63,155	)	$	(175,139	)	$	(137,631	)
Basic & diluted loss per share	$	(0.75	)	$	(0.75	)	$	(1.88	)	$	(1.74	)
Basic & diluted weighted-average common shares outstanding		97,676			84,581			93,187			79,323

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

4

 TERRESTAR CORPORATION

Condensed Consolidated Balance Sheets

As of June 30, 2008 and December 31, 2007

(in thousands)

	June 30,		December 31,
	2008		2007
	(Unaudited)		(Audited)
Assets
Current assets:
Cash and cash equivalents	$	221,295	$	89,134
Cash committed for satellite construction costs		2,849		2,814
Deferred issuance costs associated with Series A and Series B Cumulative
convertible preferred stock		4,543		4,447
Deferred issuance costs associated with TerreStar Notes		2,032		2,032
Deferred issuance costs associated with TerreStar Exchangeable Notes		483		-
Other current assets		4,408		9,131
Total current assets		235,610		107,558
Restricted investments		2,683		2,648
Property and equipment, net (including amounts to Hughes, a related party, of $52,550 and $51,537
at June 30, 2008 and December 31, 2007, respectively)		649,389		571,151
Intangible assets, net		479,742		212,256
Investment in SkyTerra		-		103,733
Investment in SkyTerra - Restricted		221,575		221,575
Deferred issuance costs associated with Series A and Series B Cumulative
convertible preferred stock		3,596		5,958
Deferred issuance costs associated with TerreStar Notes		9,399		10,415
Deferred issuance costs associated with TerreStar Exchangeable Notes		2,223		1,112
Other non-current assets		6,000		6,817
Total assets	$	1,610,217	$	1,243,223
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses (including amounts due to MSV, a related party, of $104 and $131
and Hughes, a related party, of $233 and $3,660 at June 30, 2008 and December 31, 2007, respectively)	$	22,742	$	42,720
Accounts payable to Loral for satellite construction contract		-		503
Accrued termination costs		6,316		-
Obligations under capital leases		65		59
Deferred rent and other current liabilities		1,315		944
Series A and Series B Cumulative Convertible Preferred Stock dividends payable		7,636		8,368
Current liabilities of discontinued operations		12		17
Total current liabilities		38,086		52,611
Obligations under capital leases		63		97
Deferred rent and other long-term liabilities		4,014		1,758
SkyTerra investment dividends payable		183,444		183,444
TerreStar Notes and accrued interest, thereon (net discount of $3,350)		660,189		567,955
TerreStar Exchangeable Notes and accrued interest, thereon		153,983		-
TerreStar-2 purchase money credit facility and accrued interest, thereon		34,227		-
Total liabilities		1,074,006		805,865
Commitments and Contingencies
Minority interest in TerreStar Networks		-		12,141
Series A cumulative convertible preferred stock ($0.01 par value, 450,000 shares authorized
and 90,000 shares issued and outstanding at June 30, 2008 and December 31, 2007)		90,000		90,000
Series B cumulative convertible preferred stock ($0.01 par value, 500,000
shares authorized and 318,500 shares issued and outstanding at June 30, 2008 and December 31, 2007)		318,500		318,500

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

5

TERRESTAR CORPORATION

Condensed Consolidated Balance Sheets

As of June 30, 2008 and December 31, 2007

(in thousands)

	June 30,			December 31,
	2008			2007
	(Unaudited)			(Audited)
Stockholders' equity:
Series C preferred stock ($0.01 par value, 1 share authorized and 1 share issued and outstanding
at June 30, 2008 and 0 shares authorized at December 31, 2007)		-			-
Series D preferred stock ($0.01 par value, 1 share authorized and 1 share issued and outstanding
at June 30, 2008 and 0 shares authorized at December 31, 2007)		-			-
Series E junior convertible preferred stock ($0.01 par value, 1,900,000 shares authorized and 1,200,000 shares issued
and outstanding at June 30, 2008 and 0 shares authorized at December 31, 2007)		12			-
Common stock; voting (par value $0.01; 240,000,000 shares authorized,
125,769,590 and 91,378,041 shares issued, 121,818,388 and 87,426,839
shares outstanding at June 30, 2008 and December 31, 2007, respectively)		1,258			914
Additional paid-in capital		1,091,971			806,195
Common stock purchase warrants		64,097			64,097
Less: 3,951,202 common shares held in treasury stock at June 30, 2008 and December 31, 2007		(73,877	)		(73,877	)
Accumulated other comprehensive income		11			10
Accumulated deficit		(955,761	)		(780,622	)
Total stockholders' equity		127,711			16,717
Total liabilities and stockholders' equity	$	1,610,217		$	1,243,223

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

6

TERRESTAR CORPORATION

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2008 and 2007

(in thousands)

Unaudited

	Six Months Ended
	June 30,
	2008			2007
Cash flows from continuing operating activities:
Net loss	$	(161,289	)	$	(123,758	)
Adjustments to reconcile net loss to net cash used in continuing operating activities:
Depreciation and amortization		11,073			7,941
Write off of financing fees		-			5,708
Equity in losses of MSV		-			4,610
Realized loss on investment in SkyTerra		27,374			-
Minority interests in losses of TerreStar Global		-			(714	)
Minority interests in losses of TerreStar Networks		(10,545	)		(12,273	)
Amortization of deferred financing costs		1,207			761
Stock-based compensation		1,236			19,804
Loss on impairment of intangibles		-			6,699
Restricted stock forfeited		-			(41	)
Interest income
Other than temporary impairment-SkyTerra		-			58,937
Decrease in dividend liability		-			(40,473	)
Changes in assets and liabilities:
Other current assets		4,723			(1,338	)
Accounts payable and accrued expenses (including payments to MSV, a related party,		(13,569	)		2,423
of $348 and $243 and Hughes, a related party, of $450 and $217 for the six months
ended June 30, 2008 and 2007, respectively)
Accrued termination costs		6,316			-
Spectrum acquisition costs		(2,827	)		-
Other noncurrent assets		817			(757	)
Accrued interest		21,988			18,060
Deferred rent and other liabilities		2,627			(320	)
Net cash used in continuing operating activities	$	(110,869	)	$	(54,731	)
Cash flows from continuing investing activities:
Proceeds from the sale of SkyTerra shares	$	76,359		$	-
(Purchase) Proceeds of restricted cash and investments		(39	)		45,626
Proceeds from assets held for sale		-			50
Accounts payable to Loral for satellite construction contract		(503	)		(7,073	)
Additions to property and equipment (including payments to Hughes, a related party, of		(58,320	)		(173,034	)
$4,456 and $14,309 for the six months ended June 30, 2008 and 2007, respectively)
Net cash provided by (used in) continuing investing activities	$	17,497		$	(134,431	)

Cash flows from continuing financing activities:
Proceeds from issuance of TerreStar Notes	$	46,500		$	500,000
Proceeds from issuance of TerreStar Exchangeable Notes		149,232			-
Proceeds from TerreStar-2 purchase money credit facility		33,175			-
Proceeds from issuance of equity securities		-			6,686
Repayment of the Senior Secured Notes		-			(200,000	)
Payments for capital lease obligations		(28	)		-
Dividends paid on Series A and B Cumulative Convertible Preferred Stock		(2,363	)		(10,723	)
Debt issuance costs and other charges		(947	)		(13,354	)
Net cash provided by continuing financing activities	$	225,569		$	282,609
Net cash provided by continuing operations	$	132,197		$	93,447
Net cash used in discontinued operating activities	$	(5	)	$	(11	)
Net cash provided by (used in) discontinued investing activities	$	(31	)	$	2,661
Net cash provided by (used in) discontinued operations		(36	)		2,650
Net increase in cash and cash equivalents		132,161			96,097
Cash and cash equivalents, beginning of period		89,134			171,665
Cash and cash equivalents, end of period	$	221,295		$	267,762

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

7

TERRESTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.    Organization and Description of Business

General

TerreStar Corporation (formerly Motient Corporation) was incorporated in 1988 under the laws of the State of Delaware. TerreStar Corporation is in the integrated satellite wireless communications business through its ownership of TerreStar Networks, its principal operating entity, and TerreStar Global.

TerreStar Networks, in cooperation with its Canadian partner, 4371585 Communications and Company, Limited Partnership (“4371585 Communications”), formerly TMI Communications and Company, Limited Partnership, plans to launch an innovative wireless communications system to provide mobile coverage throughout the U.S. and Canada using small, lightweight and inexpensive handsets similar to today’s mobile devices. This system build out will be based on an integrated satellite and ground-based technology which will provide service in most hard-to-reach areas and will provide a nationwide interoperable, survivable and critical communications infrastructure.

By offering mobile satellite service (“MSS”) using frequencies in the 2GHz band, which are part of what is often known as the “S-band”, in conjunction with ancillary terrestrial components (“ATC”), we can effectively deploy an integrated satellite and terrestrial wireless communications network. Our network would allow a user to utilize a mobile device that would communicate with a traditional land-based wireless network when in range of that network, but communicate with a satellite when not in range of such a land-based network. We intend to provide multiple communications applications, including voice, data and video services. Through TerreStar Networks, we are in the process of building our first satellite pursuant to a construction contract with Space Systems/Loral, Inc. (“Loral”). We currently expect to launch our TerresStar-1 satellite in June 2009. Once launched, our TerreStar-1 satellite, with an antenna approximately sixty feet across, will be able to communicate with wireless devices currently being developed.

Our ability to offer these services depends on TerreStar Networks’ right to receive certain regulatory authorizations allowing it to provide MSS/ATC in the S-band. These authorizations are subject to various regulatory milestones relating to the construction, launch and operational date of the satellite system required to provide this service. We may be required to obtain additional approvals from national and local authorities in connection with the services that we wish to provide in the future. For example, in order to provide ATC in the United States and Canada we must file additional applications separately from our satellite authorizations. In addition, the manufacturers of our ATC user terminals and base stations will need to obtain FCC equipment certifications and similar certifications in Canada.

Previously, we operated a two-way terrestrial wireless data communications service. On September 14, 2006, we sold most of the assets and liabilities relating to that business. Our historical financial statements present this terrestrial wireless business as a discontinued operation. Pursuant to such presentation, our current period continuing operations are reflected as a single operating unit.

As of June 30, 2008, our two wholly-owned subsidiaries are MVH Holdings Inc. and Motient Holdings Inc. These two subsidiaries held approximately 88.4% and 86.5% interest in TerreStar Networks and TerreStar Global, respectively. Additionally, as of June 30, 2008, we held approximately 27.7% non-voting interest in SkyTerra, a mobile satellite communications company. As of June 30, 2008, SkyTerra owned approximately 11.1% of TerreStar Networks common stock. Additionally, we own 100% of Port Merger Corp. and CCTV Wireless I, LLC (“CCTV”).

For additional information regarding the business descriptions of the Company’s wholly owned subsidiaries, affiliates and investments, please refer to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2007.

Liquidity and Capital Resources

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our principal liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. Due to the recent delays by Loral in the completion of our TerreStar-I satellite, we believe that we now have sufficient liquidity to conduct operations into the third quarter of 2009. We will likely face a cash deficit beyond that unless we obtain additional capital. We cannot guarantee that financing sources will be available on favorable terms or at all.

Our principal sources of liquidity consist of our existing cash on hand and our recently secured $100 million TerreStar-2 Purchase Money Credit Facility. As of June 30, 2008, including restricted cash, we had $224.1 million of cash on hand. Additionally, approximately $66.8 million remains available under our TerreStar-2 Purchase Money Credit Facility which provides funding for payments related to the construction of our second satellite TerreStar-2. We expect this funding will be adequate for us to complete the construction of TerreStar-2.

Our short-term liquidity needs are driven by our satellite system construction contracts, the development of terrestrial infrastructure and networks, and the design and development of our handset and chipset. As of June 30, 2008, we have contractual obligations of $201.5 million due within one year, consisting of approximately $118.5 million related to our satellite system, $76.1 million related to our handset, chipset, and terrestrial network, and $6.9 million for operating leases. In addition, we expect to spend between $40 and $50 million to obtain satellite launch insurance prior to the launch of our TerreStar-1 satellite.

8

In April 2008, TerreStar Networks implemented certain cost reduction measures including a headcount reduction of 79 management and non-management positions across the Company. This reduction will account for savings of approximately 45 percent in base salary expenses. The cost reduction plan is more fully described in Note 10.

We will need to secure significant funding in the future in order to satisfy our contractual obligations and complete the construction, deployment, and rollout of our planned network. We intend to fund our long-term liquidity needs related to operations and ongoing network deployment through the incurrence of indebtedness, equity financings or a combination of these potential sources of liquidity. While we believe that these sources will provide sufficient liquidity for us to meet our future liquidity and capital obligations, our ability to fund these needs will depend on our future performance, which will be subject in part to general economic, financial, regulatory and other factors that are beyond our control, including trends in our industry and technology developments.

Note 2.    Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC.  Certain information and disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in accordance with these rules and regulations.  Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes, contained in our Annual Report on Form 10-K/A for the year ended December 31, 2007.

The condensed consolidated financial statements include the accounts of the Company, its subsidiaries, and TerreStar Canada, a variable interest entity under Financial Accounting Standards Board Financial Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities” – An Interpretation of Accounting Research Bulletin (“ARB”) No. 51. As of January 1, 2008, we consolidated the results of TerreStar Canada into our financial statements.  All intercompany accounts are eliminated upon consolidation.  Investments in which the Company does not have the ability to exercise significant influence are carried at the lower of cost or estimated realizable value. The Company monitors investments for other than temporary declines in value and makes reductions in value when appropriate.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented.  The operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

Reclassifications

Certain reclassifications have been made to the prior period’s financial statements and notes thereto to conform to the current period presentation.

Reference is made to the Company’s Annual Report on Form 10-K/A, filed with the SEC for the year ended December 31, 2007 for a complete set of financial notes.

Use of Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s most significant estimates relating to its continuing operations include the valuation of stock based compensation and long-lived assets.

Restricted Cash and Investments

At June 30, 2008, the Company had $5.5 million of restricted cash and investments held in money market escrow accounts. Included in that amount is approximately $2.8 million that is restricted in accordance with the Company’s satellite construction contract. In addition, approximately $2.3 million is restricted in accordance with the Company’s asset purchase agreement with Geologic Solutions, Inc. and Logo Acquisition Corporation, and approximately $0.4 million is restricted in accordance with various leases and security deposits. As of August 8, 2008, approximately $2.0 million of the restricted cash has been released.

9

Property and Equipment

We record property and equipment, (“P&E”), including leasehold improvements at cost. P&E consists of network equipment, lab equipment, office and computer equipment, internal use software, and leasehold improvements. The satellite and terrestrial network assets under construction primarily include materials, labor, equipment and interest related to the construction and development of our satellite and terrestrial network. Assets under construction are not depreciated until placed into service. Repair and maintenance costs are expensed as incurred.

In accordance with Statement of Position 98-1, “Accounting for Costs of Computer Software Developed or Obtained for Internal use” (“SOP 98-1”), we capitalize software developed or obtained for internal use during the application development stage. These costs are included in property and equipment and, when the software is placed in service, are depreciated over an estimated useful life of three years. Costs incurred during the preliminary project stage, as well as maintenance and training costs are expensed as incurred.

The cost of P&E is depreciated on a straight-line basis over the estimated economic useful lives as follows:

Long-Lived Assets	Estimated Useful Life
Network, lab and office equipment	5 years
Computers, software and equipment	3 years
Leasehold improvements	Lesser of lease term or estimated useful life
Definite lived intangible assets	15 years
Satellite and Terrestrial Network Assets Under      Construction	15 years	(to begin at launch)

Intangible Assets

Intangible assets primarily consist of intangible assets related to Federal Communications Commission (“FCC”) spectrum frequencies and other intellectual property.  Definite lived intangible assets are amortized over an estimated economic useful life of fifteen years.  Indefinite lived assets are not amortized.

Valuation of Long-Lived and Intangible Assets

We evaluate whether long-lived and intangible assets have been impaired when circumstances indicate the carrying value of those assets may not be recoverable. For such assets, an impairment exists when its carrying value exceeds the sum of estimates of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of an asset are under consideration, a probability-weighted approach is used for developing estimates of future undiscounted cash flows. If the carrying value of the asset is not recoverable based on these estimated future undiscounted cash flows, the impairment loss is measured as the excess of the asset’s carrying value over its fair value, such that the asset’s carrying value is adjusted to its estimated fair value.

Investment in SkyTerra

We have accounted for our investment in SkyTerra at cost in accordance with Accounting Principles Board (“APB”) 18, “The Equity Method of Accounting for Investments in Common Stock”.  Although our investment in SkyTerra common stock is non-voting, we determined the fair value of our investment based on the trading sales price of SkyTerra shares as listed on the OTC Bulletin Board (“SKYT”).  The Company periodically evaluates this and all other investments for other than temporary impairment.

Income Taxes

On January 1, 2007, the Company adopted Financial Accounting Standard Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).

The Company files consolidated income tax returns in the U.S. federal jurisdiction with its U.S. subsidiaries. The Company, along with its U.S. subsidiaries also files tax returns in various state and local jurisdictions. The Company has no periods under audit by the Internal Revenue Service (“IRS”). The statutes of limitations open for the Company’s returns are 2003, 2004, 2005 and 2006. The Company is not aware of any issues for open years that upon examination by a taxing authority are expected to have a material adverse effect on results of operations.

Fair Value of Financial Instruments

The fair value of certain of the Company’s financial instruments, including cash and cash equivalents and other accrued expenses approximate cost because of their short maturities. We value our debt instruments at cost. The fair value of investments is determined using quoted market prices for those securities or similar financial instruments.

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Stock Based Compensation

The Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share Based Payment” on January 1, 2006. The Company elected the modified prospective transition method provided under SFAS 123(R) and consequently prior period results have not been restated to reflect, and do not include, the impact of SFAS 123(R). Under this transition method, compensation cost associated with stock-based awards recognized beginning in 2006 now includes compensation expense related to the grant date fair value for the remaining unvested portion of stock-based awards granted prior to December 31, 2005 and compensation expense related to stock-based awards granted subsequent to December 31, 2005.

The fair value of options is estimated using the Black-Scholes option-pricing model which considers, among many factors, the expected life of the award and the expected volatility of the Company’s stock price.

Research and Development Costs

All costs of research and development activities are expensed when incurred. Research and development activities consist of costs related to the development of our integrated satellite and terrestrial communications network, salaries, wages and other related costs of personnel engaged in research and development activities, and the costs of intangible assets that are purchased from others for use in research and development activities that have alternative future uses. Costs that are not clearly related to research and development activities or routine in nature are excluded from research and development costs.

Earnings (Loss) per Common Share

The Company accounts for earnings per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic earnings (loss) per common share is calculated by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. This includes the reported net income (loss) plus the loss attributable to preferred stock dividends and accretion. Diluted earnings (loss) per common share adjusts basic earnings (loss) per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity plans computed using the treasury stock method, and the dilutive effects of shares issuable upon the conversion of our convertible preferred stock computed using the if-converted method. Shares issuable under our equity plans were anti-dilutive in 2008 and 2007 because we incurred a net loss from continuing operations.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 was initially effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurements under Statement 13.” FSP 157-1 amends SFAS 157, “Fair Value Measurements,” to exclude FASB Statement No. 13, “Accounting for Leases” and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under Statement No. 13.

In February, 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157”. FSP 157-2 provides a one-year deferral of the effective date of Statement 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in financial statements at fair value at least annually. For non-financial assets and non-financial liabilities subject to the deferral, SFAS 157 will be effective in fiscal years beginning after November 15, 2008 and in interim periods within those fiscal years.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115.” SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. Furthermore, SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. At the effective date, an entity may elect the fair value option for eligible items that exist at that date. The effect of the re-measurement is reported as a cumulative-effect adjustment to opening retained earnings.  The Company believes that SFAS 159 will not have a material impact on our financial statements.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51”. SFAS No. 160 requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The potential impact, if any, of the adoption of SFAS No. 160 on our consolidated financial statements is currently not determined.

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In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (SFAS No. 141R).  SFAS No. 141R establishes principles and requirements for how an acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets required, the liabilities assumed, and any non-controlling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in a business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of the business combination.  SFAS No. 141R will be applied prospectively to business combinations that have an acquisition date on or after January 1, 2009.  The impact of SFAS No. 141R on the Company’s consolidated financial statements will depend on the nature and size of acquisitions, if any, subsequent to the effective date.

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. This Statement establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities. SFAS No. 161 amends and expands the disclosure requirements of Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This Statement shall be effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  This statement is not expected to have an impact on the Company’s consolidated financial statements.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets,” to revise the factors that an entity should consider to develop renewal or extension assumptions used in determining the useful life of a recognized intangible asset. The FSP amends FASB Statement 142, Goodwill and Other Intangible Assets, to require an entity developing assumptions about renewal or extension to consider its own historical experience in renewing or extending similar arrangements. The purpose of the FSP is to improve consistency between the period of expected cash flows used to measure the fair value of a recognized intangible asset and the useful life of the intangible asset as determined under Statement 142.  FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and for interim periods within those fiscal years. Early adoption is not permitted. Entities should apply the FSP’s guidance on determining the useful life of an intangible asset prospectively to recognized intangible assets acquired after the FSP’s effective date. However, once effective, the FSP’s disclosure requirements apply prospectively to all recognized intangible assets, including those acquired before the FSP’s effective date.  The Company has not determined the impact of the adoption of this statement on its consolidated financial statements.

In June 2008, the FASB issued FSP Emerging Issues Task Force (“ EITF”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” to clarify that all outstanding unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities. An entity must include participating securities in its calculation of basic and diluted earnings per share (EPS) pursuant to the two-class method, as described in FASB Statement 128, Earnings per Share.  FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and for interim periods within those fiscal years. Upon adoption, an entity is required to retrospectively adjust its prior-period EPS data, including any amounts related to interim periods, summaries of earnings, and selected financial data. Early application of the FSP is not permitted).  FSP EITF 03-6-1 will be effective in fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and in interim periods within those fiscal years. The Company has not determined the impact of the adoption of this statement on its consolidated financial statements.

In June 2008, a consensus opinion was reached on EITF Issue 08-3, “Accounting by Lessees for Maintenance Deposits.” The objective of EITF Issue 08-3 is to clarify how a lessee should account for a nonrefundable maintenance deposit made under an agreement accounted for as a lease. EITF Issue 08-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and for interim periods within those fiscal years. Early application is not permitted. Entities should recognize the effect of the change for all arrangements that exist at the effective date as a change in accounting principle as of the beginning of the fiscal year the consensus is initially applied. The cumulative effect of the change in accounting principle should be recognized in the opening balance of retained earnings for that fiscal year. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and in interim periods within those fiscal years. The Company has not determined the impact of the adoption of this statement on its consolidated financial statements.

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Note 3.    Property and Equipment

The components of property and equipment as of June 30, 2008 and December 31, 2007 are presented in the table below.

