Stratos Announces Third Quarter 2007 Financial Results



    BETHESDA, MD, Nov. 7 /CNW/ - Stratos Global Corp. (TSX: SGB), the world's
trusted leader in delivering vital voice, data, and IP communication services
today announced financial results for the third quarter ended September 30,
2007.

    
    Third Quarter Highlights
    -   Revenue up 11 percent to US$154.3 million from the same quarter a
        year ago and 3 percent on a sequential quarterly basis.
    -   Segment earnings(*) reach US$32.9 million, up 46 percent from the
        third quarter of 2006 and 38 percent compared with the second quarter
        of this year.
    -   Net earnings total US$9.5 million in the quarter driven by strong
        operating results in the Mobile Satellite Services (MSS) business,
        certain commercial settlements and a gain on sale of certain
        aeronautical equipment. Adjusted net earnings (as described below)
        total US$10.3 million, or US$0.25 per common share, compared with
        adjusted net earnings of US$3.7 million, or US$0.09 per share, in the
        same quarter of 2006.
    

    Third Quarter Results
    For the quarter, the Corporation reported revenue of US$154.3 million and
segment earnings of US$32.9 million, representing increases of 11 percent and
46 percent, respectively, compared with US$138.6 million of revenue and
US$22.6 million of segment earnings in the same quarter a year ago. The strong
growth in revenue and significant improvement in segment earnings, compared
with the third quarter of 2006, primarily reflect revenue growth in newer
generation Inmarsat services, higher volume discounts earned from Inmarsat,
cost reductions related to the integration of Xantic and other initiatives,
and certain commercial settlements.
    Net earnings for the third quarter totaled US$9.5 million, or
US$0.23 basic earnings per common share, compared with net earnings of
US$0.5 million, or US$0.01 per share, in the third quarter of 2006. Results in
the third quarter of 2007 were positively influenced by an after-tax gain of
US$1.0 million, or US$0.02 per share, from the sale of certain aeronautical
assets. This gain was offset by US$1.1 million of after-tax costs, or US$0.03
per share, primarily related to the completion of the pending arrangement
transaction with CIP Canada Investment Inc. (CIP Canada).
    Excluding these items and the non-cash amortization of customer
relationship intangibles related to the Xantic and Plenexis acquisitions,
adjusted net earnings (a non-GAAP measure) for the quarter were
US$10.3 million, or US$0.25 per share, compared with adjusted net earnings of
US$3.7 million, or US$0.09 per share, in the third quarter a year ago.
    In the MSS business, revenue increased by 14 percent to US$122.6 million
in the third quarter of 2007, compared with the same quarter in 2006, and by
2 percent on a sequential quarterly basis. The growth in revenue compared with
the third quarter of 2006 was driven primarily by increased demand for newer
generation Inmarsat services and increased sales of mobile terminals and
equipment. MSS segment earnings were up 36 percent compared with the same
quarter a year ago, reaching US$27.7 million in the third quarter of 2007, and
up 22 percent compared with the second quarter of 2007. Segment earnings as a
percent of revenue reached 23 percent in the third quarter compared with
19 percent in the prior year third quarter. The substantial improvement in
segment earnings compared with the third quarter of 2006 reflects the
increased revenue, higher volume discounts earned from Inmarsat, cost
reductions related to the Xantic integration and other initiatives to improve
operating efficiencies as well as a third party expense reimbursement arising
from a commercial settlement.
    Revenue and segment earnings in the Broadband division were
US$31.7 million and US$5.2 million, respectively, in the third quarter of
2007, compared with US$30.9 million and US$2.3 million in the same quarter a
year ago. Results in the third quarter of 2007 were positively impacted by
cost reductions, increased revenues from engineering projects, a favorable
commercial settlement with a customer and a one-time contract cancellation
fee.
    "We are pleased with the continued improvement in our financial
performance," said Jim Parm, Stratos president and chief executive officer.
"The MSS business continued its strong operational performance in the third
quarter," said Parm. "Our growth in revenue from new services, including BGAN,
together with the synergies from the Xantic integration and our improvements
in operating efficiency, has increased profitability in the MSS segment.
Additionally, in the Broadband division we have increased profitability
through improvements in our engineering services and general cost reductions."
    "We look forward to the completion of the transaction with CIP Canada in
the fourth quarter of this year after we receive the U.S. Federal
Communications Commission approval," concluded Parm.

