2. MANAGEMENT'S PLANS REGARDING FUTURE OPERATIONS

During the three years ended December 31, 2011, the Company generated operating losses and negative cash flows from operations, which adversely affected the Company’s liquidity. These operating results were caused primarily by the deterioration of the Company’s first-generation satellite constellation and delays in the launch and deployment of its second-generation satellites, which in turn reduced its ability to provide reliable Duplex service to its customers. In response to these circumstances, the Company developed a plan to improve operations; complete the launches of the remaining second-generation satellites; complete the deployment, construction and activation of additional second-generation satellites and next-generation ground upgrades; and obtain additional financing.

As further described below, in 2011 and the first quarter of 2012, the Company took the following steps pursuant to its plan.

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Reduced operating expenses by decreasing headcount and streamlining its supply chain and other operations, consolidating its world-wide operations, including the completion of the relocation of its corporate headquarters to Covington, Louisiana, and simplifying its product offerings.

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Increased revenues by marketing its Simplex and SPOT products targeted to the consumer and enterprise markets.

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Successfully launched 12 more second-generation satellites (a total of 18 second-generation satellites were launched through the end of 2011).

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Generated cash by issuing $38.0 million in 5.0% Notes and drawing $14.2 million from its contingent equity account.

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Improved liquidity by deferring principal payments on its Facility Agreement.

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Obtained the required licensing to activate its ground stations in North America to send and receive call traffic with its second-generation satellites.

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Commenced an arbitration with Thales Alenia Space (“Thales”) to resolve key contractual issues regarding, among other things, the manufacture of additional second-generation satellites.

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Initiated the development of a software solution intended to resolve the momentum wheel issues on certain of its second-generation satellites.

The Company believes that these actions, combined with additional actions included in its 2012 operating plan, will result in improved cash flows from operations in 2012. These additional actions include, among other things, the following:

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Launching six more second-generation satellites during the second half of 2012.

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Continuing to focus on reducing and controlling operating expenses.

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Restructuring payment arrangements in its contracts with major service providers.

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Improving its key business processes and leveraging its information technology platform.

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Increasing revenue and ARPU through further implementation of its sales and marketing programs designed to take advantage of the anticipated continued expansion of the Company’s Duplex coverage.

The Company believes that cash on hand, improved cash flows from operations, resulting from the successful execution of the Company’s 2012 operating plan, coupled with anticipated draws of the remaining $45.8 million in its contingent equity account will be sufficient to fund the completion of the fourth launch of second-generation satellites and to satisfy the Company’s existing debt and restructured contractual obligations in 2012 without additional external financing. However, substantial uncertainties remain related to the arbitration with Thales, the timing and outcome of the fourth launch of the second-generation satellites, reaching a solution to the momentum wheel issues, the remaining useful life of the first-generation satellites still in service and the impact and timing of the Company’s plans to improve operating cash flows and to restructure its contractual obligations. If the resolution of these uncertainties materially and negatively impact cash and liquidity, the Company’s ability to continue to execute its business plans, without additional external financing, will be adversely affected.

Further, the Company’s longer-term business plan includes launches of additional second-generation satellites, major improvements to its ground infrastructure, and new product releases. To successfully execute these longer-term plans, the Company will need to obtain additional external financing to fund these capital expenditures, in addition to its own cash flows from operations. Although the Company is in the process of arranging such financing and is continuing to address requirements with contractors, there is no guarantee that these efforts will be successful given the scope, complexity, cost and risk of completing the construction of the space and ground components of its second-generation constellation and the development of marketable new products. Accordingly, the Company is not in a position to estimate when, or if, these longer-term plans will be completed and the effect this will have on the Company’s performance.