	June 30,			December 31,
	2008			2007
	(in thousands)
Assets Under Construction
Satellite construction in progress	$	588,650		$	526,140
Terrestrial Network under Construction		44,133			28,866
		632,783			555,006
Assets In Service
Network equipment		2,419			2,385
Lab equipment		9,762			7,905
Office equipment		6,296			5,525
Leasehold Improvements		2,963			2,963
		21,440			18,778
Less accumulated depreciation		(4,834	)		(2,633	)
Property and equipment, net	$	649,389		$	571,151

The Company capitalized $14.8 million and $28.7 million of interest expense related to assets under construction for the three and six months ended June 30, 2008, respectively.

Depreciation expense was $1.1 million and $2.2 million for the three and six months ended June 30, 2008 and $0.5 million and $0.8 million for the three and six months ended June 30, 2007.

Note 4.    Intangible Assets

On February 5, 2008, we entered into a spectrum agreement with EchoStar Corporation (“EchoStar Spectrum Agreement”) which provided for the option to acquire Port Corp., a wholly owned subsidiary of EchoStar which held certain 1.4 GHz spectrum licenses in exchange for the issuance of 30 million shares of our common stock. On June 9, 2008, we entered into an agreement with EchoStar to acquire Port Corp. We established a subsidiary, Port Merger Corp., to be the surviving company.  As a result of the acquisition, TerreStar owns 100% of Port Merger Corp. which holds the 1.4 GHz licenses we acquired from EchoStar.  Simultaneously with the acquisition, of Port Corp., we issued 30 million shares of our common stock to EchoStar.

Additionally on February 5, 2008, we entered into an agreement with certain affiliates of Harbinger Capital Partners (“Harbinger”), which provided for the effective purchase of CCTV Wireless I, LLC, the holder of certain 1.4GHz licenses and related intellectual property, in exchange for the issuance of 1.2 million shares of our Series E junior participating preferred stock, convertible into 30 million shares of our common stock.  On June 9, 2008, we consummated the Harbinger Spectrum Agreement. 

We accounted for the costs of the 1.4 GHz licenses acquired from EchoStar and Harbinger based on the fair value of our common stock as of the measurement date, June 9, 2008 in accordance with Emerging Issue Task Force No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”   Our Series E preferred stock does not currently trade on the public market; therefore, we measured the costs of the 1.4 GHZ licenses acquired from Harbinger based on the fair value of the underlying common shares.  Of the fees paid the Company allocated $2.9 million in association with the acquisition of the 1.4 GHz spectrum licenses.

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Intangible assets as of June 30, 2008 and December 31, 2007 are presented in the table below.

	June 30,			December 31,
	2008			2007
	(in thousands)
Indefinite lived intangibles
1.4 GHz spectrum licenses	$	268,697		$	-
Definite lived intangibles
2 GHz spectrum licenses		208,831			202,324
Intellectual property		36,852			35,704
		245,683			238,028
Less accumulated amortization		(34,638	)		(25,772	)
Intangible assets, net	$	479,742		$	212,256

Amortization expense was $4.5 million and $8.9 million for the three and six months ended June 30, 2008 and $4.1 million and $7.1 million for the three and six months ended June 30, 2007.  The Company does not amortize its 1.4 GHz spectrum licenses.

Note 5.    Investments

We use the cost method to account for our investment in SkyTerra in accordance with Accounting Principles Board Opinion No. 18.

As of June 30, 2008, our SkyTerra investment totaled $222 million which represent 25.5 million SkyTerra shares we plan to distribute as a dividend to our common shareholders and 4.4 million shares we are holding for Series A or B Preferred shareholders who may convert to common stock in the future. Correspondingly, we recognized a dividend liability of $183.4 million related to the shares we plan to dividend to our common shareholders.   Our non-voting ownership interest in SkyTerra was 27.7 % as of June 30, 2008.

Note 6.    Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses from continuing operations consist of the following:

	June 30,		December 31,
	2008		2007
	(In thousands)
Accounts payable	$	4,709	$	18,320
Accrued development expenses		14,528		13,613
Accrued consulting expenses		1,293		5,078
Accrued compensation and benefits		755		2,519
Accrued legal expenses		966		2,122
Accrued operating and other expenses		491		1,068
	$	22,742	$	42,720

Note 7.    Long-Term Debt

TerreStar Notes

On February 14, 2007, TerreStar Networks issued $500 million aggregate principal amount of Senior Secured PIK Notes due 2014 (the “TerreStar Notes”) pursuant to an Indenture (the “Indenture”), among TerreStar Networks, as issuer, the guarantors from time to time party thereto (the “Guarantors”) and U.S. Bank National Association, as trustee.

On February 5, 2008, TerreStar Corporation and TerreStar Networks entered into a Master Investment Agreement (the “EchoStar Investment Agreement”), with EchoStar Corporation (“EchoStar”). The EchoStar Investment Agreement provided for, among other things, the purchase by EchoStar of $50 million of TerreStar Notes in accordance with the First Supplemental Indenture dated February 7, 2008.

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The additional $50 million TerreStar Notes were issued at an Issue Price of 93%, resulting in a discount on debt of $3.5 million. The debt discount is being accreted using the effective interest method over the six year term of the notes. For the three and six months ended June 30, 2008, the Company accreted $90,000 and $150,000, respectively, of debt discount related to the TerreStar Notes.  No accretion was recognized in 2007.

The TerreStar Notes bear interest from the Date of Issuance at a rate of 15% per annum. If certain milestones are not met, additional interest of up to 1.5% per annum will accrue on the TerreStar Notes. Until and including February 15, 2011, interest on the TerreStar Notes will be payable in additional TerreStar Notes on each February 15 and August 15, starting August 15, 2007. Thereafter, interest on the TerreStar Notes will be payable in cash on February 15 and August 15, starting August 15, 2011.

The TerreStar Notes are secured by a first priority security interest in the assets of TerreStar Networks, subject to certain exceptions, pursuant to a U.S. Security Agreement (the “Security Agreement”), dated as of February 14, 2007, among TerreStar Networks, as issuer, and any entities that may become Guarantors (as defined in the Indenture) in the future under the Indenture in favor of U.S. Bank National Association, as collateral agent. The assets of TerreStar Networks that collateralize the TerreStar Notes amount to $882.7 million as of June 30, 2008, consisting primarily of satellites under construction, property and equipment and cash and cash equivalents.

On February 15, 2008, $40.5 million of interest was converted into additional TerreStar Notes in accordance with the Indenture agreement. As of June 30, 2008 and December 31, 2007, the carrying value of the TerreStar Notes, net of discount including accrued interest, was $660.2 million and $568.0 million, respectively.

The TerreStar Notes are carried at cost on the condensed consolidated balance sheets. The aggregate fair market value of the TerreStar Notes as of June 30, 2008 and December 31, 2007 is approximately $600.8 million and $599.2 million, respectively.

TerreStar Exchangeable Notes

The EchoStar Investment Agreement also provided for the purchase by EchoStar of $50 million of TerreStar Networks’ newly issued 6.5% Senior Exchangeable PIK Notes due 2014, exchangeable for TerreStar Corporation common stock, at a conversion price of $5.57 per share (the “TerreStar Exchangeable Notes”). In addition, on February 5, 2008, TerreStar Corporation and TerreStar Networks entered into a Master Investment Agreement (the “Harbinger Investment Agreement”), with certain affiliates of Harbinger Capital Partners (“Harbinger”). The Harbinger Investment Agreement provided for, among other things, purchase by Harbinger of $50 million of TerreStar Exchangeable Notes. In connection with the foregoing transactions, certain of our existing investors entered into separate investment agreements (“Shareholder Investment Agreements”) to purchase in the aggregate $50 million of the TerreStar Exchangeable Notes.

On February 7, 2008, TerreStar Networks issued $150 million aggregate principal amount of TerreStar Exchangeable Notes due 2014 pursuant to an Indenture (the “Indenture”), among TerreStar Networks, TerreStar Corporation and certain subsidiaries, as issuer, the guarantors from time to time party thereto (the “Guarantors”) and U.S. Bank National Association, as trustee.

The TerreStar Exchangeable Notes bear interest from February 7, 2008 at a rate of 6 ½ % per annum, payable quarterly. Until and including June 15, 2011, interest on the TerreStar Exchangeable Notes will be payable in additional TerreStar Exchangeable Notes quarterly, starting March 15, 2008. Thereafter, interest on the TerreStar Exchangeable Notes will be payable in cash quarterly, starting June 15, 2011. The TerreStar Exchangeable Notes are scheduled to mature on June 15, 2014.

The TerreStar Exchangeable Notes would rank senior in right of payment to all existing and future subordinated indebtedness; and pari-passu with all other unsubordinated indebtedness. The TerreStar Exchangeable Notes are guaranteed by subsidiaries of TerreStar Networks.

On March 15 and June 15, 2008, $1.0 million and $2.5 million, respectively, of interest was converted into additional TerreStar Exchangeable Notes in accordance with the Indenture agreement. As of June 30, 2008, the carrying value of the TerreStar Exchangeable Notes was $154 million including accrued interest.

The Company analyzed the conversion feature of the TerreStar Exchangeable Notes using the guidance of EITF No. 00-19 —“Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” and determined that the TerreStar Exchangeable Notes are non-conventional. The conversion option was further analyzed, and the Company determined that all of the criteria of EITF 00-19 were met and consequently, the conversion option, relative to the corresponding notes, was accounted for as an embedded equity derivative.

The TerreStar Exchangeable Notes are carried at cost on the condensed consolidated balance sheets which approximates fair market value.

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TerreStar-2 Purchase Money Credit Facility

On February 5, 2008, we entered into a $100 million TerreStar-2 Purchase Money Credit Facility among TerreStar Networks, as the borrower, the guarantor’s party thereto from time to time, U.S. Bank National Association, as collateral agent, and Harbinger and EchoStar, as lenders.

Amounts outstanding under the TerreStar-2 Purchase Money Credit Facility bear interest at a rate of 14% per annum and mature on February 5, 2010. This interest is P-I-K and accrued to the principal balance of the notes.

The TerreStar-2 Purchase Money Credit Facility contains several restrictive covenants customary for credit facilities of this type, including, but not limited to the following: limitations on incurrence of additional indebtedness, limitation on liens, limitation on asset sales of collateral and limitation on transactions with affiliates. The TerreStar-2 Purchase Money Credit Facility also contains certain events of default customary for credit facilities of this type (with customary grace periods, as applicable). If any events of default occur and are not cured within the applicable grace periods or waived, the outstanding loans may be accelerated. The financing will be advanced as required and used to fund the completion of the TerreStar-2 satellite.

Draw down of the TerreStar-2 Purchase Money Credit Facility occurred on March 25 and April 24, 2008 for $13.4 million and $19.8 million, respectively, related to payments to Loral for TerreStar-2 for our satellite under construction.  The Company incurs interest on the draw down balance at a rate of 14%.  As of June 30, 2008, the carrying value of the TerreStar-2 Purchase Money Credit Facility including accrued interest was $34.2 million.  The TerreStar-2 Purchase Money Credit Facility is carried at cost on the condensed consolidated balance sheets, which approximates fair market value.

Deferred Issuance Costs

The Company incurred total fees of $5.8 million in association with the TerreStar Exchangeable Notes, the TerreStar Notes, the TerreStar-2 Purchase Money Credit Agreement and EchoStar Spectrum Agreement and Harbinger Spectrum Agreements for the 1.4 GHz spectrum as of June 30, 2008.  The fees of $5.8 million were evenly allocated between deferred issuance costs which are being amortized and the 1.4 GHz spectrum licenses which are not being amortized.

The Company paid fees of $14.2 million in association with the TerreStar Notes and $2.9 million in association with the TerreStar Notes, TerreStar Exchangeable Notes and TerreStar-2 Purchase Money Credit Facility, respectively, as of June 30, 2008. The fees are being amortized over the life of the notes. Amortization of approximately $0.6 million and $1.2 million was recorded for the three and six months ended June 30, 2008.  Amortization of approximately $0.5 million and $0.8 million was recorded for the three and six months ended June 30, 2007.

Leases

As of June 30, 2008, the Company has non-cancelable leases for office space, co-location sites, calibration earth stations, towers and furniture and equipment under operating leases expiring through 2027.

Rent expense, net of sublease income, totaled approximately $5.2 million, $7.4 million, $0.7 million and $1.1 million for the three and six months ended June 30, 2008 and 2007, respectively. Approximately $3.3 million that is included in the three and six months ended June 30, 2008 is related to the lease exit costs as discussed in Note 10. Rent expense is recognized on a straight-line basis over the term of the lease agreement.

Note 8.    Stockholders’ Equity

Common Stock

On June 9, 2008 we issued approximately 30 million shares of our common stock pursuant to the closing of the EchoStar Spectrum Purchase Agreement.

During 2008, we exchanged approximately 1.7 million shares of our common stock for approximately 0.9 million shares of TerreStar Networks common stock and 0.3 million shares of TerreStar Global common stock with minority shareholders. Accordingly, our ownership interests in TerreStar Networks and TerreStar Global is approximately 88.4% and 86.5%, respectively, on a non-diluted basis as of June 30, 2008. In addition, the exchanges resulted in an allocation of approximately $0.3 million and $7.7 million to intangible assets for the three and six months ended June 30, 2008.

Preferred Stock

We account for Series A and Series B Cumulative Redeemable Convertible Preferred Stock under Accounting Series Release 268 “Redeemable Preferred Stocks.”  As of June 30, 2008, we had 5.0 million authorized shares of preferred stock, consisting of 0.45 million Series A shares, 0.5 million Series B shares, 1 Series C share, 1 Series D share, 1.9 million Series E shares and approximately 2.1 million shares undesignated.

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Series A and B Cumulative Convertible Preferred Stock

The rights, preferences and privileges of the Series A Preferred are contained in Certificates of Designations of the Series A and Series B Cumulative convertible preferred stock which are more fully described in our Annual Report on Form 10-K/A for the year ended December 31, 2007.

Dividends on Series A and B Preferred Shares

From April 15, 2005 to April 15, 2007, TerreStar Corporation paid cash dividends at a rate of 5.25% per annum on the Series A and Series B Preferred shares. These cash dividends of approximately $42.9 million were placed in an escrow account and were paid in four semi-annual payments to the holders of Series A and B Preferred. Additional dividend payments after April 15, 2007, are due bi-annually in April and October, payable at TerreStar Corporation’s option in cash at a rate of 5.25% per annum or in common stock at a rate of 6.25% per annum through April 15, 2010. Currently, we are unable to pay the Series A dividend in common stock due to our ongoing litigation with certain investors. We anticipate paying the Series A dividend in cash and the Series B in common stock until such time that the Series A litigation is resolved and we satisfy the conditions required to pay the Series A dividend in common stock.

If any shares of Series A and B Preferred remain outstanding on April 15, 2010, TerreStar Corporation is required to redeem such shares for an amount equal to the purchase price paid per share plus any accrued but unpaid dividends on such shares.

Series C and D Preferred Stock

On February 7, 2008, we issued one share of non-voting Series C preferred stock (“Series C preferred”) to Echostar and one share of non-voting Series D preferred stock (“Series D preferred”) to Harbinger at $0.01, par value. These shares are exempt from the registration requirements of the Securities Act of 1933.

The rights, preferences and privileges of the Series C and Series D preferred are contained in Certificates of Designations of the Series C and D preferred stock. The following is a summary of these rights, preferences and privileges:

• The Series C and Series D holders are not entitled to or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Corporation.

• The Series C and Series D Preferred are not convertible into any other class of capital stock of the Company.

• Series C and Series D preferred stock rank senior and prior to common stock and each other class or series of equity securities of the Company whether issued or issued in the future with respect to payment of dividends, redemption payments, rights upon liquidation, dissolution or winding up of the affairs of the Company. Additionally, the Series C and Series D rank junior to the Series A and Series B Cumulative Convertible preferred stock.

• In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Company, no distribution shall be made (a) to the holders of any shares of capital stock of the Company ranking junior (with respect to rights upon liquidation, dissolution or winding up) to the Series C and Series D preferred stocks, unless the Series C and Series D Holders shall have received $1,000 per share each, or (b) to the holders of shares of capital stock of the Company ranking on a parity (with respect to rights upon liquidation, dissolution or winding up) with the Series C and Series D preferred stocks, except for distributions made ratably on the Series C and Series D preferred stocks and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up.

• By virtue of their ownership of shares of the Series C and Series D preferred stock, EchoStar and Harbinger have consent rights for, among other things, certain sales of assets, making any material change in our line of business, amending or permitting the amendment of our certificate of incorporation, by-laws, or our other organizational documents or any of our subsidiaries, certain acquisitions of assets, certain capital expenditures and consolidations and mergers and rights to appoint directors.

Series E Junior Participating Preferred Stock

Series E Junior Participating preferred stock (the “Junior Preferred Shares”) was issued to Harbinger and its affiliates under the Harbinger Spectrum Agreement. Except as otherwise required under Delaware law, the holders of Junior Preferred Shares are not entitled to vote on any matter required or permitted to be voted on by the stockholders.  The holders of Junior Preferred Shares are entitled to participate ratably in any dividends paid on the Common Shares. In the event of a liquidation, the holders of Junior Preferred Shares will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to $0.0001 per share (subject to adjustment), before any distribution may be made or any assets distributed in respect of the Common Shares. Subject to certain restrictions related to the change of control provisions under the existing indenture and existing preferred stock, each Junior Preferred Share may be converted into 25 Common Shares (subject to adjustment). There is no restriction in the Certificate of Designations governing the Junior Preferred Shares on the repurchases or redemption of shares by the Company while there is any arrearage in the payment of dividends or sinking fund installments.

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On June 9, 2008, we issued 1.2 million shares of our Series E Junior Participating preferred stock to Harbinger, convertible into 30 million shares of our common stock for the effective purchase of CCTV Wireless, LLC, the holder of certain 1.4 GHz licenses. The transaction was consummated on June 10, 2008.

Common Stock Purchase Warrants

As of June 30, 2008, there were approximately 4.2 million fully vested warrants exercisable for the Company’s common stock outstanding.

The following table summarizes the Company’s warrant activity as of June 30, 2008.

TerreStar Corporation	Warrants		Weighted- average exercise price per share
Outstanding at January 1, 2008		4,213,400	$	9.35
Granted		—		—
Cancelled		—		—
Exercised
Outstanding at June 30, 2008		4,213,400	$	9.35

Note 9.    Employee Stock Benefit Plans

Stock Options

Effective January 1, 2006, the Company adopted SFAS No. 123 (R), “Share-Based Payment”, an amendment of FASB Statements No. 123 (“SFAS 123(R)”), applying the modified prospective method. As a result of the Company’s decision to adopt using the modified prospective method, prior period results have not been restated. Prior to the adoption of SFAS 123(R), the Company applied the provisions of APB No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) in accounting for its stock-based awards, and accordingly, recognized no compensation costs for its stock option plans other than for instances where APB 25 required variable plan accounting related to performance-based stock options, stock option modifications and restricted stock awards. Under the modified prospective method, SFAS 123(R) applies to new awards and to awards that were outstanding as of December 31, 2005 that are subsequently vested, modified, repurchased or cancelled.

Summary

Through 2007, TerreStar Corporation and TerreStar Networks offered stock options and other long term equity based incentive awards under their respective equity plans to their employees, directors and other service providers. During 2006, TerreStar Corporation adopted the 2006 TerreStar Corporation Equity Incentive Plan (the “2006 Plan”) which replaced the 2002 TerreStar Corporation Plan (the “2002 Plan”). During 2007, the TerreStar Corporation and TerreStar Networks respective Board of Directors and Compensation Committees decided to cease issuing options and other awards under the TerreStar Networks 2002 Stock Incentive Plan (the “2002 TerreStar Networks Plan”) and exchange certain outstanding options under the 2002 TerreStar Networks Plan for options to purchase common stock of TerreStar Corporation under the 2006 Plan. As of June 30, 2008, we now offer stock options and other long-term incentive awards under the following two plans to eligible persons:

· the 2006 Plan; and

· the TerreStar Global Ltd. 2007 Share Incentive Plan (the “Global Plan”).

Our equity-based compensation expense is included in the following areas in the condensed consolidated statement of operations for the periods indicated for the awards outstanding under the 2002 TerreStar Networks Plan, the 2006 Plan, the 2002 Plan, the Global Plan, and warrants issued to purchase TerreStar Global common shares:

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	Three months ended June 30, 2008
	2006 Plan		2002 TerreStar Networks Plan			Global Plan		Warrants		Restricted Stock		Consolidated
	(in thousands)
General and administrative	$	-	$	(1,399	)	$	44	$	-	$	116	$	(1,239	)
Research and development		-		-			-		-		-	$	-
Total stock-based compensation	$	-	$	(1,399	)	$	44	$	-	$	116	$	(1,239	)
	Six months ended June 30, 2008
	2006 Plan		2002 TerreStar Networks Plan			Global Plan		Warrants		Restricted Stock		Consolidated
	(in thousands)
General and administrative	$	285	$	653		$	84	$	-	$	174	$	1,196
Research and development		-		39			-		-		-	$	39
Total stock-based compensation	$	285	$	692		$	84	$	-	$	174	$	1,235
	Three months ended June 30, 2007
	2006 Plan		2002 TerreStar Networks Plan			Global Plan		Warrants		Restricted Stock		Consolidated
	(in thousands)
General and administrative	$	2,262	$	15,279		$	-	$	-	$	167	$	17,708
Research and development		1,219		-			-		-		-	$	1,219
Total stock-based compensation	$	3,481	$	15,279		$	-	$	-	$	167	$	18,927
	Six months ended June 30, 2007
	2006 Plan		2002 TerreStar Networks Plan			Global Plan		Warrants		Restricted Stock		Consolidated
	(in thousands)
General and administrative	$	2,659	$	15,595		$	-	$	-	$	332	$	18,586
Research and development		1,219		-			-		-		-	$	1,219
Total stock-based compensation	$	3,878	$	15,595		$	-	$	-	$	332	$	19,805

As of June 30, 2008, the total unrecognized stock compensation expense was approximately $9.3 million.

Restricted Stock Awards

On May 8 and June 27, 2008, the Company issued approximately 0.1 million and 0.6 million shares of restricted stock awards to its employees and certain executives, respectively, of TerreStar Networks under the 2006 Equity Incentive Plan.  Fifty percent of the shares vest ninety days following the successful launch and in orbit test check-in of TerreStar-1 satellite and the remaining fifty percent vest upon the first anniversary of the initial vesting date.  The fair value of restricted stock awards is based on the stock price at the date of grant. Restricted stock awards are settled in shares of the Company’s common stock after the vesting period.

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The following table summarizes our restricted stock activity as of June 30, 2008.

TerreStar Corporation	Restricted Shares			Weighted- average grant date fair value
Non-vested at January 1, 2008		69,000		$	13.35
Granted		767,110			4.26
Cancelled		—			—
Vested		(13,800	)		13.35
Non-vested at June 30, 2008		822,310		$	4.87

TerreStar Networks 2002 Stock Incentive Plan

In July 2002, the TerreStar Networks’ shareholders approved the 2002 TerreStar Networks Plan (as amended) with 7,707,458 authorized shares of common stock, of which options to purchase 213,763 and 4,260,327 shares of TerreStar Networks’ common stock were outstanding at June 30, 2008 and December 31, 2007, respectively. All of the outstanding options under the 2002 TerreStar Networks Plan have vested. Pursuant to the terms of the adoption of the 2006 Plan (discussed above) no additional options will be issued pursuant to the 2002 TerreStar Networks Plan, and the plan will terminate upon the exercise or termination of the outstanding options.