    Nine Month Results
    For the first nine months of 2007, the Corporation achieved revenue of
US$448.9 million, a 13 percent increase compared with US$397.2 million in the
first nine months of 2006. This improvement reflects the growth in newer
generation Inmarsat products and the acquisition of Xantic, which was
completed on February 14, 2006. Segment earnings for the first nine months of
2007 increased by 45 percent to US$75.3 million compared with $52.0 million
for the same period of 2006. The significant improvement in segment earnings
was driven by the increased revenue, higher volume discounts earned from
Inmarsat and cost reductions resulting from the integration of Xantic and
other initiatives to improve operating efficiencies.
    Net earnings for the first nine months of 2007 were US$11.9 million, or
US$0.28 per share, compared with a net loss of US$28.5 million, or US$0.68 per
share, in the comparable period of 2006. The results for the first nine months
of 2007 were negatively impacted by US$8.2 million, or US$0.20 per share, of
after-tax financial advisory, legal, and other costs primarily related to the
pending transaction with CIP Canada, which were partially offset by an
after-tax gain of US$3.8 million, or US$0.09 per share, related to the
previously described insurance settlement during the second quarter and an
after-tax gain on sale of certain aeronautical assets of US$1.0 million, or
US$0.02 per share. Results for the nine months ended September 30, 2006 were
adversely influenced by after-tax write-offs of US$23.3 million, US$0.55 per
share, related primarily to the acquisition of Xantic.
    Cash flow from operations (including working capital changes) in the
first nine months of 2007 totaled US$25.2 million, compared with
US$17.3 million generated in the same period of 2006. The improvement
primarily reflects higher segment earnings, partially offset by increased
investment in working capital, increased interest costs related to the Xantic
acquisition financing and costs related to the pending transaction with CIP
Canada.
    Capital expenditures totaled US$14.0 million, or 3 percent of revenue, in
the first nine months of 2007 compared with US$20.9 million, or 5 percent of
revenue, in the prior year's first nine months. In February 2007, a final
purchase-price adjustment of US$20.0 million was paid to the sellers of
Xantic.
    The Corporation's financial statements for the three and nine month
periods ended September 30, 2007, and related notes, together with
management's discussion and analysis of such results, are attached.
    A conference call with analysts to discuss these results will be held at
8:30 a.m. EST, Thursday, November 8, 2007. To access the conference call,
please dial 1-800-732-9303. A live audio webcast of the call will be available
at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2030600. A replay
of the conference call also will be available through Wednesday, November 14.
To access the replay, please call 1-877-289-8525 and use access code 21249273
followed by the number sign.

    About Stratos
    Stratos (TSX: SGB), with over a century of service, is the world's
trusted leader for vital communications, offering the most powerful and
extensive portfolio of remote communications products, including mobile and
fixed satellite and microwave services. Stratos' more than 20,000 customers
use our services on seven continents and across the world's oceans. Stratos
serves U.S. and international government, military, first responder, NGO, oil
and gas, industrial, maritime, aeronautical, enterprise, and media users. For
more information visit www.stratosglobal.com

    Caution Concerning Forward-Looking Statements
    This document contains statements and information about potential future
circumstances and developments. Such statements and information are qualified
by the inherent risks and uncertainties surrounding future expectations
generally and may differ materially from Stratos Global Corporation's actual
future results. For additional information with respect to these risks and
uncertainties, reference should be made to the Corporation's continuous
disclosure materials filed with Canadian securities regulatory authorities,
including the risk factors described in our annual information form and to the
Corporation's annual report filed with the U.S. Securities and Exchange
Commission on Form 40-F. Stratos Global Corporation disclaims any intention or
obligation to update or revise any forward-looking statements or information,
whether as a result of new information, future events, or otherwise.