The following tables summarize our stock option activity for the 2002 TerreStar Networks Plan:

	Options to acquire shares		Weighted- average exercise price per share		Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2008		213,763	$	7.38		—
Granted		—		—		—
Cancelled		—		—		—
Exercised		—		—		—
Outstanding at June 30, 2008		213,763	$	7.38	$	4,949
Exercisable at June 30, 2008		213,763	$	7.38	$	4,949

Options Outstanding				Options Exercisable
Exercise Prices	As of June 30, 2008		Weighted Average Contractual Life Remaining	As of June 30, 2008
$0.21		52,070	7 years		52,070
$0.70		100,435	4 years		100,435
$24.42		61,258	7 years		61,258
		213,763			213,763

2002 TerreStar Corporation Plan

The 2002 Plan was initially adopted by the Board of Directors in May 2002 with 5,493,024 authorized shares of common stock, of which options to purchase 231,664 shares of the our common stock were outstanding at June 30, 2008.

2006 TerreStar Corporation Equity Incentive Plan

In April 2006, our shareholders approved the 2006 Plan which was designed to replace both the “2002 Plan” and the “2004 Restricted Stock Plan.” No additional shares were granted under either the 2002 Plan or the 2004 Restricted Stock Plan. The 2006 Plan initially authorized to issue a total of 10,000,000 (and was later amended in October 2007 to increase to 11,000,000) Incentive Stock Options, Non-Qualified Stock Options, Restricted Shares, Performance Shares and Performance Units. As of June 30, 2008, approximately 1.4 million shares remain available to be issued under the Plan.

Under the 2006 Plan, we granted 35,600 non-qualified options to purchase our common stock to a board member on March 14, 2007. These options vest on March 14, 2008 and expire on March 14, 2017, unless fully exercised or terminated earlier.

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Under the 2006 Plan, we granted 3.8 million non-qualified options to purchase our common stock to TerreStar Networks employees on May 1, 2007. One-third of the options vest each year over three years starting January 1, 2008 and expires on January 1, 2017, unless fully exercised or terminated earlier.

On May 23, 2007, we cancelled approximately 2.5 million fully vested non-qualified options to purchase TerreStar Networks common stock in exchange for the issuance of approximately 5.3 million fully vested non-qualified options to purchase our common stock. These options were granted to TerreStar Networks employees on May 23, 2007. These options were fully vested and we recognized $14.7 million of total incremental compensation cost related to this exchange for the year ended December 31, 2007. Fifty percent of the options became exercisable on January 1, 2008 and the remaining fifty percent become exercisable on January 1, 2009. The options expire on May 23, 2017, unless fully exercised earlier.

Under the 2006 Plan, we granted 112,500 non-qualified options to purchase our common stock to a former board member on February 12, 2008. These options vested immediately on February 12, 2008 and expire on December 31, 2009, unless fully exercised earlier.

In April 2008, TerreStar Networks implemented certain cost reduction measures which resulted in a headcount reduction of 79 management and non-management positions across the Company. As a result we updated our forfeiture rate from 8.6% to 38.6%.

On April 16, 2008, the Company announced the departure of three executives. As part of their severance arrangement, the Company accelerated the vesting date of approximately .9 million and 1.2 million options which were initially granted on May 1 and May 23, 2007, respectively, and extended the exercise period of these options by 12 months.  Additionally, we granted an additional 145,175 fully vested options to one of the executives.

The fair value of each option and modified award was estimated on the grant date using the Black-Scholes option pricing model. The risk-free interest rate was based on the daily treasury yield curve rates from the U.S. Treasury, adjusted for continuous compounding. The expected-volatility was estimated using TerreStar Corporation and peer company historical volatility and implied volatility. The expected term was estimated using the average of the vesting date and the contractual term of the options.

On June 25, 2008, under the 2006 Plan, we granted 75,000 shares to certain directors as partial compensation for their service on the board of directors.  The $1.25 fair value of the award was estimated based on the grant date using the Black-Scholes option pricing model.  The risk-free interest rate of 3.48% was based on the daily treasury yield curve rates from the U.S. Treasury, adjusted for continuous compounding. The expected-volatility of 57% was estimated using TerreStar Corporation and peer company historical volatility and implied volatility. The expected term representing 6 years was estimated using the average of the vesting date and the contractual term of the options.

The following table summarizes the fair values and weighted average assumptions related to the grants under the 2006 Plan.

Grant dates	February 12, 2008			April 16, 2008			June 25, 2008
Weighted average grant date fair value	$	1.78		$	0.33 - $0.56		$	1.25
Weighted average assumptions:
Risk-free interest rate		1.92	%		1.64 - 1.96	%		3.48	%
Expected volatility		65.0	%		65% - 70	%		55.0	%
Expected dividend yield		—			—			—
Expected term (years)		1.89			1.25 - 2.0			6.0
Options granted and/or modified		112,500			2,248,875			75,000

The following tables summarize our stock option activity for the TerreStar Corporation 2002 and 2006 Plan.

	Options to acquire shares			Weighted- average exercise price per share		Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2008		9,568,911		$	11.73		—
Granted		332,675			9.33		—
Cancelled		(1,190,438	)		11.31		—
Exercised		—			—		—
Outstanding at June 30, 2008		8,711,148		$	11.69	$	—
Exercisable at June 30, 2008		4,998,770		$	11.93	$	—

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	Options to acquire shares			Weighted- Average Grant Date Fair Value
Non-vested at January 1, 2008		3,942,055		$	6.72
Granted		332,675			5.07
Cancelled		(900,351	)		6.68
Vested		(2,143,105	)		6.44
Non-vested at June 30, 2008		1,231,274		$	6.79

Options Outstanding				Options Exercisable
Exercise Prices	As of June 30, 2008		Weighted Average Contractual Life Remaining	As of June 30, 2008
$  3.00		214	4 years		214
$  5.00		112,500	2 years		112,500
$  8.85		35,600	9 years		35,600
$11.30		3,086,675	6 years		1,963,401
$11.35		4,962,209	7 years		2,481,105
$11.95		37,500	8 years		37,500
$12.03		75,000	10 years		-
$12.50		110,000	8 years		110,000
$13.35		45,000	8 years		18,000
$17.94		15,000	8 years		9,000
$23.15		86,450	7 years		86,450
$28.70		145,000	7 years		145,000
		8,711,148			4,998,770

TerreStar Global Ltd. 2007 Share Incentive Plan

Pursuant to the terms of the TerreStar Global Ltd. 2007 Share Incentive Plan (the “Global Plan”), TerreStar Global may issue up to an aggregate of 3.75 million shares of common stock in the form of options or other equity-based incentive awards to directors, officers, employees and service providers.

On July 9, 2007, TerreStar Global granted 1.1 million non-qualified options under the Global Plan, to purchase its common stock to TerreStar Global employees, directors and service providers. One-half of the options vest each year over two years starting January 1, 2008 and expires on July 8, 2017, unless fully exercised or terminated earlier. As of June 30, 2008, approximately 2.6 million shares remain available to be issued under the Global Plan.

The fair value of each option award was estimated on the grant date using the Black-Scholes option pricing model. The risk-free interest rate was based on the daily treasury yield curve rates from the U.S. Treasury, adjusted for continuous compounding. The expected-volatility was estimated using TerreStar Global and peer company historical volatility and implied volatility. The expected term was estimated using the average of the vesting date and the contractual term of the options.

As disclosed in our Form 8-K filed April 18, 2008, the Company announced the departure of four executives.   As part of their severance arrangement, the Company accelerated the vesting date of approximately 0.3 million options which were initially granted on July 9, 2007.  Additionally, the exercise period for one of these executive’s options was extended by 12 months.

The following tables summarize our stock option activity under the Global Plan.

	Options to acquire shares			Weighted- average exercise price per share		Aggregate Intrinsic Value
Outstanding at January 1, 2008		1,105,000		$	0.42		—
Granted		—			—		—
Cancelled		(10,000	)		—		—
Exercised		—			—		—
Outstanding at June 30, 2008		1,095,000		$	0.42		—
Exercisable at June 30, 2008		710,000		$	0.42		—

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	Options to acquire shares			Weighted- Average Grant Date Fair Value
Non-vested at January 1, 2008		1,105,000		$	0.29
Granted		—			—
Cancelled		(5,000	)		—
Exercised		—			—
Vested		(715,000	)
Non-vested at June 30, 2008		385,000		$	0.29

Options Outstanding				Options Exercisable
Exercise Prices	As of June 30, 2008		Weighted Average Contractual Life Remaining	As of June 30, 2008
$0.42		1,095,000	4 years		710,000

Warrants—TerreStar Global

On July 9, 2007, TerreStar Global issued warrants to its board and former board members. These warrants vested immediately and expire on July 9, 2012, or earlier if fully exercised or otherwise cancelled per the warrant agreement’s terms.

The fair value of each warrant was calculated using a Black-Sholes option pricing model. The risk-free rates were developed using Daily Treasury Yield Curve Rates from the U.S. Treasury, adjusted for continuous compounding. The expected volatility was estimated using TerreStar Global and peer company historical average annual volatility. The July 9, 2007 warrants contain a provision that violates the basic characteristics of “plain vanilla” options. Specifically, with certain limiting, the warrants are freely transferable. As the warrants are likely to remain outstanding for the entirety of their contractual term, the expected term was determined to equal the contractual term for the July 9, 2007 warrants. As the July 9, 2007 warrants are vested upon issuance, it is expected that none of these shares would be forfeited prior to vesting.

The following table summarizes the TerreStar Global warrants that are outstanding and exercisable as of June 30, 2008.

Warrants Outstanding				Warrants Exercisable
Exercise Prices	As of June 30, 2008		Weighted Average Contractual Life Remaining	As of June 30, 2008
$0.42		553,100	4 years		553,100

Note 10. Charges Related to Cost Reduction Actions

In April 2008, the Company announced that TerreStar Networks would implement certain cost reduction measures which included costs for employee terminations. Additionally, certain contracts and leases were evaluated under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” for their remaining economic benefit and we have established the cease-use-date, and recorded the liability accordingly. This in conjunction with the Company’s ongoing efforts to operate within its currently available capital and focus near term on launching its satellite and developing its handset.

We accounted for these costs in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits―an Amendment of FASB Statements No. 5 and 43” and SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  Employee termination benefits costs were accounted for under SFAS No. 112.  The Company included employee severance, health insurance, and other related payroll benefit costs as employee termination benefit costs.  Contract termination costs are accounted for under SFAS No. 146 which includes costs to terminate the contract before the end of its term or costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity.

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The details of these charges are presented in the following table.

	(in thousands)
Beginning Liability, January 1, 2008	$	2,332
Employee termination benefit costs		6,480
Contract termination costs		8,156
Reduction in deferred rent		(358	)
Lease exit costs		3,313
Total incurred expenses		17,591
Cash expenditures through June 30, 2008		(8,707	)
Ending Liability, June 30, 2008 (1)	$	11,216

(1)   This total liability is included in current and long term deferred rent of $1.3 million and $3.6 million, respectively, and accrued termination costs of approximately $6.3 million.

These costs are included in General and Administrative expenses for the three months ended June 30, 2008.

Note 11.    Income Taxes

On January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  The Company has fully reserved its deferred income tax balance as of June 30, 2008.

The Company files consolidated income tax returns in the U.S. federal jurisdiction with its U.S. subsidiaries. The Company, along with its U.S. subsidiaries also files tax returns in various state and local jurisdictions. The Company has no periods under audit by the Internal Revenue Service (“IRS”). The statutes of limitations open for the Company’s returns are 2003, 2004, 2005 and 2006. The Company is not aware of any issues for open years that upon examination by a taxing authority are expected to have a material adverse effect on results of operations.

Note 12.    Commitments and Contingencies

As of June 30, 2008, TerreStar has preferred stock obligations for its Series A and Series B preferred stock. If not converted, the entire Series A and Series B preferred stock amount of $408 million will be due on April 15, 2010. Dividend payments on the Series A and Series B are due semi-annually in April and October, payable in cash (at a 5.25% annual interest rate) or in common stock (at a 6.25% annual interest rate) through April 15, 2010. Additionally, the Company has the following contractual commitments and debt obligations as of June 30, 2008:

	TOTAL		< 1 yr		1-3 yrs		3-5 yrs		5+ yrs
	(in thousands)
TerreStar Satellites (1,2)	$	255,281	$	118,518	$	75,639	$	6,218	$	54,906
Leases		17,409		6,887		7,797		2,418		307
Network Equipment and Services		442,974		76,129		366,845		0		0
Debt Obligations (3)		1,699,343		0		6,354		328,181		1,364,808
Total	$	2,415,007	$	201,534	$	456,635	$	336,817	$	1,420,021

(1) Includes approximately $6.3 million remaining of construction payments and approximately $55.1 million of orbital incentive payments for TerreStar 1 if the satellite operates properly over its expected life. Additionally, includes approximately $42.5 million remaining for construction of TerreStar-2 and approximately $47.8 million of orbital incentives.

(2) We expect to pay $40—$50 million for satellite launch insurance, which is not under contract and not included in the table.

(3) Debt Obligations are composed of our $550 million TerreStar Notes due 2014, our $150 million TerreStar Exchangeable Notes due 2014, and our current borrowing under our TerreStar-2 Purchase Money Credit Facility due 2014 for our second satellite, including future interest and principle payments.

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Note 13.    Legal Matters

Litigation Adverse to Highland Capital Management and James Dondero

The Company has, since August of 2005, been engaged in litigation adverse to Highland Capital Management, L.P. ("Highland Capital"), as well as investment funds managed by Highland Capital and James Dondero, the principal owner of Highland Capital and a former director of the Company (Highland Capital, its investment funds, and Mr. Dondero collectively, the "Dondero Affiliates"). Six of the suits were filed by the Dondero Affiliates against the Company or related parties. Of those six suits, four have been finally resolved in favor of the Company; an additional one was dismissed on the Company's motion and the dismissal is being appealed by the Dondero Affiliates; and one more was recently filed and is the subject of a pending motion to dismiss. In addition, the Company filed two suits against Mr. Dondero and the Dondero Affiliates; both were dismissed on the defendant's motions, and both remain on appeal or in post-appeal proceedings.

The suit filed by the Dondero Affiliates that remains on appeal was filed on August 16, 2005 by Highland Capital, Highland Equity Focus Fund, L.P., Highland Crusader Offshore Partners, L.P., and Highland Capital Management Services, Inc., in a Texas state district court in Dallas County, Texas, (the "Rescission Litigation"). This suit challenged the validity of the Company's Series A preferred stock and sought damages and rescission of the Dondero Plaintiff's $90 million purchase of 90,000 shares of Series A preferred stock. On November 30, 2007, the court granted the Company's motion for summary judgment and dismissed the suit. The Dondero Affiliates have appealed the dismissal. The Company intends to vigorously defend the judgment through the appeal process.

The four suits filed by the Dondero Affiliates that have been finally resolved in favor of the Company include:

A suit filed on August 16, 2005 in the Delaware Court of Chancery by Highland Legacy Limited ("Highland Legacy") against many of the Company's directors and officers as well as certain third parties. This lawsuit was filed as a derivative action, ostensibly on behalf of the Company. This suit was dismissed by the Court of Chancery on March 17, 2006; Highland Legacy did not appeal, and the judgment of dismissal is accordingly final.

A suit filed on October 7, 2005 in the Delaware Court of Chancery by the same four Dondero Affiliates that filed the Rescission Litigation. This suit sought to enjoin an exchange offer by virtue of which the Company was to exchange its outstanding Series A preferred stock for a new class of Series B preferred stock. The exchange offer was completed and the Dondero Affiliates never set their request for injunction for hearing. After the Dondero Affiliates left this lawsuit dormant for more than two years, it was recently dismissed by the Court on its own motion.

A suit filed on April 24, 2006 in the Delaware Court of Chancery by Highland Select Equity Fund, L.P. ("Highland Select") against the Company, attempting to compel the production of books and records pursuant to Section 220 of the Delaware General Corporation Law. In July 2006, after trial, the Court of Chancery entered judgment on behalf of the Company, dismissing the suit and awarding costs to the Company. Highland Select appealed to the Delaware Supreme Court. After oral argument, a remand to the Court of Chancery for clarification of certain aspects of its opinion, and the Court of Chancery's issuance of a Report in response to the request from the Supreme Court, the judgment of the Court of Chancery was affirmed.

A suit filed on June 19, 2006 in a Texas state district court in Travis County, Texas by the same four Dondero Affiliates that filed the Rescission Litigation. This suit sought rescission of the Company's agreement with SkyTerra Communications, Inc. to exchange shares of MSV, an injunction against the closing of the associated transaction, and rescission of the Company's consulting agreement with Communications Technology & Advisors ("CTA"). The Company and CTA removed the case to federal court and moved for dismissal. After oral argument on such motions, the United States Magistrate Judge recommended that the United States District Court dismiss the suit. On January 24, 2007, the United States District Court accepted the Magistrate Judge's recommendation and dismissed the suit. The Dondero Affiliates have not appealed, and the judgment of dismissal accordingly is now final.

The suit that remains pending was filed on February 1, 2008 in the Commercial Division of the New York Supreme Court by the same four Dondero Affiliates that filed the Rescission Litigation. In this suit, the four plaintiffs contend that certain transactions, including the September 2005 exchange offer by virtue of which the Company exchanged its outstanding shares of Series A preferred stock for a new class of Series B preferred stock, caused the occurrence of a Senior Security Trigger Date, supposedly requiring the Company to issue a Senior Security Notice, entitling the Dondero Affiliates to redeem their Series A preferred stock. The Company has filed a motion to dismiss this action; the motion was argued to the court in June, 2008. If the motion is denied, the Company intends to vigorously defend the suit. In addition, the plaintiffs have sought leave to amend their suit to add additional claims including that subsequent events constituted a "change of control" entitling them to redemption of their stock. The Company has opposed the motions for leave to amend.

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On October 19, 2005, the Company filed two lawsuits against Mr. Dondero, one in the United States District Court for the Northern Division of Texas and one in Texas state district court in Dallas County, Texas. The petition filed in state court alleges that Mr. Dondero seriously and repeatedly breached his fiduciary duties as a director in order to advance his own personal interests. In the suit tiled in federal court-in which the Dondero Affiliates that were members of Mr. Dondero's proxy fight group were also named as defendants-the Company alleges that they filed false and misleading Forms 13D in violation of the federal securities laws. The suit filed in federal court was dismissed after the United States District Court ruled that the Company's complaint was subject to a heightened pleading standard under the Private Securities Litigation Reform Act; the Company, which disagrees with the ruling, elected not to replead, but rather to appeal the dismissal. After briefing and oral argument, a panel of the United States Court of Appeals for the Fifth Circuit ruled that the Company's claim for injunctive and other non-monetary relief had been mooted by subsequent events including the Dondero Affiliates' disposition of virtually all of its common stock, and remanded the case to the United States District Court for vacatur of the judgment. The United States District Court subsequently entered a form of amended judgment; the Company has filed a motion to alter or amend portions of that judgment, and is awaiting a decision on that motion. After the initial dismissal of the suit in the United States District Court, the state court entered summary judgment dismissing the fiduciary suit on the ground that the United States District Court's dismissal of the federal securities lawsuit had a res judicata effect precluding the continued prosecution of state law breach-of-fiduciary-duty claims.                       

Sprint Nextel Litigation

On June 25, 2008, Sprint Nextel Corporation ("Sprint") filed a lawsuit in the United States District Court for the Eastern District of Virginia naming TerreStar Networks Inc. as a defendant. New ICO Satellite Services, G.P. was also named as a defendant (together with TerreStar Networks Inc., the "Defendants"). In this lawsuit, Sprint contends that Defendants owe them reimbursement for certain spectrum relocation costs Sprint has incurred or will incur in connection with relocating incumbent licensees from certain frequencies in the 2 GHz spectrum band. Sprint seeks, among other things, enforcement of certain Federal Communications Commission orders and reimbursement of not less than $100 million from each Defendant.                             

Note 14.    Related Party Transactions

ATC Technologies, LLC—ATC Technologies is a subsidiary of MSV which is owned by SkyTerra.  The Company holds approximately 30 million non-voting shares of SkyTerra as of June 30, 2008.

Hughes Network Systems, LLC (“Hughes”)—Andrew Africk served on the Board of Directors of both TerreStar Networks and Hughes during the period covered by this report. In April 2008, Mr. Africk resigned from the Board.

The Company incurred expenses to related parties of $1.2 million and $5.3 million for the three and six months ended June 30, 2008, respectively.  Of these amounts, $1.0 million and $4.9 million refers to Hughes for satellite related services and $0.2 million and $0.4 million refers to ATC Technologies for intellectual property related services.

The Company incurred expenses to related parties of $21.4 million and $25.2 million for the three and six months ended June 30, 2007, respectively.  Of that amount, $21.2 million and $25.0 million refers to Hughes for satellite related services and $0.2 million and $0.2 million refers to MSV for intellectual property related services.

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Note 15.    Supplemental Cash Flow Information

Supplemental cash flow information for the six months ended June 30, 2008 and 2007 is presented in the table below.

	Six Months Ended
	June 30,
	(in thousands)
	2008		2007
Non-cash investing and financing activities
Accrued property and equipment	$	1,502	$	4,566
Interest capitalized on satellites and terrestrial network under construction	$	28,684	$	8,430
Acquisition of intangible assets funded by issuance of common stock	$	7,654	$	86,932
Acquisition of SkyTerra shares through exchange of MSV	$	-	$	139,486
Acquisition of Spectrum by issuance of stock (See Note 8)	$	265,800	$	-
Deferred financing fees accrued	$	70	$	857
Spectrum acquisition costs accrued	$	70	$	-
Accretion of issuance costs on Series A and Series B Preferred	$	2,266	$	2,084
Interest on TerreStar Notes paid in-kind	$	40,495	$	-
Interest on TerreStar Exchangeable Notes paid in-kind	$	3,567	$	-
Interest on TerreStar-2 purchase money credit facility Paid In-Kind	$	1,052	$	-
Stock dividend to Series B Preferred Shareholders	$	9,953	$	-
Increase in dividend liability not paid	$	732	$	1,066
Acquisition of Minority interest funded by issuance of common stock	$	1,573	$	33,041
Supplemental Cash Flows Information
Interest paid	$	-	$	7,034
Income taxes paid	$	17	$	5,686

Note 16.    Subsequent Events

On August 1, 2008, TerreStar announced a nationwide reciprocal roaming agreement with AT&T.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements in Management’s Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe”, “project”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “may”, “should”, “will”, “would”, “will be”, “will continue”, “will likely result”, and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

The interim financial statements filed on this Form 10-Q and the discussion contained herein should be read in conjunction with our 2007 Form 10-K/A, which includes audited consolidated financial statements for our three fiscal years ended December 31, 2007.

Business Overview

TerreStar Corporation (formerly Motient Corporation) was incorporated in 1988 under the laws of the State of Delaware. TerreStar Corporation is in the integrated satellite wireless communications business through its ownership of TerreStar Networks Inc., its principal operating entity, and TerreStar Global Ltd.

Our primary business is TerreStar Networks, a Reston, Virginia based future provider of advanced mobile satellite services for the North American market. Previously, we operated a two-way terrestrial wireless data communications service. On September 14, 2006, we sold most of the assets and liabilities relating to that business. Our historical financial statements present this terrestrial wireless business as a discontinued operation. Pursuant to such presentation, our current period continuing operations are reflected as a single operating unit.

As of June 30, 2008, our two wholly-owned subsidiaries are MVH Holdings Inc. and Motient Holdings Inc. Additionally, we own 100% of Port Merger Corp. and CCTV Wireless I, LLC (“CCTV”). We held approximately 88.4% and 86.5% interest in TerreStar Networks and TerreStar Global, respectively.

The Company carries the SkyTerra investment at cost. Since the acquisition of SkyTerra the share price has fluctuated. Management does not believe this to be an ‘other than temporary’ impairment but continues to review this investment at the end of every quarter. As of June 30, 2008, we held approximately 27.7% non-voting interest in SkyTerra, a mobile satellite communications company. As of June 30, 2008, SkyTerra owned approximately 11.1% of TerreStar Networks common stock.

Overview

TerreStar Networks Inc.

TerreStar Networks is our principal operating entity. In cooperation with its Canadian partner, 4371585 Communications and Company, Limited Partnership (“4371585 Communications”), formerly TMI Communications and Company, Limited Partnership, we plan to launch an innovative wireless communications system to provide mobile coverage throughout the U.S. and Canada using small, lightweight and inexpensive handsets similar to today’s mobile devices. This system build out will be based on an integrated satellite and ground-based technology which will provide service in most hard-to-reach areas and will provide a nationwide interoperable, survivable and critical communications infrastructure.

By offering mobile satellite service (“MSS”) using frequencies in the 2GHz band, which are part of what is often known as the “S-band”, in conjunction with ancillary terrestrial components (“ATC”), we can effectively deploy an integrated satellite and terrestrial wireless communications network. Our network would allow a user to utilize a mobile device that would communicate with a traditional land-based wireless network when in range of that network, but communicate with a satellite when not in range of such a land-based network. We intend to provide multiple communications applications, including voice, data and video services. Through TerreStar Networks, we are in the process of building our first satellite pursuant to a construction contract with Space Systems/Loral, Inc. (“Loral”). Once launched, our TerreStar-1 satellite, with an antenna approximately sixty feet across, will be able to communicate with standard wireless devices.

Our ability to offer these services depends on TerreStar Networks’ right to receive certain regulatory authorizations allowing it to provide MSS/ATC in the S-band. These authorizations are subject to various regulatory milestones relating to the construction, launch and operational date of the satellite system required to provide this service. We may be required to obtain additional approvals from national and local authorities in connection with the services that we wish to provide in the future. For example, in order to provide ATC in the United States and Canada we must file additional applications separately from our satellite authorizations. In addition, the manufacturers of our ATC user terminals and base stations will need to obtain FCC equipment certifications and similar certifications in Canada.

TerreStar Networks was initially created as a subsidiary of MSV established to, among other things, develop a satellite communications system using the S-band. On May 11, 2005, we acquired our ownership interest in TerreStar Networks when, in conjunction with a spin-off of TerreStar Networks to the owners of MSV, we purchased an additional $200 million of newly issued TerreStar Networks common stock. In conjunction with this transaction, TerreStar Networks also entered into an agreement with MSV’s wholly-owned subsidiary, ATC Technologies, LLC (“ATC Technologies”) pursuant to which TerreStar Networks has a perpetual, royalty-free license to utilize ATC Technologies’ patent portfolio in the S-band, including those patents related to ATC, which we anticipate will allow us to deploy a communications network that seamlessly integrates satellite and terrestrial communications, giving a user ubiquitous wireless coverage in the U.S. and Canada.

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Since May 11, 2005, we have consolidated TerreStar Networks financial results in our financial statements.

Through TerreStar Networks, we plan to develop, build and operate an all IP-based 4G integrated satellite and terrestrial communications network to provide mobile communication services throughout the United States and Canada. Our network will address the growing demand for wireless mobile services across the government, commercial, and consumer segments. We plan to market these services on a wholesale basis to government agencies and commercial enterprises.

We have the right to use two 10 MHz blocks of contiguous and unshared MSS S-band spectrum covering a population of over 330 million throughout the United States and Canada. Our entire spectrum is eligible for ATC status. ATC authorization provides the ability to integrate terrestrial mobile services with MSS. We anticipate using this ATC authorization to create a two-way wireless communications network providing coverage, services and applications to mobile and portable wireless users. Our planned network is designed to allow an end user to seamlessly communicate with a terrestrial wireless network or our satellite through a conventional mobile device, optimizing service quality, continuity and geographic coverage.  In June 2009, we plan to launch our first multi-spot beam geostationary satellite, TerreStar-1, which is designed so that the beams can be refocused dynamically. We are also working with vendors to develop a next-generation terrestrial network.

We believe our network’s satellite and terrestrial mobile capabilities will serve the needs of various users, such as U.S. and Canadian government and emergency first responder personnel who require reliable, uninterrupted and interoperable connectivity that can be provided by an integrated satellite and terrestrial network. In October 2006, we entered into a Cooperative Research and Development Agreement (“CRADA”) with the U.S. Defense Information System Agency (“DISA”) to jointly develop a North American emergency response communications network. We expect the CRADA to result in the development of products that will mutually benefit us and the U.S. government. We also believe that our planned network will appeal to a broad base of potential end users, customers and strategic partners, including those in the media, technology and communications sectors, logistics and distribution sectors and other sectors requiring uninterrupted wireless service.

Our Relationship with TerreStar Canada and 4371585 Communications

MSV formed TerreStar Networks in 2002 as a wholly-owned subsidiary and subsequently spun TerreStar Networks off to MSV’s owners, which included TMI Communications and Company, Limited Partnership (now known as “4371585 Communications”) and TerreStar Corporation or entities controlled by each. As part of the spin-off of TerreStar Networks, TMI Communications became contractually obligated to assign, subject to necessary regulatory approvals, its Industry Canada approval in principle to TerreStar Networks, or to an entity designated by TerreStar Networks that is eligible under Canadian law to hold the approval in principle. TerreStar Networks negotiated and committed, pursuant to a master agreement, to enter into the Transfer Agreements with TMI Communications (TMI Communications’ outstanding obligations under the Transfer Agreements were assumed by 4371585 Communications on December 20, 2007 as the transferee of TMI Communications’ interest in TerreStar Canada Holdings), TerreStar Canada, TerreStar Canada Holdings and certain other related parties (the “Transfer Agreements”) pursuant to which TerreStar will transfer TerreStar-1 to TerreStar Canada and TMI Communications effectuated the transfer of its Industry Canada approval in principle to TerreStar Canada and FCC authorization to TerreStar Networks. TMI Communications’ assignment of its Industry Canada approval to TerreStar Networks was authorized by Industry Canada on April 27, 2007. This authorization transferred the necessary approvals for TerreStar Canada to launch and operate a satellite at the 111.1 degrees west longitude orbital position in order to provide MSS in Canada. On October 10, 2007, Industry Canada clarified that the authorization as transferred included the authority to operate at 111.0 degrees west longitude. In order to comply with Canada’s telecommunications foreign ownership rules, title to TerreStar-1 is expected to be transferred to TerreStar Canada at the time that title would have otherwise transferred to TerreStar Networks under the terms of its satellite construction contract with Loral, as amended.

The Transfer Agreements also provide for, among other things, the license of certain intellectual property rights to TerreStar Canada, the grant to TerreStar Networks of an indefeasible right to use capacity on TerreStar-1, and the provision by TerreStar Networks to TerreStar Canada of various consulting and other services.

TerreStar Networks owns 20% of the voting equity of TerreStar Canada as well as 33 1/3% of the voting equity of TerreStar Canada Holdings, TerreStar Canada’s parent company. The remaining 80% of the voting equity of TerreStar Canada is held by TerreStar Canada Holdings and the remaining 66 2/3% of the voting equity of TerreStar Canada Holdings is held by 4371585 Communications. TerreStar Networks’ interests in TerreStar Canada and TerreStar Canada Holdings reflect the maximum foreign ownership levels currently permitted by applicable Canadian telecommunications foreign ownership rules. Effective January 1, 2008, TerreStar Corporation’s consolidated financial statements include TerreStar Canada, which is considered a variable interest entity under Financial Accounting Standards Boards Interpretation No. 46R, “Consolidation of Variable Interest Entities” (FIN46R).

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Upon the receipt of approval from Industry Canada to transfer the Industry Canada approval in principle from TMI Communications to TerreStar Canada on April 27, 2007, (1) TerreStar Networks entered into a Shareholders’ Agreement, or the TerreStar Canada Shareholders’ Agreement, a Rights and Services Agreement, or the Rights and Services Agreement, a Guarantee and Share Pledge Agreement, or the TMI Guarantee and certain other Transfer Agreements, (2) TerreStar Canada executed a Guarantee in favor of TerreStar Networks, referred to as the TerreStar Canada Guarantee, and (3) TerreStar Networks and certain other parties entered into certain other Transfer Agreements. Set out below is a description of certain of the Transfer Agreements.

Effective December 20, 2007, BCE completed a restructuring which resulted in TMI Communications transferring all of its shares of TerreStar Canada Holdings to 4371585 Communications. 4371585 Communications is a wholly-owned subsidiary of BCE.

In connection with the restructuring, TMI Communications entered into an Agreement to be Bound and Release dated December 20, 2007 pursuant to which TMI Communications agreed to transfer to 4371585 Communications its 66 2/3% interest in TerreStar Canada Holdings and 4371585 Communications agreed to become bound by the terms and conditions of the TerreStar Canada Shareholders’ Agreement. Further, pursuant to the Agreement to be Bound and Release, each of the parties to the TerreStar Canada Shareholders’ Agreement released and discharged TMI Communications from its obligations under the TerreStar Canada Shareholders’ Agreement.

TMI Communications also entered into a Joinder Agreement dated December 20, 2007 with 4371585 Communications, TerreStar Networks, TerreStar Canada and TerreStar Corporation, pursuant to which 4371585 Communications agreed to be bound by the terms and conditions of the Transfer Agreements to which TMI Communications was a party including, but not limited to, the TMI Guarantee, and the parties thereto agreed to release and discharge TMI Communications from its obligations under such Transfer Agreements.

TerreStar Global Ltd.

TerreStar Global was initially formed in 2005 as a wholly-owned subsidiary of TerreStar Networks. We have consolidated the financial results of TerreStar Global since its inception. In late 2006, TerreStar Networks spun-off TerreStar Global to its stockholders. As a result, TerreStar Corporation became the indirect majority holder of TerreStar Global. In connection with the spin-off, TerreStar Networks made capital contributions to TerreStar Global of $5 million. In late 2006, TerreStar Global also raised an additional $5 million through a rights offering from its shareholders, in proportion to their holdings, the majority of which came from TerreStar Corporation. As of June 30, 2008, TerreStar Corporation owned approximately 86.5% of the outstanding shares of TerreStar Global.

Through TerreStar Global, our goal is to build, own and operate a Pan-European integrated mobile satellite and terrestrial communications network to address public safety and disaster relief as well as provide broadband connectivity in rural regions to help narrow the digital divide. As Europe’s first next-generation integrated mobile satellite and terrestrial communication network, TerreStar Global plans to deliver universal access and tailored applications over a fully-optimized IP network.

On August 13, 2007, TerreStar Global issued a press release announcing that it intends to offer securities in a private offering. Neither the terms of the securities nor the amount of the proposed financing have been determined. As of June 30, 2008 this financing has not been completed. There can be no assurance that the financing will be completed. TerreStar Global intends to use the net proceeds from the offering to commence the construction of its satellite, to secure European 2GHz MSS S-band spectrum, and for general corporate purposes.

Current Year’s Developments

Satellite Construction

The TerreStar-1 satellite main body has successfully completed its Thermal Vacuum testing and High Power and Passive Intermodulation testing of the flight model S Band feed array for its 2 GHz mobile satellite service satellite.  TerreStar-1 is now in the final demonstration phase, followed by final assembly and performance testing.

 The TerreStar-1 S-Band reflector, which is in an advanced stage of completion, recently sustained damage during manufacturing at Harris Corporation, the reflector sub-contractor used by Loral.  The Harris Corporation has provided a commitment to complete and ship the reflector to Loral for integration on the TerreStar-1 satellite by March 15, 2009.  Based on this commitment, Loral informed the Company that TerreStar-1 will be ready to ship to the launch provider, Arianespace, in April 2009.  As a result, launch of TerreStar-1 has been postponed from fourth quarter 2008 to second quarter 2009.  Arianespace has confirmed a new launch slot of June 1, 2009 to June 30, 2009.  The Company has sought approval from the Federal Communications Commission (“FCC”) and Industry Canada to extend its remaining milestones.  There can be no assurance that any such requests will be granted.

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Charges Related to Cost Reduction Actions

In April 2008, the Company announced that TerreStar Networks would implement certain cost reduction measures which included expenses related to employee terminations.  Additionally, certain contracts and leases were cancelled as part of the Company’s ongoing efforts to operate within its available capital and focus on launching its satellite and developing its handset.

We accounted for these costs in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits―an Amendment of FASB Statements No. 5 and 43 “ and SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  Employee termination benefits costs were accounted for under SFAS No. 112.  The Company included employee severance, health insurance, and other related payroll benefit costs as employee termination benefit costs.  Contract termination costs are accounted for under SFAS No. 146 which includes costs to terminate the contract before the end of its term or costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity.

The details of these charges are presented in the following table.

	(in thousands)
Beginning Liability, January 1, 2008	$	2,332
Employee termination benefit costs		6,480
Contract termination costs		8,156
Reduction in deferred rent		(358	)
Lease exit costs		3,313
Total incurred expenses		17,591
Cash expenditures through June 30, 2008		(8,707	)
Ending Liability, June 30, 2008 (1)	$	11,216

(1)     This total liability is included in current and long term deferred rent of $1.3 million and $3.6 million, respectively, and accrued termination costs of approximately $6.3 million.

These costs are included in General and Administrative expenses for the three months ended June 30, 2008.

Acquisitions and Dispositions

On February 5, 2008, we entered into a spectrum agreement with EchoStar Corporation (“EchoStar”) which provided an option to acquire Port Corp., a wholly owned subsidiary of EchoStar which held 1.4 GHz spectrum licenses in exchange for the issuance of 30 million shares of our common stock. On June 9, 2008, we completed the acquisition with EchoStar to acquire Port. Corp. We established a subsidiary, Port Merger Corp., to be the surviving company.As a result of the acquisition, TerreStar owns 100% of Port Merger Corp. which holds the 1.4 GHz licenses we acquired from EchoStar.  Simultaneously with the acquisition of Port Corp., we issued 30 million shares of our common stock to EchoStar.

Additionally on February 5, 2008, we entered into an agreement with certain affiliates of Harbinger Capital Partners (“Harbinger”), which provided for the effective purchase of CCTV Wireless I, LLC. the holder of certain 1.4 Ghz licenses and related intellectual property for the issuance of 1.2 million shares of our Series E junior participating preferred stock, convertible into 30 million shares of our common stock.  On June 9, 2008, we consummated the “Harbinger Spectrum Agreement”.

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We accounted for the costs of the 1.4 GHz licenses acquired from EchoStar and Harbinger based on the fair value of our common stock as of the measurement date, June 9, 2008 in accordance with Emerging Issue Task Force No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”   Our Series E preferred stock does not currently trade on the public market; therefore, we measured the costs of the 1.4 GHZ licenses acquired from Harbinger based on the fair value of the underlying common shares. We allocated fees of $2.9 million in association with the acquisition of the spectrum.

TerreStar Notes

On February 14, 2007 TerreStar Networks issued $500 million aggregate principal amount of Senior Secured PIK Notes due 2014 (the “TerreStar Notes”) pursuant to an Indenture (the “Indenture”) among TerreStar Networks, as issuer, the guarantors from time to time party thereto (the “Guarantors”) and U.S. Bank National Associations, as trustee.

On February 5, 2008, TerreStar Corporation and TerreStar Networks entered into a Master Investment Agreement (the “EchoStar Investment Agreement”), with EchoStar. The EchoStar Investment Agreement provided for, among other things, purchase by EchoStar of $50 million of TerreStar Notes in accordance with the First Supplemental Indenture dated February 7, 2008.

The TerreStar Notes bear interest from the February 7, 2008 at a rate of 15% per annum. If certain milestones are not met, additional interest of up to 1.5% per annum will accrue on the TerreStar Notes. Until and including February 15, 2011, interest on the TerreStar Notes will be payable in additional TerreStar Notes on each February 15 and August 15, starting February 15, 2008. Thereafter, interest on the TerreStar Notes will be payable in cash on February 15 and August 15, starting August 15, 2011. The TerreStar Notes are scheduled to mature on February 15, 2014.

The TerreStar Notes would, together with the outstanding TerreStar Notes, have a first lien security interest on substantially all TerreStar Networks’ assets, subject to certain exceptions and permitted liens each as provided in the existing Indenture governing the outstanding TerreStar Notes.

The TerreStar Notes were issued at an Issue Price of 93%, resulting in a discount on debt of $3.5 million. The debt discount is being accreted using the effective interest method over the six year term of the notes. The Company accreted debt discount of $90,000 and $150,000 for the three and six months ended June 30, 2008, respectively.

On February 15, 2008, $40.5 million of interest was converted into additional TerreStar Notes in accordance with the Indenture agreement. As of June 30, 2008 and December 31, 2007, the carrying value of the TerreStar Notes was $660.2 million and $568.0 million including accrued interest.

The TerreStar Notes are carried at cost on the condensed consolidated balance sheets. The aggregate fair value of the TerreStar Notes as of June 30, 2008 and December 31, 2007 is approximately $600.8 million and $599.2 million, respectively.

TerreStar Exchangeable Notes

The EchoStar Investment Agreement also provided for the purchase by EchoStar of $50 million of TerreStar Networks’ newly issued 6.5% Senior Exchangeable PIK Notes due 2014, exchangeable for TerreStar Corporation common stock, at a conversion price of $5.57 per share (the “TerreStar Exchangeable Notes”). In addition, on February 5, 2008, TerreStar Corporation and TerreStar Networks entered into a Master Investment Agreement (the “Harbinger Investment Agreement”), with certain affiliates of Harbinger Capital Partners (“Harbinger”). The Harbinger Investment Agreement provided for, among other things, purchase by Harbinger of $50 million of TerreStar Exchangeable Notes. In connection with the foregoing transactions, certain of our existing investors entered into separate investment agreements (“Shareholder Investment Agreements”) to purchase in the aggregate $50 million of the TerreStar Exchangeable Notes.

On February 7, 2008, TerreStar Networks issued $150 million aggregate principal amount of Exchangeable PIK Notes due 2014 pursuant to an Indenture (the “Indenture”), among TerreStar Networks, TerreStar Corporation and certain subsidiaries, as issuer, the guarantors from time to time party thereto (the “Guarantors”) and U.S. Bank National Association, as trustee.

The TerreStar Exchangeable Notes bear interest from the February 7, 2008 at a rate of 6-1/2% per annum, payable quarterly. The per annum interest rate applicable to the TerreStar Exchangeable Notes will increase by 100 bps upon failure by TerreStar Corporation to file an information statement in connection with obtaining stockholder approval with the SEC by February 29, 2008 and will increase by an additional 100 bps upon failure to mail the information statement by April 20, 2008, in each case until the date of stockholder approval. This information statement was filed with the SEC on February 29, 2008. Until and including June 15, 2011, interest on the TerreStar Exchangeable Notes will be payable in additional TerreStar Exchangeable Notes quarterly, starting March 15, 2008. Thereafter, interest on the TerreStar Exchangeable Notes will be payable in cash quarterly, starting June 15, 2011. The TerreStar Exchangeable Notes are scheduled to mature on June 15, 2014.

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The TerreStar Exchangeable Notes would rank senior in right of payment to all existing and future subordinated indebtedness; and pari-passu with all other unsubordinated indebtedness. The TerreStar Exchangeable Notes are guaranteed by subsidiaries of TerreStar Networks.

On March 15 and June 15, 2008, $1.0 million and $2.5 million, respectively, of interest was converted into TerreStar Exchangeable Notes in accordance with the Indenture agreement. As of June 30, 2008, the carrying value of the TerreStar Exchangeable Notes was $154.0 million including accrued interest.

The Exchangeable Notes have a registration rights agreement whereby TerreStar Corporation agreed to use its reasonable efforts to cause a shelf registration statement to be filed within 30 days of stockholder approval (or 0.25% additional interest is payable in cash) and declared effective within 90 days (or 0.5% additional interest is payable in cash). The maximum amount of additional interest expense the Company would incur would be approximately $9.7 million through the maturity of the TerreStar Exchangeable Notes. The Company currently believes that it is not probable it will be required to remit any additional interest to the holders of the TerreStar Exchangeable Notes for failing to obtain an effective registration statement.

The Company analyzed the conversion feature of the TerreStar Exchangeable Notes using the guidance of EITF No. 00-19 – “Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” and determined that the TerreStar Exchangeable Notes are non-conventional. The conversion option was further analyzed, and we determined that all of the criteria of EITF 00-19 were met and consequently, the conversion option, relative to the corresponding notes, was accounted for as an embedded equity derivative.

The TerreStar Exchangeable Notes are carried at cost on the condensed consolidated balance sheets which approximates fair market value.

TerreStar-2 Purchase Money Credit Facility

On February 5, 2008, we entered into a $100 million TerreStar-2 Purchase Money Credit Facility among TerreStar Networks, as the borrower, the guarantors party thereto from time to time, U.S. Bank National Association, as collateral agent, and Harbinger and EchoStar, as lenders.

Amounts outstanding under the TerreStar-2 Purchase Money Credit Facility will bear interest at a rate of 14% per annum. The facility matures on February 5, 2013.

The TerreStar-2 Purchase Money Credit Facility contains several restrictive covenants customary for credit facilities of this type, including, but not limited to the following: limitations on incurrence of additional indebtedness, limitation on liens, limitation on asset sales of collateral and limitation on transactions with affiliates. The TerreStar-2 Purchase Money Credit Facility also contains certain events of default customary for credit facilities of this type (with customary grace periods, as applicable). If any events of default occur and are not cured within the applicable grace periods or waived, the outstanding loans may be accelerated. The financing will be advanced as required and used to fund the completion of the TerreStar-2 satellite.

Draw down of the credit facilities occurred on March 25 and April 24, 2008 for $13.4 million and $19.8 million, respectively, related to payments to Loral for TerreStar-2. We incur interest on the draw down balance at a rate of 14%; however, during the period May 1 through June 9, 2008, interest was charged at a rate of 15% as a result of our failing to file a registration statement.  As of June 30, 2008, the carrying value of the TerreStar-2 Purchase Money Credit Facility including accrued interested was $34.2 million.  The TerreStar-2 Purchase Money Credit Facility is carried at cost on the condensed consolidated balance sheets, which approximates fair market value.