    
    (*) Segment earnings is defined by the Corporation as earnings before
        interest expense, depreciation and amortization, other costs
        (income), non-controlling interest, equity in earnings of investee,
        and income taxes.
    


    Stratos Global Corporation

    Management's Discussion and Analysis of Financial Condition and Results
    of Operations For the Three and Nine Months Ended September 30, 2007

    This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") and the accompanying unaudited interim
consolidated financial statements and notes thereto (the "Interim Financial
Statements") should be read in conjunction with our Audited Consolidated
Financial Statements and related notes thereto and MD&A as at and for the
years ended December 31, 2006 and 2005, set forth in our 2006 Annual Report
(the "2006 Annual Filings") and our unaudited interim consolidated financial
statements and notes thereto and related MD&A for the three months ended
March 31, 2007 and the three and six months ended June 30, 2007 (the "Q1
Report" and "Q2 Report", respectively). Financial data presented in the MD&A
has been prepared in accordance with Canadian Generally Accepted Accounting
Principles. A reconciliation to United States Generally Accepted Accounting
Principles is presented in Note 23 to our unaudited interim consolidated
financial statements as at and for the three and nine months ended
September 30, 2007 and 2006.

    As a result of rounding adjustments, the figures or percentages presented
in one or more columns included in any of the tabular presentations or
information presented in this MD&A may not add up to the total for that
column.

    Throughout this MD&A, "we", "us", "our" and "Stratos" refer to Stratos
Global Corporation and its subsidiaries and operating segments.

    This MD&A contains statements and other forward looking information
including, but not limited to potential future circumstances, results and
developments. Forward-looking information is typically identified by the words
"believe", "expect", "anticipate", "intend", "estimate" and other similar
expressions, or future or conditional verbs such as "will", "should", "would"
and "could". These forward-looking statements are based on certain assumptions
and analyses made by us in light of our experience and perception of
historical trends, current conditions and expected future developments as well
as other factors we believe are appropriate in the circumstances. Such
statements and information are qualified in their entirety by the inherent
risks and uncertainties surrounding future expectations generally and may
differ materially from actual future results or events. Factors which could
cause results or events to differ from current expectations include, among
other things: changes in our commercial relationship with Inmarsat plc,
changes in technology and industry participants in the remote communications
industry, major satellite system failures or natural disasters, frequent new
product and service introductions, changing or evolving customer requirements,
price competition, changes in product mix, general industry and global
economic conditions, and our ability to sustain and improve our financial
performance. Further, on March 19, 2007, we entered into a definitive
arrangement agreement pursuant to which Stratos would be acquired by CIP
Canada Investment Inc. (the "Arrangement"). The Arrangement is subject to a
number of closing conditions, including court, shareholder and regulatory
approvals. The court and shareholder approvals have been obtained but the
approval of the U.S. Federal Communications Commission ("FCC") remains
outstanding and accordingly there is a risk that this condition will not be
satisfied and the Arrangement will not close. For additional information with
respect to certain of these risks or factors, reference should be made to our
continuous disclosure materials filed with Canadian Securities Regulatory
Authorities, including the risk factors described in our annual information
form and management proxy circular dated May 4, 2007 in connection with the
Arrangement, and to the annual report filed with the U.S. Securities and
Exchange Commission ("SEC") on Form 40-F.

    Stratos disclaims any intention or obligation to update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise.

    Reported in U.S. dollars unless otherwise stated.

    This MD&A has been prepared as at November 7, 2007.

    Additional information regarding Stratos, including copies of our
continuous disclosure materials filed with Canadian Securities Regulatory
Authorities, such as our annual information form and management proxy
circular, is available on our website at www.stratosglobal.com or through the
SEDAR website maintained by the Canadian Securities Regulatory Authorities at
www.sedar.com.

    A glossary of terms used in this MD&A is included at the end of this
MD&A.