Other Agreements and Contracts

On April 16, 2008, the Company announced the departure of Robert Brumley as the President and Chief Executive Officer, effective immediately. Mr. Brumley also resigned his position from the Board. The Board elected Jeffrey Epstein as President of TerreStar Corporation and TerreStar Networks Inc.      

On April 16, 2008, the Company entered into an Agreement and General Release (the “Brumley Separation Agreement”) with Robert Brumley to address the terms of his departure. The Company and Mr. Brumley are also parties to an Employment Agreement dated January 15, 2008 (the “Brumley Employment Agreement”) pursuant to which Mr. Brumley is entitled to certain severance benefits in the event his service to the Company was terminated without cause (as defined in the Brumley Employment Agreement). The Brumley Separation Agreement is consistent with the terms of the Brumley Employment Agreement. The Brumley Separation Agreement provides for a general release of all claims of the Company against Mr. Brumley and by Mr. Brumley against the Company and the payment of the Company’s obligations under the Brumley Employment Agreement. The Brumley Separation Agreement further provides that, as contemplated by the Brumley Employment Agreement, in exchange for entering into the Brumley Separation Agreement the Company will provide Mr. Brumley with aggregate cash payments equal to $1,972,223, which consists of (i) $18,805 for accrued but unpaid compensation through his termination date, (ii) $981,018, equal to Mr. Brumley’s current base salary through December 31, 2009, the remaining period of the term specified in the Brumley Employment Agreement, and (iii) $972,400, equal to the product of Mr. Brumley’s target annual bonus for 2008 multiplied by 2, in each case less applicable income and employment tax withholding. The cash payments under the Brumley Separation Agreement will be paid in accordance with the terms of the Brumley Separation Agreement over a period ending January 1, 2009. In addition, to the extent Mr. Brumley qualifies for, complies with and otherwise remains eligible for continuation of his health care issuance benefits under COBRA, the Company shall pay the COBRA premiums for a maximum of 18 months.

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In addition, unvested stock options to purchase 382,000 shares of the Company’s common stock that were issued to Mr. Brumley and remained outstanding as of his termination date, immediately vested in full and became exercisable. The Company agreed to extend the period in which Mr. Brumley may exercise any outstanding option grants by a period of one year beyond the original exercise period under the applicable stock option agreements.

On April 16, 2008, the Company also announced the departure of Michael Reedy, its Chief Operating Officer, and Doug Sobieski, its Chief Marketing Officer, effective immediately.

On April 16, 2008, the Company entered into an Agreement and General Release with Michael Reedy (the “Reedy Separation Agreement”) and with Doug Sobieski (the “Sobieski Separation Agreement”) to address the terms of their departure. Both Messrs. Reedy and Sobieski are also parties to Employment Agreements dated January 15, 2008, pursuant to which Messrs. Reedy and Sobieski were entitled to certain severance benefits in the event their service to the Company was terminated without Cause (as defined in their respective employment agreement). Both the Reedy Separation Agreement and the Sobieski Separation Agreement are consistent with the terms of their respective Employment Agreements and provide for a general release of all claims of the Company against Messrs. Reedy and Sobieski, respectively, and by Messrs. Reedy and Sobieski, respectively, against the Company, as well as the payment of the Company’s obligations under their respective employment agreements.

The Reedy Separation Agreement provides that in exchange for entering into the Reedy Separation Agreement, the Company will provide Mr. Reedy with aggregate cash payments equal to $594,367, which consists of (i) $11,967 for accrued but unpaid compensation through his termination date, (ii) $364,000 for a payment equal to Mr. Reedy’s current base salary through December 31, 2008, the remaining period of the term specified in the Mr. Reedy’s employment agreement, and (iii) $218,400 for a payment equal to Mr. Reedy’s target annual bonus for 2008, in each case less applicable income and employment tax withholding. The cash payments under the Reedy Separation Agreement will be paid over a 12 month period.

The Sobieski Separation Agreement provides that in exchange for entering into the Sobieski Separation Agreement, the Company will provide Mr. Sobieski with aggregate cash payments equal to $594,367, which consists of (i) $11,967 for accrued but unpaid compensation through his termination date, (ii) $364,000 equal to Mr. Sobieski’s current base salary through December 31, 2008, the remaining period of the term specified in Mr. Sobieski’s employment agreement, and (iii) $218,400 equal to Mr. Sobieski’s target annual bonus for 2008, in each case less applicable income and employment tax withholding. The cash payments under the Sobieski Separation Agreement will be paid over a 12 month period.

In addition, to the extent Messrs. Reedy and Sobieski qualify for, comply with and otherwise remain eligible for continuation of his health care insurance benefits under COBRA, the Company shall pay their respective COBRA premiums for a maximum of 18 months.

In addition, unvested options to purchase 200,133 shares of the Company’s common stock held by Mr. Reedy and unvested options to purchase 93,333 shares of the Company’s common stock held by Mr. Sobieski immediately vested in full and became exercisable. Messrs. Reedy and Sobieski shall have a period of one year following his termination date to exercise these stock options.

On April 22, 2008, TerreStar Networks implemented a reduction in force to reduce monthly operating expenses and conserve cash. A headcount reduction of 79 total management and non-management employees across the company was implemented (including the three executive resignations discussed above) out of the total work force of 178 employees. This reduction in force including both the April 16th and April 20th actions that removed approximately 45% of base salary expense going forward. This reduction was completed as of June 30, 2008.

On May 20, 2008, TerreStar Networks entered into a letter agreement with Jeffrey Epstein, its President (the “Epstein Letter Agreement”), amending the terms of the Employment Agreement dated January 15, 2008 by and between TerreStar Networks and Mr. Epstein (the “Epstein Employment Agreement”).  Pursuant to the Epstein Letter Agreement (i) the term of the Epstein Employment Agreement is extended from January 1, 2009 to May 20, 2009, (ii) Mr. Epstein’s title is changed from General Counsel and Secretary to President, General Counsel and Secretary of both TerreStar and TerreStar Networks, (iii) Mr. Epstein’s base salary is increased from $364,000 to $425,000 per annum and (iv) the percentage of Mr. Epstein’s base salary upon which his target annual cash bonus is based is increased from 50% to 75% of his base salary.  The annual cash bonus remains contingent upon Mr. Epstein and TerreStar and TerreStar Networks achieving specific deliverables or goals that will be agreed to by Mr. Epstein and the Board of Directors of TerreStar or the Compensation Committee of the Board.  The remaining terms of the Epstein Employment Agreement will remain unchanged.

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On May 20, 2008, TerreStar Networks entered into a letter agreement with Dennis Matheson, its Chief Technology Officer (the “Matheson Letter Agreement”), amending the terms of the Employment Agreement dated January 15, 2008 by and between TerreStar Networks and Mr. Matheson (the “Matheson Employment Agreement”).  Pursuant to the Matheson Letter Agreement the term of the Matheson Employment Agreement is extended from January 1, 2009 to May 20, 2009.  The remaining terms of the Matheson Employment Agreement will remain unchanged.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 was initially effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

However, in February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurements under Statement 13.” FSP 157-1 amends SFAS 157, “Fair Value Measurements”, to exclude FASB Statement No. 13, “Accounting for Leases” and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under Statement No. 13.

Additionally, in February, 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157”. FSP 157-2 provides a one-year deferral of the effective date of Statement 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in financial statements at fair value at least annually. For non-financial assets and non-financial liabilities subject to the deferral, Statement 157 will be effective in fiscal years beginning after November 15, 2008 and in interim periods within those fiscal years.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115.” SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. Furthermore, SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. At the effective date, an entity may elect the fair value option for eligible items that exist at that date. The effect of the re-measurement is reported as a cumulative-effect adjustment to opening retained earnings.  The Company believes that SFAS 159 will not have a material impact on our condensed consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51”. SFAS No. 160 requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The potential impact, if any, of the adoption of SFAS No. 160 on our condensed consolidated financial statements is currently not determined.

In December 2007, the FASB issued Statement No. 141 (revised), “Business Combinations” which replaces FASB Statement No. 141, and applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for certain business combinations. This Statement makes significant amendments to other Statements and other authoritative guidance, and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. This statement is not expected to have an impact on the Company’s condensed consolidated financial statements.

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This Statement establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities. SFAS No. 161 amends and expands the disclosure requirements of Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This Statement shall be effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. This statement is not expected to have an impact on the Company’s condensed consolidated financial statements.

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In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets,” to revise the factors that an entity should consider to develop renewal or extension assumptions used in determining the useful life of a recognized intangible asset. The FSP amends FASB Statement 142, Goodwill and Other Intangible Assets, to require an entity developing assumptions about renewal or extension to consider its own historical experience in renewing or extending similar arrangements. The purpose of the FSP is to improve consistency between the period of expected cash flows used to measure the fair value of a recognized intangible asset and the useful life of the intangible asset as determined under Statement 142.  FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and for interim periods within those fiscal years. Early adoption is not permitted. Entities should apply the FSP’s guidance on determining the useful life of an intangible asset prospectively to recognized intangible assets acquired after the FSP’s effective date. However, once effective, the FSP’s disclosure requirements apply prospectively to all recognized intangible assets, including those acquired before the FSP’s effective date.  FSP FAS 142-3 will be effective in fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and in interim periods within those fiscal years. The Company has not determined the impact of the adoption of this statement on its condensed consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” to clarify that all outstanding unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities. An entity must include participating securities in its calculation of basic and diluted earnings per share (EPS) pursuant to the two-class method, as described in FASB Statement 128, Earnings per Share.  FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and for interim periods within those fiscal years. Upon adoption, an entity is required to retrospectively adjust its prior-period EPS data, including any amounts related to interim periods, summaries of earnings, and selected financial data. Early application of the FSP is not permitted).  FSP EITF 03-6-1 will be effective in fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and in interim periods within those fiscal years. The Company has not determined the impact of the adoption of this statement on its condensed consolidated financial statements.

In June 2008, a consensus opinion was reached on EITF Issue 08-3, “Accounting by Lessees for Maintenance Deposits.” The objective of EITF Issue 08-3 is to clarify how a lessee should account for a nonrefundable maintenance deposit made under an agreement accounted for as a lease. EITF Issue 08-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and for interim periods within those fiscal years. Early application is not permitted. Entities should recognize the effect of the change for all arrangements that exist at the effective date as a change in accounting principle as of the beginning of the fiscal year the consensus is initially applied. The cumulative effect of the change in accounting principle should be recognized in the opening balance of retained earnings for that fiscal year. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008 (January 1, 2009 for a calendar-year entity) and in interim periods within those fiscal years. The Company has not determined the impact of the adoption of this statement on its condensed consolidated financial statements.

Results of Operations—Consolidated

Three and Six Months Ended June 30, 2008 and 2007

Operating Expenses:

	Three Months Ended June 30,
					Change			% Change
	2008		2007		2008 vs. 2007			2008 vs. 2007
	(in thousands)
General and administrative (1)	$	29,955	$	36,573	$	(6,618	)		-18.1	%
Research and development		21,706		8,583		13,123			152.9	%
Depreciation and amortization		5,619		4,643		976			21.0	%
Loss on impairment of intangibles		-		499		(499	)		-100.0	%
Total operating expenses	$	57,280	$	50,298	$	6,982			13.9	%

(1) For the three months ended June 30, 2008 and 2007, general and administrative expense include approximately $1.2 million and $17.7 million, respectively, of stock compensation expense related to employee stock options and director’s compensation expense.

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	Six Months Ended June 30,
					Change			% Change
	2008		2007		2008 vs. 2007			2008 vs. 2007
	(in thousands)
General and administrative (2)	$	61,553	$	54,879	$	6,674			12.2	%
Research and development		51,848		19,741		32,107			162.6	%
Depreciation and amortization		11,073		7,941		3,132			39.4	%
Loss on impairment of intangibles		-		6,699		(6,699	)		-100.0	%
Total operating expenses	$	124,474	$	89,260	$	35,214			39.5	%

(2) For the six months ended June 30, 2008 and 2007, general and administrative expense include approximately $1.2 million and $18.6 million, respectively, of stock compensation expense related to employee stock options and director’s compensation expense.

General and administrative: Our general and administrative expenses decreased by $6.6 million or 18.1% for the three months ended June 30, 2008 as compared to the same period in 2007.  The three month period change is attributed to a decrease of $20.2 million in stock based compensation expense, offset by an increase of $5.1 million in data center and collocation costs, an increase of $6.4 million in lab and network costs and an increase of $2.3 million in salaries and benefits.  Our general and administrative expenses increased by $6.7 million or 12.2% for the six months ended June 30, 2008 as compared to the same period in 2007.  The six month period change is attributed to a decrease of $0.4 million in accounting services, a decrease of $0.5 million in legal costs, a decrease of $0.5 million in computer expense, a decrease of $0.3 million in other expenses and a decrease of $0.5 million in travel expense, offset by an increase of $4.8 million in salaries and benefits and an increase of $4.3 million in network costs.

Research and development costs: Research and development costs increased by $13.1 million and $32.1 million or 152.9% and 162.6%, respectively, for the three and six months ended June 30, 2008 as compared to the same periods in 2007. The increases are primarily due to support the development of our satellite and terrestrial systems.

Depreciation and amortization: Depreciation and amortization increased by $1.0 million and $3.1 million or 21.0 % and 39.4%, respectively, for the three and six months ended June 30, 2008 as compared to the same periods in 2007.  During 2008, we engaged in several exchange transactions of our common stock for TerreStar Networks common stock with minority interest shareholders. The common stock exchanges resulted in an allocation of $7.7 million to intangible assets, including the tax effect. Additionally, depreciable property and equipment increased from $13.5 million as of June 30, 2007 to $21.4 million as of June 30, 2008.

Loss on impairment of intangibles: The loss on impairment of intangibles decreased by $0.5 million and $6.7 million, respectively, or 100.0% for the three and six months ended June 30, 2008 as compared to the same periods in 2007 because there were no intangible asset impairments taken in the 2008 period.

Other Expenses and Income:

	Three Months Ended June 30,
							Change			% Change
	2008			2007			2008 vs. 2007			2008 vs. 2007
	(in thousands)
Interest expense	$	(13,013	)	$	(12,408	)	$	(605	)		4.9	%
Interest income		1,146			2,225			(1,079	)		-48.5	%
Other income (expense)		263			(3	)		266			-8866.7	%
Equity in losses of MSV		-			(1,594	)		1,594			-100.0	%
Minority interests in losses of TerreStar Networks		2,169			4,744			(2,575	)		-54.3	%
Minority interests in losses of TerreStar Global		-			346			(346	)		-100.0	%

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	Six Months Ended June 30,
							Change			% Change
	2008			2007			2008 vs. 2007			2008 vs. 2007
	(in thousands)
Interest expense	$	(23,372	)	$	(31,563	)	$	8,191			-26.0	%
Interest income		2,278			7,615			(5,337	)		-70.1	%
Other income (expense)		354			(33	)		387			-1172.7	%
Equity in losses of MSV		-			(4,610	)		4,610			-100.0	%
Realized loss on investment in SkyTerra		(27,374	)		-			(27,374	)	NM
Minority interests in losses of TerreStar Networks		10,545			12,273			(1,728	)		-14.1	%
Minority interests in losses of TerreStar Global		-			714			(714	)		-100.0	%
Decrease in dividend liability		-			40,473			(40,473	)		-100.0	%
Other than temporary impairment-SkyTerra		-			(58,937	)		58,937			-100.0	%
NM:  Not Meaningful

Interest expense: Interest expense increased by $0.6 million or 4.9% for the three months ended June 30, 2008 as compared to the same period in 2007, attributed to the issuance of our TerreStar Notes and Exchangeable Notes during 2008.  Interest expense decreased by $8.2 million or 26.0% for the six months ended June 30, 2008 as compared to the same period in 2007.  The changed is attributed primarily to the write-off of approximately $6.0 million of financing fees related to the repayment of our Senior Secured Notes and the payment of $2.0 million related to call premiums during the first quarter of 2007.

Interest income: Interest income decreased by $1.1 million and $5.3 million, or 48.5% and 70.1%, respectively, for the three and six months ended June 30, 2008 as compared to the same periods in 2007. The decreases primarily relate to lower interest rates and the reduced balances held in our cash and cash equivalent accounts.

Equity in losses of MSV: Equity losses of MSV decreased by $1.6 million and $4.6 million, respectively, or 100.0% for the three and six months ended June 30, 2008 as compared to the same periods in 2007.   During 2007, we exchanged our total ownership interest in MSV for SkyTerra non-voting shares.  Since November 30, 2007, our ownership interest in MSV is zero.

Realized loss on investment in SkyTerra: The loss on investments increased by zero and $27.4 million for the three and six months ended June 30, 2008 as compared to the same periods in 2007. In February 2008, we sold 14.4 million SkyTerra shares, and as a result, we recognized a loss of $27.4 million.

Minority interest in losses of TerreStar Networks: For the three and six months ended June 30, 2008, we recorded approximately $2.2 million and $10.5 million net loss, respectively, attributable to minority interests in TerreStar Networks.

Decrease in dividend liability and other than temporary impairment: In 2007 we recognized losses of $40.5 million and $58.9 million. We did not record any losses for our SkyTerra investment in 2008.

Liquidity and Capital Resources

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our principal liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. Based on our current business plan, we believe that we have sufficient liquidity required to conduct operations into the second quarter of 2009. We will likely face a cash deficit beyond the second quarter of 2009 unless we obtain additional capital. We cannot guarantee that financing sources will be available on favorable terms or at all.

Our principal sources of liquidity consist of our existing cash on hand and our recently secured $100 million TerreStar-2 Purchase Money Credit Facility. As of June 30, 2008 including restricted cash, we had $224.1 million of cash on hand. Additionally, approximately $66.8 million remains available under our TerreStar-2 Purchase Money Credit Facility which provides funding for payments related to the construction of TerreStar-2.

Our short-term liquidity needs are driven by our satellite system construction contracts, the development of terrestrial infrastructure and networks, and the design and development of our Phase I handset. As of June 30, 2008, we had contractual obligations of $201.5 million due within one year, consisting of approximately $118.5 million related to our satellite system, $76.1 million related to our handset, chipset, and terrestrial network, and $6.9 million for operating leases. In addition, we expect to spend between $40 and $50 million to obtain satellite launch insurance prior to the launch of our TerreStar-1 satellite that we expect to occur in June 2009.

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In April 2008, TerreStar Networks implemented certain cost reduction measures including a headcount reduction of 79 management and non-management positions across the company. This reduction accounted for savings of approximately 45 percent in base salary expenses.          

We will need to secure significant funding in the future in order to satisfy our contractual obligations, complete the construction, deployment, and rollout of our planned network. We intend to fund our long-term liquidity needs related to operations and ongoing network deployment through the incurrence of additional indebtedness, equity financings or a combination of these sources of liquidity. While we believe that these sources will provide sufficient liquidity for us to meet our future liquidity and capital obligations, our ability to fund these needs will depend on our future performance, which will be subject in part to general economic, financial, regulatory and other factors that are beyond our control, including trends in our industry and technology developments. However, we may not be able to obtain this additional financing on terms acceptable to us or at all.  For a complete list of our risk factors see Part II, Item IA.

Summary of Cash Flows:

	Six Months Ended
	June 30,
	2008			2007
	(in thousands)
Net cash used in Operating Activities	$	(110,869	)	$	(54,731	)
Net cash provided by (used in) Investing Activities		17,497			(134,431	)
Cash flows from Financing Activities:
Net proceeds from issuance of debt and equity securities		195,732			506,686
Proceeds from TerreStar-2 purchase money credit facility		33,175			-
Repayments of the Senior Secured Notes					(200,000	)
Dividends paid on Series A and B Cumulative Convertible Preferred Stock		(2,363	)		(10,723	)
Payments for capital lease obligations		(28	)		-
Debt and Equity issuance costs and other charges		(947	)		(13,354	)
Net cash provided by Financing Activities		225,569			282,609
Net cash provided by continuing operations		132,197			93,447
Net cash used in discontinued operating activities		(5	)		(11	)
Net cash provided by (used in) discontinued investing activities		(31	)		2,661
Net cash provided by (used in) discontinued operations		(36	)		2,650
Net decrease in cash and cash equivalents		132,161			96,097
Cash and Cash Equivalents, beginning of period		89,134			171,665
Cash and Cash Equivalents, end of period	$	221,295		$	267,762

Operating Activities

Net cash used in operating activities increased by $56.1 million as compared to the same period in 2007. The change in operating activities is attributed to an increase of $3.6 million in severance costs for terminated employees and executives, $4.9 million for contract termination costs, and an increase of approximately $32.1 million related to research and development costs.  The increased expenses are offset partially by decreases in general and administrative expenses of $3.1 million, interest expense of $1.7 million, and other expenses of $6.5 million.

The net change in assets and liabilities for the six months ended June 30, 2008 of $20.1 million was primarily due to an increase of $9.2 million in accrued restructuring costs, an increase of $22 million in accrued interest, and an increase in other current assets of $4.7 million, offset by a decrease of $13.6 million in accounts payable and accrued expenses.

Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2008 was $17.5 million as compared to net cash used by investing activities of $134.4 million for the same period in 2007. The increase of $151.9 million in net cash used for investing activities was primarily attributable to the proceeds of $76.4 million from the sale of SkyTerra shares, a reduction in capital expenditures of $114.7 million, and a reduction of $6.5 million in payments to Loral for satellite construction.

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Financing Activities

Net cash provided by financing activities was $225.6 million for the six months ended June 30, 2008 as compared to $282.6 million for the same period in 2007. During the first quarter of 2008, we raised net proceeds of approximately $200 million from the Echostar and Harbinger Investment Agreements as compared to net proceeds raised of $500 million during the first quarter of 2007 from the issuance of the TerreStar Notes offset by repayment of Senior Secured Notes of $200 million, dividends paid on Series and A and B preferred stock of $10.7 million and debt issuance costs of $13.3 million.

Debt Obligations

Refer to the discussion in “Current Year's Developments” section regarding the TerreStar Notes, the TerreStar Exchangeable Notes, and the TerreStar-2 Purchase Money Credit Facility.

Contractual Cash Obligations

As of June 30, 2008, TerreStar has preferred stock obligations for its Series A and B preferred stock. If not converted, the entire Series A and B preferred stock amount of $408 million will be due on April 15, 2010. Dividend payments on the Series A and B are due bi-annually in April and October, payable in cash (at a 5.25% annual interest rate) or in common stock (at a 6.25% annual interest rate) through April 15, 2010. Additionally, the Company has the following contractual commitments and debt obligations as of June 30, 2008:

	TOTAL		< 1 yr		1-3 yrs		3-5 yrs		5+ yrs
	(in thousands)
TerreStar Satellites (1,2)	$	255,281	$	118,518	$	75,639	$	6,218	$	54,906
Leases		17,409		6,887		7,797		2,418		307
Network Equipment and Services		442,974		76,129		366,845		0		0
Debt Obligations (3)		1,699,343		0		6,354		328,181		1,364,808
Total	$	2,415,007	$	201,534	$	456,635	$	336,817	$	1,420,021

(1) Includes approximately $6.3 million remaining of construction payments and approximately $55.1 million of orbital incentive payments for TerreStar I if the satellite operates properly over its expected life. Additionally, includes approximately $42.5 million remaining for construction of TerreStar-2 and approximately $47.8 million of orbital incentives.

(2) We expect to pay $40—$50 million for satellite launch insurance, which is not under contract and not included in the table.

(3) Debt Obligations are composed of our $550 million TerreStar Notes due 2014, our $150 million TerreStar Exchangeable Notes due 2014, and our current borrowing under our TerreStar-2 Purchase Money Credit Facility due 2014 for our second satellite, including future interest and principle payments.

Other

On August 16, 2005, Highland Equity Focus Fund, L.P., Highland Crusader Offshore Partners, L.P., Highland Capital Management Services, Inc., and Highland Capital Management, L.P., affiliates of James Dondero (the “Dondero Affiliates”), a former director of the Company, filed a lawsuit in Dallas County, Texas, (the “Rescission Litigation”), against us challenging the validity of the Series A preferred stock on the basis of the confusion regarding the voting rights of our Series A preferred stock and seeking rescission of their purchase of shares of Series A preferred stock. These entities acquired 90,000 shares of Series A preferred stock for a purchase price of $90.0 million in the April 2005 private placement. Later, the Dondero Affiliates amended their suit to assert other grounds for rescission and damages. On November 30, 2007, the court granted TerreStar Corporation’s motion for summary judgment and dismissed the suit. The Dondero Affiliates have appealed the dismissal. We intend to vigorously contest the Dondero Affiliates’ efforts to reinstate the rescission litigation through the appeal process.

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On February 1, 2008, the same four of Mr. Dondero’s Highland affiliates who filed the Rescission Litigation filed suit against us in the Commercial Division of the Supreme Court of the State of New York. In this most recent suit, the Dondero Affiliates contend that the September 2005 exchange offer by virtue of which TerreStar Corporation exchanged our outstanding Series A preferred stock for a new class of Series B preferred stock caused the occurrence of a Senior Security Trigger Date, supposedly requiring us to issue a Senior Security Notice entitling the Dondero Affiliates to redeem their Series A preferred stock. We intend to vigorously defend this action.

On June 25, 2008, Sprint Nextel Corporation (“Sprint”) filed a lawsuit in the United States District Court for the Eastern District of Virginia naming TerreStar Networks Inc. as a defendant.  New ICO Satellite Services, G.P. was also named as a defendant (together, with TerreStar Networks Inc., the “Defendants”).  In this lawsuit, Sprint contends that Defendants owe them reimbursement for certain spectrum relocation costs Sprint has incurred or will incur in connection with relocating incumbent licensees from certain frequencies in the 2 GHz spectrum band.  Sprint seeks, among other things, enforcement of certain Federal Communications Commission orders and reimbursement of not less than $100 million from each Defendant.  While we believe the suit is without merit, an adverse ruling could negatively impact our liquidity and financial condition.

Off-Balance Sheet Financing

As of June 30, 2008, we did not have any material off-balance sheet arrangements as defined in Item 303(a) (4) (ii) under Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of June 30, 2008, we do not have exposure to market risk associated with activities in derivative financial instruments or derivative commodity instruments. Currently, we invest our cash in short-term commercial paper, investment-grade corporate and government obligations and money market funds.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Management, in assessing its Disclosure Controls and Procedures for 2007, identified a lack of sufficient control in the area of financial reporting. This control weakness allowed for material errors to our financial reports, as previously filed for annual and interim periods to go undetected. In considering our assessment of 2007 Disclosure Controls and Procedures management also re-assessed those Disclosure Controls and Procedures in place during fiscal year 2006 and identified a material weakness related to financial reporting. This material weakness was not previously identified nor reported in our 2006 Item 9A disclosure and therefore that disclosure as originally contained in our 2006 Form 10-K should no longer be relied upon. Please refer to the discussion below for more details regarding this material weakness and management’s remediation plans.

As of December 31, 2007, management identified a lack of sufficient oversight and review as well as a lack of the appropriate number of resources to ensure the complete and proper application of generally accepted accounting principles as it relates to non-routine and complex accounting transactions. Specifically, this material weakness resulted in a number of errors in the preparation of both the interim and annual consolidated financial statements and related disclosures, relating to non routine transactions involving the accounting for both the MSV and SkyTerra investments and certain stock option exchanges. For additional information regarding these errors please refer to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2007.

This material weakness, if not remediated, has the potential to cause material misstatements in the future, with regard to non-routine and complex accounting transactions.

Based on the COSO criteria in Internal Control—Integrated Framework and because of these material weaknesses, we have concluded that as of December 31, 2007, internal control over financial reporting was not effective. The remediation plans previously disclosed in the 2007 Form 10-K/A and summarized below, have not been fully implemented as of June 30, 2008. Accordingly, the internal control over financial reporting continues to be ineffective as of June 30, 2008.

Remediation Efforts to Address Material Weakness

We are in the process of developing and implementing remediation plans to address our material weakness. Management has identified specific remedial actions to address the material weaknesses described above:

• Improve the effectiveness of the accounting group by hiring additional technical accounting personnel to address our complex accounting and financial reporting requirements, and by continuing to augment our existing resources with consultants that have the technical accounting capabilities to assist in the analysis and recordation of non-routine and complex accounting transactions.

• Improve period-end closing procedures by establishing a monthly hard close process by implementing a process that ensures the timely review and approval of non-routine and complex accounting estimates.

During the latter half of 2007, management augmented the resources in the finance department by utilizing external resources in accounting, financial reporting and technical accounting areas and implemented additional closing procedures during and for the year ended December 31, 2007 and the three and six months ended June 30, 2008. As a result, management believes that there are no material inaccuracies or omissions of material fact and, to the best of its knowledge, believes that the condensed consolidated financial statements for the year ended December 31, 2007 and the three and six months ended June 30, 2008 present fairly in all material respects the financial condition and results of operations for TerreStar Corporation in conformity with GAAP.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings, please refer to Note 13 to the Condensed Consolidated Financial Statements contained in this quarterly report.

Item 1A. Risk Factors

Any of the following risks, as well as other risks and uncertainties, could harm our business and financial results and cause the value of our securities to decline, which in turn could cause investors to lose all or part of their investment in us. The risks below are not the only ones we face. Additional risks not currently known to us, or that we currently deem immaterial also may impair our business.

Risks Related to Our Significant Indebtedness

We Have A Significant Amount Of Debt And May Incur Significant Additional Debt, Including Secured Debt, In The Future, Which Could Adversely Affect Our Financial Health And Our Ability To React To Changes In Our Business.

We and our subsidiaries have a significant amount of debt and may (subject to applicable restrictions in our debt instruments) incur additional debt in the future.  Because of our significant indebtedness and adverse changes in the capital markets, our ability to raise additional capital at reasonable rates, or at all, is uncertain.  If we need to raise additional capital through the issuance of equity or find it necessary to engage in a recapitalization or other similar transaction, our shareholders could suffer significant dilution, including potential loss of the entire value of their investment, and in the case of a recapitalization or other similar transaction, our noteholders might not receive principal and interest payments to which they are contractually entitled.

Our significant amount of debt could have other important consequences.  For example, the debt will or could:

· require us to dedicate a significant portion of our cash flow from operating activities to make payments on our debt, reducing our funds available for working capital, capital expenditures, and other general corporate expenses;

· limit our flexibility in planning for, or reacting to, changes in our business, the integrated satellite wireless communications industries, and the economy at large;

· place us at a disadvantage compared to our competitors that have proportionately less debt;

· expose us to increased interest expense to the extent we refinance existing debt with higher cost debt;

· adversely affect our relationship with customers and suppliers;

· limit our ability to borrow additional funds in the future, due to applicable financial and restrictive covenants in our debt;

· make it more difficult for us to satisfy our obligations to the holders of our notes and to satisfy our obligations to the lenders under our credit facilities; and

· limit future increases in the value, or cause a decline in the value of our equity, which could limit our ability to raise additional capital by issuing equity.

A default by us under one of our debt obligations could result in the acceleration of those obligations, which in turn could trigger cross defaults under other agreements governing our long-term indebtedness.  Any default under our TerreStar-2 Purchase Money Credit Facility, or the indentures governing the TerreStar Notes and the TerreStar Exchangeable Notes could adversely affect our growth, our financial condition, our results of operations, the value of our equity and our ability to make payments on our debt, and could force us to seek the protection of the bankruptcy laws.  We may incur significant additional debt in the future.  If current debt amounts increase, the related risks that we now face will intensify.

The Agreements And Instruments Governing Our Debt Contain Restrictions And Limitations That Could Significantly Affect Our Ability To Operate Our Business, As Well As Significantly Affect Our Liquidity, And Adversely Affect You, As A Shareholder.

Our TerreStar-2 Purchase Money Credit Facility and the indentures governing the TerreStar Notes and the TerreStar Exchangeable Notes contain a number of significant covenants that could adversely affect our ability to operate our business, as well as significantly affect our liquidity, and therefore could adversely affect our results of operations.  These covenants restrict, among other things, our ability to:

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· incur additional debt;

· repurchase or redeem equity interests and debt;

· issue equity;

· make certain investments or acquisitions;

· pay dividends or make other distributions;

· dispose of assets or merge;

· enter into related party transactions; and

· grant liens and pledge assets.

The breach of any covenants or obligations, not otherwise waived or amended, could result in a default under the applicable debt obligations and could trigger acceleration of those obligations, which in turn could trigger cross defaults under other agreements governing our long-term indebtedness.   Any default could adversely affect our growth, our financial condition, our results of operations and our ability to make payments, and could force us to seek the protection of the bankruptcy laws.

Our Debt Is Subject To Change Of Control Provisions. We May Not Have The Ability To Raise The Funds Necessary To Fulfill Our Obligations Under Our Indebtedness Following A Change Of Control, Which Would Place Us In Default.

We may not have the ability to raise the funds necessary to fulfill our obligations under our TerreStar Exchangeable Notes and TerreStar Notes following a change of control. Under the indentures, upon the occurrence of specified change of control events, TerreStar Networks is required to offer to repurchase all of the outstanding TerreStar Exchangeable Notes or TerreStar Notes. However, we and TerreStar Networks may not have sufficient funds at the time of the change of control event to make the required repurchase of notes. Our failure to make or complete a change of control offer would place TerreStar Networks in default and would have a material adverse impact on our financial condition.

Risks Related to our Business

TerreStar Networks Is A Development Stage Company With No Operating Revenues.

TerreStar Networks is a development stage company and has never generated any revenues from operations. We sold our two-way terrestrial wireless and data communications service in September 2006.  We do not expect to generate significant revenues prior to 2010, if at all. If we obtain sufficient financing and successfully develop and construct a network, our ability to transition to an operating company will depend on, among other things: successful execution of our business plan; market acceptance of the services we intend to offer; and attracting, training and motivating highly skilled satellite and network operations personnel, a sales force and customer service personnel. We may not be able to successfully complete the transition to an operating company or generate sufficient cash from operations to cover our expenses. If we do not become profitable, we will have difficulty obtaining funds to continue our operations.

We Are Not Cash Flow Positive, And We Will Need Additional Liquidity To Fund Our Operations And Fully Fund All Of Our Necessary Capital Expenditures.

We do not generate sufficient cash from operations to cover our operating expenses, and it is unclear when, or if, we will be able to do so. Even if we begin to generate cash in excess of our operating expenses, we expect to require additional funds to meet capital expenditures and other non-operating cash expenses, including but not limited to capital expenditures required to complete and launch our satellite currently under construction.  Based on our current business plan, we believe that we have sufficient liquidity required to conduct operations into the third quarter of 2009. We will likely face a cash deficit beyond this unless we obtain additional capital.

There can be no assurance that the foregoing sources of liquidity will provide sufficient funds in the amounts or at the time that funding is required.  In addition, if our ability to realize such liquidity from any such source is delayed or the proceeds from any such source are insufficient to meet our expenditure requirements as they arise, we will seek additional equity or debt financing, although such additional financing may not be available on reasonable terms, if at all.

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We Will Continue To Incur Significant Losses.

We will incur losses in 2008 and do not expect to generate any revenues until at least 2010, if at all.  If we do not become profitable, we could have difficulty obtaining funds to continue our operations. We have incurred net losses every year since we began operations. These losses are due to the costs of developing and building our network and the costs of developing, selling and providing products and services.

TerreStar Networks will Require Significant Funding to Finance the Execution of its Business Strategy, Including Funds for the Construction and Launch of Satellites and for the Terrestrial Network Buildout.

As of June 30, 2008, we had aggregate contractual payment obligations of approximately $2.4 billion, consisting of $255 million for satellite expenditures, $17 million for lease related expenditures and $443 million for terrestrial network related expenditures, as well as $1.7 billion for debt obligations including interest.

We expect to make substantial capital expenditures for the development of our handsets and chipsets, and for building our terrestrial network.  We will also require funds for selling, general and administrative expenses, working capital, interest on borrowings, financing costs and operating expenses until some time after the commencement of commercial operations. In addition, the final payments for our satellite launch and insurance will be due prior to launch of our TerreStar-1 satellite.

The cost of building and deploying our integrated satellite and terrestrial network and developing the handsets and chipsets could exceed our estimates. For example, the costs for the build out of the terrestrial component of our network could be greater, perhaps significantly, than our current estimates due to changing costs of supplies, market conditions and other factors over which we have no control. The rate at which we build out the terrestrial component of our network will also depend on customer requirements.

If we require more funding than we currently anticipate, or we cannot meet our financing needs, our ability to operate our business, our financial condition and our results of operation could be adversely affected.

We May Not Obtain The Financing Needed To Develop And Construct Our Network And Meet Our Funding Obligations.

We expect to require substantial funds to finance the execution of our business strategy. In addition, subject to certain conditions and so long as the provision of such funding does not conflict with applicable Canadian regulatory requirements, TerreStar Networks will be obligated to fund any operating cash shortfalls of TerreStar Canada upon the request of TerreStar Canada. If we are required to provide such funds to TerreStar Canada, we will need to reallocate existing, or raise additional, funds. We plan to seek to raise funds in the future through various means, including by selling debt and equity securities, by obtaining loans or other credit lines, through vendor financing or through strategic relationships. The type, timing and terms of financing we may select will depend upon our cash needs, the availability of alternatives, our success in securing significant customers for our network, the prevailing conditions in the financial markets and the restrictions contained in any of our outstanding debt and any future indebtedness. In addition, our ability to attract funding is based in part on the value ascribed to our spectrum. Valuations of spectrum in other frequency bands have historically been volatile, and we cannot predict at what amount a future source of funding may be willing to value our spectrum and other assets. The FCC and/or Industry Canada could allocate additional spectrum, through auction, lease or other means, that could be used to compete with us, or that could decrease the perceived market value of our wireless capacity. The FCC and Industry Canada may take other action to promote the availability or more flexible use of existing satellite or terrestrial spectrum allocations. The acquisition by our competitors of rights to use additional spectrum could have a material adverse effect on the value of our spectrum authorizations, which, in turn, could adversely affect our ability to obtain necessary financing. We may not be able to obtain financing when needed, on favorable terms, or at all. If we fail to obtain any necessary financing on a timely basis, then any of the following could occur:

• construction and launch of our satellites, or other events necessary to conduct our business could be materially delayed, or the associated costs could materially increase;

• we could default on our commitments under our satellite construction agreements or our launch agreement, or to creditors or third parties, leading to the termination of such agreements; and

• we may not be able to deploy our network as planned, and may have to discontinue operations or seek a purchaser for our business or assets.

Any of these factors could cause us to miss required performance milestones under our FCC authorization or Industry Canada approval in principle and could result in our loss of those authorizations. See “—Regulatory Risks.”

If we are successful in raising additional financing, we anticipate that a significant portion of future financing will consist of debt securities. As a result, we will likely become even more highly leveraged. If additional funds are raised through the incurrence of indebtedness, we may incur significant interest charges, and we will become subject to additional restrictions and covenants that could further limit our ability to respond to market conditions, provide for unanticipated capital investments or take advantage of business opportunities.

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Funding Requirements For TerreStar Networks May Jeopardize Our Investment In, And Control Over, TerreStar Networks.

The implementation of TerreStar Networks’ business plan, including the construction and launch of a satellite system and the necessary terrestrial components of an ancillary terrestrial component, or ATC, based communications system, will require significant additional funding. If we do not provide such funding to TerreStar Networks, then TerreStar Networks may be forced to seek funding from third parties that may dilute our equity investment in TerreStar Networks. Such dilution, if sufficiently severe, may limit our control over TerreStar Networks.

Our Business Is Subject To A High Degree Of Government Regulation.

The communications industry is highly regulated by governmental entities and regulatory authorities, including the FCC and Industry Canada. Our business is completely dependent upon obtaining and maintaining regulatory authorizations to operate our planned integrated satellite and terrestrial network. For example, we could fail to obtain approval from the FCC of our September 2007 application for ATC authority in the United States. Failure to obtain or maintain necessary governmental approvals would impair our ability to implement our planned network and would have a material adverse effect on our financial condition. Additional important risks relating to our regulatory framework are listed below under “—Regulatory Risks.”

Our Network Will Depend On The Development And Integration Of Complex And Untested Technologies.

We must integrate a number of sophisticated satellite, terrestrial and wireless technologies that typically have not been integrated in the past, and some of which are not yet fully developed, before we can offer our planned network.  The technologies we must integrate include, but are not limited to:

• satellites that have significantly larger antennas and are substantially more powerful than any satellites currently in use;

• use of dynamic spot-beam technology to allocate signal strength among different geographic areas, including the ability to concentrate signal strength in specific geographic locations;

 • development of chipsets for mobile handsets and other devices that are capable of receiving satellite and ground-based signals;

• development of integrated satellite and terrestrial-capable mobile handsets with attractive performance, functionality and price; and

• development of ground infrastructure hardware and software capable of supporting our communication system and the demands of our customers.

As a result, unanticipated technological problems or delays relating to the development and use of our technology may prove difficult, time consuming, expensive or impossible to solve. Any of these may result in delays in implementing, or make inoperable, our infrastructure and would adversely affect our financial condition.

Our Success Will Depend On Market Acceptance Of New And Unproven Technology, Which May Never Occur.

Other than satellite radio, we are not aware of any integrated satellite and terrestrial wireless network in commercial operation. As a result, our proposed market is new and untested and we cannot predict with certainty the potential demand for the services we plan to offer or the extent to which we will meet that demand. There may not be sufficient demand in general for the services we plan to offer, or in particular geographic markets, for particular types of services or during particular time periods, to enable us to generate positive cash flow, and our cost structure may not permit us to meet our obligations. Among other things, end user acceptance of our network and services will depend upon:

• our ability to provide integrated wireless services that meet market demand;

• our ability to provide attractive service offerings to our anticipated customers;

• the cost and availability of handsets and other user equipment that are similar in size, weight and cost to existing standard wireless devices, but incorporate the new technology required to operate on our planned network;

• federal, state, provincial, local and international regulations affecting the operation of satellite networks and wireless systems;

• the effectiveness of our competitors in developing and offering new or alternative technologies;

• the price of our planned service offerings; and

• general and local economic conditions.

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We cannot successfully implement our business plan if we cannot gain market acceptance for our planned products and services. A lack of demand could adversely affect our ability to sell our services, enter into strategic relationships or develop and successfully market new services. In addition, demand patterns shift over time, and user preferences may not favor the services we plan to offer. Any material miscalculation with respect to our service offerings or operating strategy will adversely affect our ability to operate our business, our financial condition and our results of operations.

We May Be Unable To Achieve Our Business And Financial Objectives Because The Communications Industry Is Highly Competitive.

The global communications industry is highly competitive and characterized by rapid change. In seeking market acceptance for our network, we will encounter competition in many forms, including:

• satellite services from other operators;

• conventional and emerging terrestrial wireless services;

• traditional wireline voice and high-speed data offerings;

• terrestrial land-mobile and fixed services; and

• next-generation integrated services that may be offered in the future by other networks operating in the S-band or the L-band.

Participants in the communications industry include major domestic and international companies, many of which have financial, technical, marketing, sales, distribution and other resources substantially greater than we have and which provide a wider range of services than we will provide. There currently are several other satellite companies that provide or are planning to provide services similar to ours. In addition to facing competition from our satellite-based competitors, we are subject to competition from terrestrial voice and data service providers in several markets and with respect to certain services, particularly from those that are expanding into rural and remote areas and providing the same general types of services and products that we intend to provide. Land-based telecommunications service capabilities have been expanded into underserved areas more quickly than we anticipated, which could result in less demand for our services than we anticipated in formulating our business plan. These ground-based communications companies may have certain advantages over us because of the general perception among consumers that wireless voice communication products and services are cheaper and more convenient than satellite-based ones. Furthermore, we may also face competition from new competitors or emerging technologies with which we may be unable to compete effectively.

With many companies targeting many of the same clients, if any of our competitors succeeds in offering services that compete with ours before we do, or develops a network that is, or that is perceived to be, superior to ours, then we may not be able to execute our business plan, which would materially adversely affect our business, financial condition and results of operations.

Our system may not function as intended, and we will not know whether it will function as intended until we have deployed a substantial portion of our network. Hardware or software errors in space or on the ground may limit or delay our service, and therefore reduce anticipated revenues and the viability of our services. There could also be delays in the planned development, integration and operation of the components of our network. The strength of the signal from our satellite could cause ground-based interference or other unintended effects. If the technological integration of our network is not completed in a timely and effective manner, our business will be harmed.

Our Satellites Are Subject To Construction, Delivery And Launch Delays.

We depend on third parties, such as Loral and Arianespace, to build and launch our satellites. The assembly of such satellites is technically complex and subject to construction and delivery delays that could result from a variety of causes, including the failure of third-party vendors to perform as anticipated and changes in the technical specifications of the satellites. Delivery of our satellites may not be timely, which could adversely affect our ability to meet our FCC and Industry Canada-required construction and launch milestones and the planned introduction of our network.

In 2005, Loral commenced construction of TerreStar-1, which was originally scheduled to be launched in November 2007. In May 2007, we were notified that Loral revised its expected delivery date of TerreStar-1 from November 2007 to August 2008, causing us to delay our expected launch of TerreStar-1 to September 2008. In February 2008, we were notified that Loral had further revised its expected delivery date of TerreStar-1, pending final testing in April 2008, from August 2008 to November 2008.  In June 2008, we were notified that Loral had further revised its expected delivery date of TerreStar-1 from November 2008 to April 2009.  Arianespace has confirmed a new launch slot of June 1, 2009 to June 30, 2009.  Our remaining FCC milestones require that we launch TerreStar-I in September 2008 and certify our network operational in November 2008 and our remaining Industry Canada milestone requires that we successfully place the satellite into its assigned orbital position by November 2008.  We have sought new milestone dates from the FCC of June 2009 to launch TerreStar-1and August 2009 for certifying our network operational.  We have also sought a new milestone date from Industry Canada of August 2009 to place TerreStar-I into its assigned orbital position.  There can be no assurance that any such requests will be granted.