    Overview

    We are a leading global provider of advanced mobile and fixed-site remote
telecommunications services. We provide Internet Protocol ("IP"), high-speed
data and voice services to end-users typically operating beyond the reach of
traditional wireline and terrestrial wireless telecommunications networks. The
primary end-users of our services consist of governmental agencies and
military forces, maritime organizations and oil and gas companies.
    We offer a broad portfolio of remote telecommunications solutions to our
customers, offering services over the mobile and fixed satellite systems of a
number of the leading global and regional satellite system operators and
through our owned and operated microwave and satellite telecommunications
facilities. We also provide customized turnkey remote telecommunications
solutions, value-added services, equipment and engineering services.
    In managing our business and for reporting purposes, we divide our
business into two operating segments: Mobile Satellite Services, or MSS, and
Broadband Services, or Broadband.

    MSS

    Our MSS segment provides mobile telecommunications services, primarily
over the Inmarsat plc ("Inmarsat") satellite system. The revenue derived from
services provided over the Inmarsat satellite system accounted for
approximately 82% of the MSS segment's revenue and 65% of our consolidated
revenue in the nine months ended September 30, 2007. To provide Inmarsat
services, we operate a terrestrial-based network, including land earth
stations, or LESs, located in Australia, Canada, the Netherlands and New
Zealand. During the three months ended March 31, 2007, we discontinued
operation of our LES located in Goonhilly, United Kingdom and transitioned the
ongoing LES services to our LES in Burum, the Netherlands. Other MSS services
accounted for 18% of MSS segment revenue in the nine months ended
September 30, 2007 and primarily consist of mobile telecommunications services
sourced on a wholesale basis from mobile satellite system operators such as
Iridium Satellite LLC ("Iridium"), sales of mobile terminals and equipment,
accounting authority services billed to customers and other ancillary
services. Other MSS services, in general, have lower gross margins than
Inmarsat services.
    On February 14, 2006, the Corporation completed the acquisition of Xantic
B.V. ("Xantic"), of the Netherlands. The acquisition has strengthened Stratos'
MSS presence in Europe and Asia, enhanced the Corporation's leading position
in North America and provided us with greater reach across key market sectors
- see "Overview - The Xantic Acquisition".

    Broadband

    Our Broadband segment provides VSAT services, sourced on a wholesale
basis from a number of the leading fixed satellite system operators, with our
VSAT hubs located in the United States, the United Kingdom, Germany and
Russia. Our VSAT network enables integrated data and voice telecommunications
between remote fixed sites and land-based offices. In addition, our Broadband
segment operates what we believe to be the most extensive digital microwave
network in the U.S. Gulf of Mexico, utilized primarily by oil and gas
companies operating offshore rigs and platforms in the Gulf of Mexico. Our
Broadband segment revenue also includes the sale and rental of equipment and
repairs and maintenance associated with microwave and VSAT technologies. Our
Broadband revenue also includes the provision of turnkey engineering services
for construction and internal and external communication requirements.

    Key Factors Affecting our Business

    Our revenue, profitability and cash flow are directly affected by the
price we can charge for the products and services we sell, the volumes of
certain higher gross margin products relative to certain of our lower gross
margin products, and the gross margins of new products we have introduced. The
price and volume of the various services we sell have been influenced by
several key factors, including: price competition; introduction of new
services; and changes in the mix of services we sell or lease. As a result of
such factors, we expect we will need to increase the volumes of airtime we
sell or lease in order to grow our revenue, profitability and cash flows. A
further discussion of these factors follows.
    Our current commercial framework and distribution agreements with
Inmarsat will expire in April 2009. We believe our business would be
negatively impacted if we are unable to renew the agreements on substantially
similar terms and conditions.