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During any period of delay in construction, delivery or launch of our satellite, we would continue to have significant cash requirements that could materially increase the aggregate amount of funding we need. We may not be able to obtain additional financing on favorable terms, or at all, during periods of delay. Delays could also make it more difficult for us to secure customers and could force us to reschedule our anticipated satellite launch dates.

In November 2006, we signed a contract with Arianespace which entitles us to a launch for TerreStar-I that will meet our FCC and Industry Canada milestones and also mitigates possible impacts from delays.  Arianespace has confirmed a new launch slot of June 1, 2009 to June 30, 2009.

Our Satellites Could Be Damaged Or Destroyed During Launch Or Deployment Or Could Fail To Achieve Their Designated Orbital Location.

Our satellite launches and deployments may not be successful. A percentage of satellites never become operational because of launch failures, satellite destruction or damage during launch or improper orbital placement, among other factors. Launch failure rates vary depending on the chosen launch vehicle and contractor. Even launch vehicles with good track records experience some launch failures, and these vehicles may experience launch failures when launching our satellites despite their track records. Even if successfully launched into orbit, a satellite may use more fuel than planned to enter into its orbital location, which could reduce the overall useful life of the satellite, or may never enter or remain in its designated orbital location, which could render it inoperable. Deployment and use of the antennas on our satellites are subject to additional risks because our antennas will be larger than those currently on most commercial satellites. If one or more of the launches or deployments fail, we will suffer significant delays that will damage our business, cause us to incur significant additional costs and adversely affect our ability to generate revenues.

Satellites Have A Limited Useful Life And Premature Failure Of Our Satellites Could Damage Our Business.

During and after their launch, all satellites are subject to equipment failures, malfunctions (which are commonly referred to as anomalies) and other problems. A number of factors could decrease the expected useful lives or the utility of our satellites, including:

• defects in construction;

• radiation induced failure of satellite parts;

• faster than expected degradation of solar panels;

• malfunction of component parts;

• loss of fuel on board;

• higher than anticipated use of fuel to maintain the satellite’s orbital location;

• higher than anticipated use of fuel during orbit raising following launch;

• random failure of satellite components not protected by back-up units;

• inability to control the positioning of the satellite;

• electromagnetic storms, solar and other astronomical events, including solar radiation and flares; and

• collisions with other objects in space, including meteors and decommissioned spacecrafts in uncontrolled orbits that pass through the geostationary belt at various points.

We may experience failures, anomalies and other problems, whether of the types described above or arising from the failure of other systems or components, despite extensive precautionary measures taken to determine and eliminate the cause of anomalies in our satellites and provide redundancy for many critical components in our satellites. The interruption of our business caused by the loss or premature degradation of a satellite would continue until we either extended service to end users on another satellite or built and launched additional satellites. If any of our satellites were to malfunction or to fail prematurely, it could affect the quality of our service, substantially delay the commencement or interrupt the continuation of our service, harm our reputation, cause our insurance costs to increase and adversely affect our business and our financial condition.

Damage To, Or Caused By, Our Satellites May Not Be Fully Covered By Insurance.

We expect to purchase launch and in-orbit insurance policies for our satellite. The price, terms and availability of insurance can fluctuate significantly due to various factors, including satellite failures and general market conditions. If certain material adverse changes in market conditions for in-orbit insurance were to make it commercially unreasonable for us to maintain in-orbit insurance, we may forego such insurance. Other adverse changes in insurance market conditions may substantially increase the premiums we will have to pay for insurance or may preclude us from fully insuring our loss. If the launch of our satellite is a total or partial failure, or our satellite is damaged in orbit, our insurance may not fully cover our losses and these failures may also cause insurers to include additional exclusions in our insurance policies when they come up for renewal. We may not be able to obtain additional financing to construct, launch and insure a replacement satellite or such financing may not be available on terms favorable to us. Also, any insurance we obtain will likely contain certain customary exclusions and material change conditions that would limit our coverage. These exclusions typically relate to losses resulting from acts of war, insurrection or military action and government confiscation, as well as lasers, directed energy beams, nuclear and anti-satellite devices and radioactive contamination. Any uninsured losses could have a material adverse effect on us.

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We do not expect to buy insurance to cover, and would not have protection against, business interruption, loss of business or similar losses. Furthermore, we expect to maintain third-party liability insurance. Such insurance may not be adequate or available to cover all third-party damages that may be caused by our satellites, and we may not be able to obtain or renew our third-party liability insurance on reasonable terms and conditions, or at all.

We Depend On A Limited Number Of Suppliers And Service Providers To Design, Construct And Maintain Our Network.

We rely on contracts with third parties to design and build our satellites, as well as the terrestrial components of our network. These include the integrated MSS and ATC systems, technology for communications between the satellite and terrestrial equipment, and the development of small, integrated MSS/ATC handsets and other devices that will meet FCC and Industry Canada requirements, none of which exists today. We also intend to enter into relationships with third-party contractors in the future for equipment and maintenance and other services relating to our network. There are only a few companies capable of supplying the products and services necessary to implement and maintain our network. As a result, if any third-party contractor relationship with us is terminated, we may not be able to find a replacement in a timely manner or on terms satisfactory to us. In addition, if any of these third-party contractors are unable to perform on the terms of the contract due to financial reasons, other reasons specifically related to the business of these suppliers or other matters outside our control, our business would be significantly impacted.  This could lead to delays in the implementation of our network and interruptions in providing service to our customers, which would adversely affect our financial condition.  This could also lead to a failure in effectively implementing our network which would severely impact our business.

Delays In Initial And Ongoing Deployment Of The Terrestrial Component Of Our Network Due To Limited Tower Availability, Local Zoning Approvals Or Adequate Telecommunications Transport Capacity Would Delay And Reduce Our Revenues.

Our business strategy includes the initial deployment of the terrestrial component of our network in several targeted markets, with subsequent expansion based upon customer requirements. Tower sites or leases of space on tower sites and authorizations in some desirable areas may be costly and time-consuming to obtain. If we are unable to obtain tower space, local zoning approvals or adequate telecommunications transport capacity to develop our network in a timely fashion, the launch of our network will be delayed, our revenues will be delayed and less than expected. As a result, our business will be adversely affected.

The Planned Terrestrial Component Of Our Network Or Other Ground Facilities Could Be Damaged By Natural Catastrophes Or Man-Made Disasters.

Since the terrestrial component of our planned network will be attached to buildings, towers and other structures, an earthquake, tornado, flood or other catastrophic event, a man-made disaster or vandalism could damage our network, interrupt our service and harm our business in the affected area. Temporary disruptions could damage our reputation and the demand for our services and adversely affect our financial condition.

Failure To Develop, Manufacture And Supply Handsets And Other Devices That Incorporate Our Universal Chipset Architecture In A Timely Manner, Or At All, Will Delay Or Materially Reduce Our Revenues.

We will rely on third-party manufacturers and their distributors to manufacture and distribute devices incorporating our universal chipset architecture. Such devices will have the same form, function and aesthetics as a standard wireless device, and will be able to communicate with both the terrestrial and satellite components of our planned network without requiring external hardware. These devices are not yet available, and we and third-party vendors may be unable to develop and produce them in a timely manner, or at all, to permit the introduction of our service. If we, our vendors or our manufacturers fail to develop, manufacture and supply devices incorporating our universal chipset architecture for timely commercial sale at affordable prices, the launch of our service will be delayed, our revenues will be adversely affected and our business will suffer.

We May Rely On Third Parties To Identify, Develop And Market Products Using Our Network.

We intend to enter into agreements with third parties to identify, develop and market products using our network. We may be unable to identify, or to enter into agreements with, suitable third parties to perform these activities. If we do not form satisfactory relationships with third parties, or if any such third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to successfully identify, develop and sell products using our network, which would adversely affect our financial condition and results of operations.

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We May Not Be Able To Identify, Develop And Market Innovative Products And Therefore We May Not Be Able To Compete Effectively.

Our ability to implement our business plan depends in part on our ability to gauge the direction of commercial and technological progress in key markets and to fund and successfully develop and market products in our targeted markets. Our competitors may have access to technologies not available to us, which may enable them to provide communications services of greater interest to end users, or at a more competitive price. We may not be able to develop new products or technology, either alone or with third parties, or license any additional necessary intellectual property rights from third parties on a commercially competitive basis. The satellite and wireless industries are both characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations and evolving industry standards. 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. If we fail to keep pace with the evolving technological innovations in our markets on a competitive basis, our financial condition and results of operation could be adversely affected. In particular, if existing wireless providers improve their coverage of terrestrial-based systems to make them more ubiquitous, demand for products and services utilizing our network could be adversely affected or fail to materialize.

We Plan To Execute Our Initial Development Through A Relationship With An Anchor Tenant, And The Failure To Establish, Or Impairment Of, This Relationship Could Have Severe Consequences On Our Business.

Our objective is to form an anchor tenant relationship with a customer, such as a U.S. federal government organization, a state or local public safety/first responder organization or a significant commercial enterprise. Any significant disruption or deterioration of our relationship with our anchor tenant could adversely affect our business. Because we expect to derive a significant portion of our revenue from a limited number of customers, the failure to attract an anchor tenant or the loss of such an anchor tenant could significantly reduce our ability to generate revenue or profit and negatively impact our financial condition and operations.

We May Depend On The U.S. Government For A Significant Portion Of Our Revenues, And The Impairment Of This Relationship Or Changes In Government Spending Could Have Severe Consequences On Our Business.

Our objective is to form an anchor tenant relationship with a customer, potentially a U.S. federal government organization such as the Department of Defense, the Federal Emergency Management Agency or the Department of Homeland Security. Future sales under U.S. government contracts are conditioned upon the availability of Congressional appropriations. The strength of our relationship with any federal government organization is subject to the overall U.S. government budget and appropriation decisions and processes. U.S. government budget decisions, including defense and emergency response spending, are based on changing government priorities and objectives, which are driven by numerous factors, including geopolitical events and macroeconomic conditions, and are beyond our control. Significant changes to U.S. defense and emergency response spending could have long-term consequences for our size and structure, and could negatively impact our results of operations and financial condition.

An Economic Downturn In The United States Or Canada Or Changes In Consumer Spending Could Adversely Affect Our Financial Condition.

In the event that the United States or Canada experiences an economic downturn and spending by consumers drops, our business may be adversely affected. Demand for the services we plan to offer may not grow or be accepted generally, or in particular geographic markets, for particular types of services, or during particular time periods. A lack of demand could adversely affect our ability to sell our services, enter into strategic relationships or develop and successfully market new services.

We Depend On Licenses Of Critical Intellectual Property From ATC Technologies, A Wholly-Owned Subsidiary Of MSV.

We license the majority of the technology we plan to use to operate our network from ATC Technologies, a wholly-owned subsidiary of Mobile Satellite Ventures LP, or MSV. MSV has rights to approximately 30 MHz of spectrum in the L-band, is positioned to achieve device transparency and plans to offer services that compete with the services that we plan to offer.

MSV has assigned to ATC Technologies a significant intellectual property portfolio, including a significant number of patents. Pursuant to the agreement by and between ATC Technologies and us, ATC Technologies granted us a perpetual, world-wide, non-exclusive, royalty-free, fully paid up, nontransferable (except for certain rights to sublicense), non-assignable, limited purpose right and license to certain existing patents owned by ATC Technologies for the sole purpose of developing, operating, implementing, providing and maintaining S-band or MSS services with an ATC component.   ATC Technologies granted back to MSV similar rights to the same intellectual property for L-band services in any geographic territory in the entire world where MSV, one of its affiliates or a joint venture or strategic alliance into which MSV has entered, is authorized to provide L-band services. In addition, ATC Technologies granted rights to MSV International, LLC, or MSVI, a subsidiary of MSV, in and to the same intellectual property for the purpose of providing communications services anywhere in the entire world, excluding services relating to the S-band. We granted to ATC Technologies a perpetual, world-wide, non-exclusive, royalty-free, fully paid up, nontransferable (except for certain rights to sublicense), non-assignable, limited purpose right and license to certain existing patents owned or licensed by us and certain technologies licensed by us for the sole purpose of developing, operating, implementing, providing and maintaining L-band services or L-band services with an ATC component. ATC Technologies has also contractually committed to license to us, pursuant to the same terms as set forth above, certain additional patents that may be developed, acquired or otherwise owned by ATC Technologies or its affiliates (including MSV and MSVI), and we have contractually committed to license to ATC Technologies, pursuant to the same terms as set forth above, certain additional patents and technologies that may be developed, licensed, acquired or otherwise owned by us until October 1, 2016.

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The license agreement between us and ATC Technologies may be terminated: (1) by mutual written consent of both parties; (2) by either party in the event that the other party fails to perform or otherwise breaches any material obligations under the license agreement and fails to cure such breach within 90 days of receiving notice thereof; or (3) in the event that the other party files a petition for bankruptcy or insolvency or upon certain other insolvency events. In the event that our license agreement with ATC Technologies is terminated, we may not be able to obtain future licenses for alternative technologies on terms as favorable to us as those obtained through the license agreement with ATC Technologies, if at all. However, even in the event that our license agreement with ATC Technologies is terminated, we will retain our perpetual license to all ATC Technologies intellectual property licensed to us on a license-by-license basis, until the date of the expiration of the applicable patent under which the license was granted. If ATC Technologies terminates or breaches its agreements with us or if we and ATC Technologies have a significant dispute regarding the licensed intellectual property, such termination, breach or significant dispute could have a material adverse effect on our business.

The intellectual property we license from ATC Technologies includes issued patents and technology included in patent applications. The patents for which we or ATC Technologies have applied may not be issued or, if they are issued, such patents may be insufficient to protect fully the technology we own or license. Moreover, if such patents prove to be inadequate to protect fully the technology we own or license, our ability to implement our business plan and, consequently, our financial condition, may be adversely affected. In addition, any patents that may be issued to us and any patents licensed to us from ATC Technologies may be challenged, invalidated or circumvented.

We also rely upon unpatented proprietary technology and other trade secrets. Our failure to protect such proprietary technology and trade secrets or the lack of enforceability or breach by third parties of agreements into which we have entered could also adversely affect our ability to implement our business plan and our financial condition.

We May Incur Costs, And May Not Be Successful, Defending Our Rights To Intellectual Property Upon Which We Depend.

In developing and implementing our network, we will need to develop or obtain rights to additional technology that is not currently owned by us or licensed to us. We may be unsuccessful in developing additional technologies required to develop and implement our network, and we may not be able to protect intellectual property associated with technologies we develop from infringement by third parties. In addition, if we are able to develop or license such technologies, there can be no assurance that any patents issued or licensed to us will not be challenged, invalidated or circumvented. Litigation to defend and enforce these intellectual property rights could result in substantial costs and diversion of resources and could have a material adverse effect on our financial condition and results of operations, regardless of the final outcome of such litigation. Despite our efforts to safeguard and maintain our proprietary rights, we may not be successful in doing so, and our competitors may independently develop or patent technologies equivalent or superior to our technologies. It is possible that third parties may infringe upon our intellectual property now and in the future.

We may be unable to determine when third parties are using our intellectual property rights without our authorization. The undetected or unremedied use of our intellectual property rights or the legitimate development or acquisition of intellectual property similar to ours by third parties could reduce or eliminate any competitive advantage we have as a result of our intellectual property, adversely affecting our financial condition and results of operations. If we must take legal action to protect, defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of our resources and our management’s attention, and we may not prevail in any such suits or proceedings. A failure to protect, defend or enforce our intellectual property rights could have an adverse effect on our business, financial condition and results of operations.

Third Parties May Claim That Our Products Or Services Infringe Their Intellectual Property Rights.

Other parties may have patents or pending patent applications relating to integrated wireless technology that may later mature into patents. Such parties may bring suit against us for patent infringement or other violations of intellectual property rights. The development and operation of our system may also infringe or otherwise violate as-yet unidentified intellectual property rights of others. If our products or services are found to infringe or otherwise violate the intellectual property rights of others, we may need to obtain licenses from those parties or substantially re-engineer our products or processes in order to avoid infringement. We may not be able to obtain the necessary licenses on commercially reasonable terms, if at all, or be able to re-engineer our products successfully. Moreover, if we are found by a court of law to infringe or otherwise violate the intellectual property rights of others, we could be required to pay substantial damages or be enjoined from making, using or selling the infringing products or technology. We also could be enjoined from making, using or selling the allegedly infringing products or technology, pending the final outcome of the suit. Our financial condition could be adversely affected if we are required to pay damages or are enjoined from using critical technology.

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Wireless Devices May, Or May Be Perceived To, Pose Health And Safety Risks And, As A Result, We May Be Subject To New Regulations, Demand For Our Services May Decrease And We Could Face Liability Or Reputational Harm Based On Alleged Health Risks.

There has been adverse publicity concerning alleged health risks associated with radio frequency transmissions from portable hand-held telephones that have transmitting antennae, similar to devices that may incorporate our universal chipset architecture. Lawsuits have been filed against participants in the wireless industry alleging various adverse health consequences, including cancer, as a result of wireless phone usage. If courts or governmental agencies find that there is valid scientific evidence that the use of portable hand-held devices poses a health risk, or if consumers’ health concerns over radio frequency emissions increase for any reason, use of wireless handsets may decline. Further, government authorities might increase regulation of wireless handsets as a result of these health concerns. The actual or perceived risk of radio frequency emissions could have an adverse effect on our business, financial condition and results of operations.

We May Be Negatively Affected By Industry Consolidation.

Consolidation in the communications industry could adversely affect us by increasing the scale or scope of our competitors, or creating a competitor that is capable of providing services similar to those we intend to offer, thereby making it more difficult for us to compete. Industry consolidation also may impede our ability to identify acquisition, joint venture or other strategic opportunities.

Future Acquisitions May Be Costly And Difficult To Integrate And May Divert And Dilute Management Resources.

As part of our business strategy, we may make acquisitions of, or investments in, companies, products or technologies that we believe complement our services, augment our market coverage or enhance our technical capabilities or that we believe may otherwise offer growth opportunities. Acquisitions and mergers involve a number of risks, including, but not limited to:

• the time and costs associated with identifying and evaluating potential acquisition or merger partners;

• difficulties in assimilating operations of the acquired business and implementing uniform standards, controls, procedures and policies;

• unanticipated expenses and working capital requirements;

• the inability to finance an acquisition on acceptable terms, or at all, and to maintain adequate capital;

• diversion of management’s attention from daily operations;

• loss of key employees;

• difficulty achieving sufficient revenues and cost synergies to offset increased expenses associated with acquisitions; and

• risks and expenses of entering new geographic markets.

Any of these acquisition risks could result in unexpected losses or expenses and thereby reduce the expected benefits of the acquisition. Our failure to successfully integrate future acquisitions and manage our growth could adversely affect our business, results of operations, financial condition and future prospects.

We may also pursue acquisitions, joint ventures or other strategic transactions. If we do so, we may face costs and risks arising from any such transaction, including integrating a new business into our business or managing a joint venture. These may include legal, organizational, financial and other costs and risks.

If We Are Unable To Manage Our Growth, We May Not Be Able To Execute Our Business Plan And Achieve Profitability.

In 2006, TerreStar Networks began to experience rapid growth, growing from four employees at December 31, 2005 to 175 employees at December 31, 2007.  In April 2008 we announced the implementation of cost cutting measures including a headcount reduction of 79 management and non-management positions across TerreStar.  We believe that these cost-cutting measures will allow us to continue our operations under our current business plan and meet our capital requirements into the third quarter of 2009.  While we believe that the workforce reductions will not impact our ability to execute our updated business plan, the loss of employee and management resources from our cost-cutting measures may impact our operations.

In addition, in 2006, TerreStar Networks completed the spin-off of its wholly-owned subsidiary, TerreStar Global Ltd., or TerreStar Global. TerreStar Global intends to offer an integrated satellite and terrestrial network outside of North America. Some of our employees, including some of our executive officers, perform services for TerreStar Global, which may reduce the time they can devote to our business. Our failure to manage growth effectively could significantly impede our ability to execute our business strategy and achieve profitability.

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We Must Attract, Integrate And Retain Key Personnel.

Our success depends, in large part, upon the continuing contributions of our key technical and management personnel and integrating new personnel into our business. Employment agreements with our employees are terminable at-will by the employees, and we do not maintain “key-man” insurance on any of our employees.  In April 2008, we announced certain cost-cutting measures including a significant headcount reduction. Although we believe we will be able to execute our business plan with our current workforce, the loss of the services of a significant number of our remaining key employees could harm our business and our future prospects.  Our future success will also depend on our ability to attract and retain additional management and technical personnel required in connection with the implementation of our business plan.  In addition, our recent cost-cutting measures may make it more difficult to attract and retain personnel.  Competition for such personnel is intense, and if we fail to retain or attract such personnel and integrate those personnel who we hire, our business could suffer. We have entered into arrangements with certain of our officers that provide for payments upon a change of control, as defined in those agreements.

We Are Involved In Ongoing Litigation, Which Could Have A Negative Impact on Us.

Certain stockholders affiliated with one of our former directors have initiated multiple lawsuits against us. In 2006, certain stockholders sought to install a slate of directors to our board of directors, which was not successful. If these efforts or similar efforts that might be made in the future are successful, they may result in a change of control of TerreStar Corporation, or interfere with our efforts to raise debt or equity capital which could adversely affect our liquidity and financial condition.

On June 25, 2008, Sprint Nextel Corporation (“Sprint”) filed a lawsuit in the United States District Court for the Eastern District of Virginia naming TerreStar Networks as a defendant. New ICO Satellite Services, G.P. was also named as a defendant (together, with TerreStar Networks Inc., the “Defendants”). In this lawsuit, Sprint contends that Defendants owe them reimbursement for certain spectrum relocation costs Sprint has or will incur in connection with relocating incumbent licensees from certain frequencies in the 2 GHz spectrum band. Sprint seeks, among other things, enforcement of certain Federal Communications Commission orders and reimbursement of not less than $100 million from each Defendant.  While we believe the suit is without merit, an adverse ruling could adversely affect our liquidity and financial condition.

We May Have To Take Actions Which Are Disruptive To Our Business To Avoid Registration Under The Investment Company Act Of 1940.

Under certain circumstances we may have to take actions which are disruptive to our business if we are deemed to be an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).  Our equity investments, in particular our ownership interests in SkyTerra, may constitute investment securities under the Investment Company Act. Under the Investment Company Act, a company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of its total assets excluding cash items and government securities, subject to certain other exclusions. Investment companies are required to register under and comply with the Investment Company Act unless an exclusion or SEC safe harbor applies. If we were to be deemed an investment company, we would become subject to the requirements of the Investment Company Act. As a consequence, we would be prohibited from engaging in business as we have in the past and might be subject to civil and criminal penalties for noncompliance. In addition, certain of our contracts might be voidable, and a court-appointed receiver could take control of us and liquidate our business.  In June 2006, one of our stockholders filed a lawsuit against TerreStar Corporation, alleging, among other things, that we are an investment company. In October 2006, the U.S. Magistrate Judge heard arguments on TerreStar Corporation’s motions to dismiss the case, and thereafter recommended that the U.S. District Court dismiss the suit. The U.S. District Court adopted the Magistrate Judge’s recommendation and has dismissed these claims with prejudice.

We Do Not Expect To Pay Any Cash Dividends On Our Common Stock For The Foreseeable Future.

We have never paid cash dividends on our common stock and do not anticipate that any cash dividends will be paid on the common stock for the foreseeable future. The payment of any dividend by us will be at the discretion of our board of directors and will depend on, among other things, our earnings, capital requirements and financial condition. In addition, pursuant to the terms of the Series A and Series B Preferred, no dividends may be declared or paid, and no funds shall be set apart for payment, on shares of TerreStar Corporation common stock, unless (i) written notice of such dividend is given to each holder of shares of Series A and Series B Preferred not less than 15 days prior to the record date for such dividend and (ii) a registration statement registering the resale of shares of common stock issuable to the holders of the Series A and Series B Preferred has been filed with the SEC and is effective on the date TerreStar Corporation declares such dividend. Also, under Delaware law, a corporation cannot declare or pay dividends on its capital stock unless it has an available surplus. Furthermore, the terms of some of our financing arrangements directly limit our ability to pay cash dividends on our common stock. The terms of any future indebtedness of our subsidiaries also may generally restrict the ability of some of our subsidiaries to distribute earnings or make other payments to us.

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Future Sales Of Our Common Stock Could Adversely Affect Its Price And/Or Our Ability To Raise Capital.

Sales of substantial amounts of our common stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock and our ability to raise capital.

We may issue additional common stock in future financing transactions or as incentive compensation for our executives and other personnel, consultants and advisors. Issuing any equity securities would be dilutive to the equity interests represented by our then-outstanding shares of common stock. The market price for our common stock could decrease as the market takes into account the dilutive effect of any of these issuances. Finally, if we decide to file a registration statement to raise additional capital, some of our existing stockholders hold piggyback registration rights that, if exercised, will require us to include their shares in certain registration statements. Any of these conditions could adversely affect our ability to raise needed capital.

Funds Affiliated With Harbinger Capital Partners Own A Significant Percentage Of Our Voting Shares And Have A Significant Economic Interest In Several Of Our Competitors.

As of June 13, 2008, funds affiliated with Harbinger Capital Partners owned a significant portion of our common stock, as reported on their Schedule 13 D/A filed with the SEC.  Accordingly, these funds are able to significantly influence us through their ability to heavily influence the outcome of election of our directors, amendments to our certificate of incorporation and by-laws and other actions requiring the vote or consent of stockholders. There is no assurance that the interest of Harbinger will be aligned with those of our other investors, and Harbinger may make decisions that adversely impact our stockholders. In addition to Harbinger’s ownership interest in us, Harbinger also reports significant ownership interest in SkyTerra and Inmarsat.

Failure to Achieve and Maintain Effective Internal Control Over Financial Reporting in Accordance With Rules of the Securities and Exchange Commission Promulgated Under Section 404 of the Sarbanes-Oxley Act.

We identified a material weakness in our internal control over financial reporting, as described in Item 9A, Controls and Procedures of our annual report on Form 10-K/A for the fiscal year ended December 31, 2007. This weakness could harm our business and operating results, and could result in adverse publicity and a loss in investor confidence in the accuracy and completeness of our financial reports, which in turn could have a material adverse effect on our stock price, and, if such weakness is not properly remediated, could adversely affect our ability to report our financial results on a timely and accurate basis.

Although we believe that we have taken steps to remediate this material weakness we cannot assure you that this remediation will be successful or that additional deficiencies or weaknesses in our controls and procedures will not be identified.

Regulatory Risks

We Could Lose Our FCC Authorization And Industry Canada Approval In Principle And Be Subject To Fines Or Other Penalties.

We must meet significant construction and implementation milestones and comply with complex and changing FCC and Industry Canada rules and regulations to maintain our authorizations to use our assigned spectrum and orbital slot. The remaining milestones in the United States are a successful satellite launch by us by September 2008 certification that the system is operational by November 2008. The remaining milestone in Canada is successfully placing the satellite into its assigned orbital position by November 2008.  We have sought new milestone dates from the FCC and Industry Canada consistent with the current delivery schedule of TerreStar-I.  There can be no assurance that these requests will be granted.  Once the system is operational, we will be required to maintain satellite coverage of all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and all regions of Canada that are within the coverage contour described in our Industry Canada approval in principle and, to the extent that we have been granted ATC authority, to provide an integrated MSS service offering in all locations where our ATC is made available. We may not meet these milestones, satisfy these service requirements or comply with other applicable rules and regulations. Non-compliance with these or other conditions, including other FCC or Industry Canada gating or ongoing service criteria, could result in fines, additional conditions, revocation of the authorizations, or other adverse FCC or Industry Canada actions. The loss of our spectrum authorizations would prevent us from implementing our business plan and have a material adverse effect on our financial condition and the amount and value of the collateral pledged to support the TerreStar Notes or Exchangeable Notes.

If We Fail To Secure Or Maintain Certain Approvals, We Will Default Under Our Credit Agreement.

Our TerreStar-2 Purchase Money Credit Facility contains certain events of default that can be triggered upon our failure to secure or maintain certain regulatory approvals, including the following (in each case subject to certain exceptions):

· a denial, revocation, cancellation or relinquishment of any material license held by TerreStar Networks, TerreStar Canada or a guarantor to operate satellite component or ATC facilities;

· TerreStar Networks’ failure to secure the FCC ATC authorization within six months following TerreStar Networks’ certification to the FCC that the TerreStar-1 satellite system is operational and that it has satisfied the final FCC milestone conditioning the FCC MSS S-Band Spectrum reservation held by TerreStar Networks; and

· failure to satisfy the FCC’s implementation milestone to launch the TerreStar−1 Satellite on or prior to September 30, 2008, the FCC’s implementation milestone to certify that the satellite system is operational on or prior to November 30, 2008, or Industry Canada’s implementation milestone to place the TerreStar−1 Satellite into its assigned orbital position on or prior to November 30, 2008, or failure to satisfy any extended deadline issued by the applicable governmental authority of these implementation milestones.

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If any of these events of default under our TerreStar-2 Purchase Money Credit Facility occurs and is continuing, our lenders can terminate their commitments and declare the amounts outstanding immediately due and payable.  In addition, the acceleration of our repayment obligation would constitute an event of default under cross-default provisions in the indenture governing our TerreStar Exchangeable Notes and TerreStar Notes, in each case permitting the trustee or holders thereunder to accelerate the notes and declare them immediately due and payable.

We Have Not Yet Applied For, And May Not Receive, Certain Regulatory Approvals That Are Necessary To Our Business Plan.

We may be required to obtain additional approvals from national and local authorities in connection with the services that we wish to provide in the future.  For example, we have applied for and have not yet been granted authorization to provide ATC in the United States and have not been granted waivers we requested from the FCC of certain ATC technical rules, which would allow us to use commercially standard equipment in our ATC base stations.  TerreStar Canada has not yet made such an application with Industry Canada.  We cannot be granted ATC authorization until we can show that we will comply in the near future with the FCC’s and Industry Canada’s ATC gating criteria, which we may not be able to satisfy.  Further, the manufacturers of our ATC user terminals and base stations will need to obtain FCC equipment certifications and similar certifications in Canada.  In addition, our future customers, or our business strategy, may require us to launch additional satellites, including TerreStar-2, in order to increase redundancy and decrease the risk of having only one satellite in orbit.  In order to do so, we must obtain regulatory approval for one or more additional orbital slots, or permission from Industry Canada to launch additional satellites into our orbital slot for TerreStar-1, and may need a waiver of the FCC requirement for a ground spare satellite.

Either Industry Canada or the FCC may refuse to grant these and other necessary regulatory approvals in the future, or they may impose conditions on these approvals that we are unable to satisfy.  Failure to obtain or retain any necessary regulatory approvals would impair our ability to execute our business plan, and would materially adversely affect our financial condition.

The Industry Canada Approval In Principle To Construct And Operate A Satellite In A Canadian Orbital Slot Is Held, And Upon The Launch Thereof Will Be Held, By A Canadian Entity Over Which Neither We Nor TerreStar Exercises Control.

The Industry Canada approval in principle to construct and operate a 2 GHz MSS S-band satellite in a Canadian orbital position is currently held by TerreStar Canada, an entity that we do not control. Upon the launch of TerreStar-1, we expect that TerreStar-1 will be transferred to TerreStar Canada. Under the Radiocommunication Act (Canada) and the Telecommunications Act (Canada), and the regulations promulgated thereunder, TerreStar Networks may only own a 20% voting equity interest in TerreStar Canada, along with a 33 1/3% voting equity interest in TerreStar Canada Holdings, which is TerreStar Canada’s parent and 80% voting equity owner. 4371585 Canada Inc , a Canadian-owned and controlled third party, owns a 66 2/3% voting interest in TerreStar Canada Holdings. The rules and regulations further provide that the business and operations of TerreStar Canada cannot otherwise be controlled in fact by non-Canadians.

Under the relevant transfer agreements, 4371585 Canada Inc owns 66 2/3% of the shares of, and has the power to elect three out of the five members of the board of directors of, TerreStar Canada Holdings, and TerreStar Canada Holdings owns 80% of the shares of, and has the power to elect four out of the five members of the board of directors of, TerreStar Canada. TerreStar Networks will have certain contractual rights with respect to the business and operations of, and certain negative protections as a minority shareholder of, both TerreStar Canada and TerreStar Canada Holdings. With certain exceptions, TerreStar Networks has no ability to control the business or operations of TerreStar Canada, which holds the Industry Canada approval in principle and will own TerreStar-1. TerreStar Networks does not have negative approval rights with respect to appointment or termination of senior officers or creation of budgets for TerreStar Canada or TerreStar Canada Holdings.

FCC And Industry Canada Decisions Affecting The Amount Of 2 GHz MSS S-band Spectrum Assigned To Us Are Subject To Reconsideration And Review.

In December 2005, the FCC provided TMI Communications with a reservation of 10 MHz of uplink MSS spectrum and 10 MHz of downlink MSS spectrum in the 2 GHz MSS S-band. TMI Communications has assigned that authorization to us and on May 10, 2007 the FCC has modified the reservation to reflect that change. Two parties have challenged the December 2005 ruling, and one party has also challenged a separate decision by the FCC to cancel its former 2 GHz MSS S-band authorization. If these challenges succeed, the amount of 2 GHz MSS S-band spectrum that is available to us may be reduced to a level that is insufficient for us to implement our business plan. Furthermore, in Canada, our spectrum could be reduced from 20 MHz to 14 MHz if Industry Canada determines that it is necessary to reapportion spectrum in order to license other MSS operators in Canada. Any reduction in the spectrum we are authorized to use could impair our business plan and materially adversely affect our financial condition.

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Our Use Of The 2 GHz MSS S-band Is Subject To Successful Relocation Of Existing Users.

In the United States, our operations at the 2 GHz MSS S-band are subject to successful relocation of existing broadcast auxiliary service, or BAS, licensees and other terrestrial licensees in the band. Costs associated with spectrum clearing could be substantial. In the United States, Sprint Nextel Corporation, or Sprint Nextel, is obligated to relocate existing BAS and other terrestrial users in our uplink spectrum and 2 GHz MSS S-band licensees must relocate microwave users in the 2 GHz MSS S-band downlink band. To the extent that Sprint Nextel complies with its BAS band clearing obligations, 2 GHz MSS S-band licensees commencing operations thereafter would not have to clear the band themselves, but might be required to reimburse Sprint Nextel for a portion of its band clearing costs. Due to the complex nature of the overall 2 GHz MSS S-band relocation and the need to work closely with Sprint Nextel on band clearing, we may not make sufficient progress in the relocation effort or meet FCC requirements for relocating existing users and the start of our MSS operations in uncleared markets may be delayed. On September 4, 2007, Sprint Nextel and certain broadcaster trade associations asked the FCC for an additional 29 months past the September 7, 2007 deadline to complete the relocation process.  On March 5, 2008, the FCC granted Sprint Nextel’s request but only extended the deadline to complete the relocation process until March 5, 2009. The FCC also permitted certain testing and trials by MSS licensees in 2008 and sought comment on ways in which BAS licensees and MSS licensees could co-exist in the band after January 2009 and before the relocation process is concluded. If Sprint Nextel does not complete clearance of the 2 GHz MSS S-band within a reasonable period of time and/or appropriate sharing procedures cannot be established, our ability to implement our business plan, and our financial condition could be adversely impacted. In Canada, our operations at the 2 GHz MSS S-band are subject to successful relocation of terrestrial microwave users. Although there are a small number of users in the 2GHz band, these users must be given a minimum of two years notice by Industry Canada to relocate unless a commercial agreement is reached under which they would move earlier.  Although Industry Canada has given notice to these users that they must relocate within a two year period, if these users are not relocated in sufficient time before the launch of our services, we may not be able to offer our services in certain locations in Canada, which could impair our business plan and materially adversely affect our operations.

Our Service May Cause Or Be Subject To Interference.

We will be required to provide our ATC service without causing harmful interference. In addition, we must accept some interference from certain other spectrum users. For example, the FCC may adopt rules for an adjacent band that do not adequately protect us against interference. In September 2004, the FCC issued an order allowing PCS operation in the 1995-2000 MHz and in June 2008 sought comment on proposed rules. In September 2007 and June 2008, the FCC sought comment on proposed rules for the 2155-2175 MHz bands. Both bands are adjacent to the 2 GHz MSS S-Band. If the rules that the FCC adopts for the 1995-2000 MHz and 2155-2175 MHz bands do not adequately protect us against adjacent band interference, our reputation and our ability to compete effectively could be adversely affected. Requirements that we limit the interference we cause, or that we accept certain levels of interference, may hinder satellite operations within our system and may, in certain cases, subject our users to a degradation in service quality, which may adversely affect our reputation and financial condition.

ATC Spectrum Access Is Limited By Technological Factors.

We will operate with the authority to use a finite quantity of radio spectrum. Spectrum used for communication between the satellite and the ground will not be available for use in the ATC component of our network. In addition, communications with the satellite may interfere with portions of the spectrum that would otherwise be available for ATC use, further diminishing the availability of spectrum for the ATC component to an extent that cannot be quantified at this time.

Technical Challenges Or Regulatory Requirements May Limit The Attractiveness Of Our Spectrum For Providing Mobile Services.

We believe our 2 GHz MSS S-band spectrum with ATC capability must be at least functionally equivalent to the PCS/cellular spectrum in order to be attractive to parties with which we may enter into strategic relationships. The FCC and Industry Canada require us to make satellite service available throughout the United States and Canada. This requirement may limit the availability of some of our spectrum for terrestrial service in some markets at some times. If we are not able to develop technology that allows the entities with which we enter into strategic relationships to use our spectrum in a manner comparable to PCS/cellular operators, we may not be successful in entering into strategic arrangements with these parties.

We May Face Unforeseen Regulations With Which We Find It Difficult, Costly Or Impossible To Comply.

The provision of communications services is highly regulated. As a provider of communications services in the United States and Canada, we will be subject to the laws and regulations of both the United States and Canada. Violations of laws or regulations of these countries may result in various sanctions including fines, loss of authorizations and the denial of applications for new authorizations or for the renewal of existing authorizations.

From time to time, governmental entities may impose new or modified conditions on our authorizations, which could adversely affect our ability to generate revenues and implement our business plan. For example, from time to time, the U.S. federal government has considered imposing substantial new fees on the use of frequencies, such as the ones we plan to use to provide our service. In the U.S. and Canada, the FCC and Industry Canada, respectively, already collect fees from space and terrestrial spectrum licensees. We are currently required to pay certain fees, and it is possible that we may be subject to increased fees in the future.

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Export Control And Embargo Laws May Preclude Us From Obtaining Necessary Satellites, Parts Or Data Or Providing Certain Services In The Future.

We must comply with U.S. export control laws in connection with any information, products, or materials that we provide to non-U.S. persons relating to satellites, associated equipment and data and with the provision of related services. These requirements may make it necessary for us to obtain export or re-export authorizations from the U.S. government in connection with any dealings we have with 4371585 Canada Inc, TerreStar Canada, TerreStar Canada Holdings, non-U.S. satellite manufacturing firms, launch services providers, insurers, customers and employees. We may not be able to obtain and maintain the necessary authorizations, which could adversely affect our ability to:

•           effect the transfer agreements;

•           procure new U.S.-manufactured satellites;

•           control any existing satellites;

•           acquire launch services;

•           obtain insurance and pursue our rights under insurance policies; or

•           conduct our satellite-related operations.

In addition, if we do not properly manage our internal compliance processes and, as a result, violate U.S. export laws, the terms of an export authorization or embargo laws, the violation could make it more difficult, or even impossible, to maintain or obtain licenses and could result in civil or criminal penalties.

Our Strategic Relationships Will Be Subject To Government Regulations.

We must ensure that parties with which we enter into strategic relationships comply with the FCC’s and Industry Canada’s ATC rules. This may require us to seek agreements in connection with potential strategic relationships that provide for a degree of control by us in the operation of their business that they may be unwilling or unable to grant us.

In addition, the U.S. Communications Act of 1934, as amended, or the Communications Act, and the FCC’s rules require us to maintain legal as well as actual control over the spectrum for which we are licensed. Our ability to enter into strategic arrangements may be limited by the requirement that we maintain de facto control of the spectrum for which we are licensed. If we are found to have relinquished control without approval from the FCC, we may be subject to fines, forfeitures, or revocation of our licenses.

Similarly, the Radiocommunication Act (Canada), the Telecommunications Act (Canada) and Industry Canada’s rules require that Canadians maintain legal as well as actual control over TerreStar Canada and certain of its licensed facilities. Our ability to enter into strategic arrangements may be limited by the requirement that Canadians maintain control over TerreStar Canada and these licensed facilities in Canada. If TerreStar Canada is found to have relinquished control to non-Canadians, TerreStar Canada may be subject to fines, forfeitures or revocation of its licenses and may not lawfully continue to carry on its business in Canada.

FCC And Industry Canada Regulations And Approval Processes Could Delay Or Impede A Transfer Of Control Of TerreStar.

Any investment that could result in a transfer of control of TerreStar Corporation could be subject to prior FCC approval and in some cases could involve a lengthy FCC review period prior to its consummation. The prior approval of Industry Canada is also required before any material change in the ownership or control of TerreStar Canada can take effect. We may not be able to obtain any such FCC or Industry Canada approvals on a timely basis, if at all, and the FCC or Industry Canada may impose new or additional license conditions as part of any review of such a request. If we are unable to implement our business plan and generate revenue to meet our financial commitments, including under the TerreStar-2 Purchase Money Credit Facility, the TerreStar Notes and the Exchangeable Notes, these regulations could impede or prevent a transfer of control or sale of our company to a third party with greater financial resources.

Rules Relating To Canadian Ownership And Control Of TerreStar Canada Are Subject To Interpretation And Change.

TerreStar Canada is subject to foreign ownership restrictions imposed by the Telecommunications Act (Canada) and the Radiocommunication Act (Canada) and regulations made pursuant to the these acts. Future determinations by Industry Canada or the Canadian Radio-Television and Telecommunications Commission, or CRTC, or events beyond our control, may result in TerreStar Canada ceasing to comply with the relevant legislation. If such a development were to occur, the ability of TerreStar Canada to operate as a Canadian carrier under the Telecommunications Act (Canada) or to maintain, renew or secure its Industry Canada approval in principle could be jeopardized and our business could be materially adversely affected.

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

All unregistered sales of equity securities that occurred during the second quarter of 2008 were reported on current reports on Form 8-K.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

The Exhibit Index filed herewith is incorporated herein by reference.

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EXHIBIT INDEX

Number	Description
3.1	Restated Certificate of Incorporation of the Company (as restated effective May 1, 2002) (incorporated by reference to Exhibit 3.1 of the Company’s Amendment No. 2 Registration Statement on Form 8-A, filed May 1, 2002).
3.2	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Amendment No. 2 to Registration Statement on Form 8-A, filed May 1, 2002).
3.3	Certificate of Correction filed to correct a certain error in the Certificate of Designations of the Series A Cumulative Convertible Preferred Stock of Motient Corporation (incorporated by reference to Exhibit 3.2 to Company’s Current Report on Form 8-K/A filed on August 3, 2005).
3.4	Certificate of Designations of the Series B Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 31 to Company’s Current Report on Form 8-K filed on October 31, 2005).
3.5	Amendment to Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-1, filed June 24, 2005).
3.6	Amendment to Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.6 of the Company’s Registration Statement on Form S-3, filed August 7, 2006).
3.7	Amendment to Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.4 of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007 (the “Q3 2007 10-Q”).
3.8†	Certificate of Designations of the Series E Junior Participating Preferred Stock, Series C Preferred Stock and Series D Preferred Stock of TerreStar Corporation.
3.9†	Certificate of Amendment of the Restated Certificate of Incorporation of TerreStar Corporation.
4.1	Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Q3 2007 10-Q).
4.2	First Supplemental Indenture, dated February 7, 2008, among TerreStar Network Inc., as the issuer, certain guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated February 8, 2008).
4.3	Second Supplemental Indenture, dated February 7, 2008, among TerreStar Network Inc., as the issuer, certain guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K dated February 8, 2008).
4.4	Indenture, dated February 7, 2008, among TerreStar Network Inc., as the issuer, the Company, certain subsidiaries of TerreStar Network Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K dated February 8, 2008).

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Number	Description
10.1*	Agreement and General Release dated April 16, 2008 by and between TerreStar Networks, Inc. and Robert Brumley (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 18, 2008).
10.2*	Agreement and General Release dated April 16, 2008 by and between TerreStar Networks, Inc. and Michael Reedy (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 18, 2008).
10.3*	Agreement and General Release dated April 16, 2008 by and between TerreStar Networks, Inc. and Doug Sobieski (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated April 18, 2008).
10.4*	Letter Agreement dated May 20, 2008 Amending Terms of Employment Agreement by and between TerreStar Networks, Inc. and Jeffrey Epstein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 20, 2008).
10.5*	Letter Agreement dated May 20, 2008 Amending Terms of Employment Agreement by and between TerreStar Networks, Inc. and Dennis Matheson (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 20, 2008).
31.1†	Certification Pursuant to Rule 13a-14(a)/15d-14(a), of President (principal executive officer).
31.2†	Certification Pursuant to Rule 13a-14(a)/15d-14(a), of Executive Vice President and Chief Financial Officer (principal financial officer).
32†	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of President, (principal executive officer) and Executive Vice President and Chief Financial Officer (principal financial officer).

* Management contract or compensatory plan or arrangement required to be filed as exhibit to this report pursuant to Item 14(c) of this report.

† Filed herewith.

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

TERRESTAR CORPORATION

(Registrant)

/s/    NEIL L. HAZARD

Neil L. Hazard

Executive Vice President and Chief Financial Officer

Dated: August 11, 2008

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