    Price Competition

    During the past few years, the remote telecommunications industry has
experienced increased price competition. We believe MSS customers,
particularly distributors, make purchase decisions based largely on price, as
most major competitors offer similar value-added services. A significant
number of our customer contracts in our MSS segment are "on-demand" contracts
which, consistent with industry practice, typically have no contractual
minimum purchase requirements. On-demand services provide a cost effective
option for end-users with fluctuating demand requirements and most of our
distributors and end-users can readily purchase some or all of their on-demand
mobile satellite services from our competitors without significant additional
cost or disruption of services. Both of these factors contribute to volatility
in the level of certain satellite airtime services we sell to individual
customers. As a result, certain of our services are subject to competitive
pricing. However, we have not experienced significant pricing pressures in
most products since the latter half of 2006.
    Revenue in both our microwave and VSAT businesses are derived from
contracts of varying lengths and from non-contractual purchases of equipment
and services. In our VSAT business, competitive pricing pressures during the
past several years have negatively impacted our revenue. The introduction of
newer IP-based satellite technology has increased the competition from VSAT
providers serving the oil and gas industry. This competition has reduced
prices of both equipment and space segment in our VSAT business. In addition,
certain oil and gas producers have moved to lower cost and capability VSAT
solutions based primarily on price. In our microwave business, we were able to
increase our pricing during the latter half of 2006 and early 2007 as a result
of our customers' requirement for network reliability and capability.

    Introduction of New Services

    Advances in satellite technologies have enabled satellite system
operators to launch more sophisticated, higher-speed data services. We have
observed that some of our end-use customers are migrating slowly from earlier
technologies to the more sophisticated, higher-speed data services that have
been recently introduced. In that regard, we have experienced, and continue to
experience, a gradual migration by end-users from Inmarsat's analog and older
digital mobile satellite telecommunications services to the newer digital
services with higher speed capabilities. With the introduction in December
2005 of Inmarsat's BGAN service, we expect to experience further migration by
end-users from legacy data products such as Inmarsat GAN to BGAN and other
more sophisticated, higher-speed data services introduced in the future.
    During September 2007, we announced the introduction of a new
FleetBroadband service, the maritime version of BGAN. This service is expected
to be available in November 2007 and offers a wide range of value added
services to provide ship managers with optimal communications performance and
cost efficiency. In October 2007, we announced the introduction of
SwiftBroadband, the aeronautical version of BGAN. This service provides
government and military agencies with high-performance, secure and reliable
access to command-and-control information resources on the ground,
facilitating situational awareness. It also enables commercial and private jet
pilots and passengers to communicate with high-speed Internet, email and voice
connectivity.
    Our BGAN revenue has steadily increased since introduction, reaching more
than $3.8 million during the third quarter of 2007, an increase of 3% when
compared to the second quarter of 2007. Since Inmarsat owns the LESs for its
BGAN services, we expect our future gross margins associated with the revenues
derived from the distribution of BGAN services will be lower than for most
other Inmarsat services. We expect BGAN's higher data speeds and smaller
end-user terminals will encourage existing end-users to increase their usage
and will also expand the market for MSS services. Growth in our Broadband
segment has relied on the successful introduction of IP-based technologies for
VSAT, such as the Stratos ITek VSAT product. Our objective is to increase the
volumes of airtime and services we sell or lease in order to grow our revenue,
profitability and cash flow.

    Product Mix

    During the prior two years, we had been experiencing a shift in the mix
of services we were distributing from the higher margin airtime services, such
as Inmarsat's high-speed digital services, to lower margin Inmarsat services,
Iridium services for which we act as a non-facilities based distributor, and
other MSS equipment and services. During 2007, we have experienced increased
growth in our higher margin Inmarsat services. In addition, volatility in
certain of our higher margin Inmarsat high-speed data services have
contributed to changes in our product mix. Overall, we believe we need to
increase the volumes of airtime we sell or lease in order to grow our revenue,
profitability and cash flow. The acquisition of Xantic has significantly
increased our volume of airtime for Inmarsat services - see "Overview - The
Xantic Acquisition".
    In our Broadband segment, for the last several years we have been
experiencing a decline in our microwave and related services revenue in the
Gulf of Mexico. The hurricanes experienced in 2005 changed our product mix,
decreasing microwave revenues while increasing VSAT revenues - see "Overview -
Impact of Hurricanes". In addition, we attribute the decrease in microwave
revenue to the decline in oil and gas companies' exploration and development
drilling activity in the shallow water areas of the Gulf of Mexico and the
price competition from VSAT services. We do not purchase satellite airtime in
connection with providing telecommunication services through our microwave
network. As a result, a reduction in demand for our microwave services
generally does not result in any significant related reduction in the cost of
services and operating costs. In contrast, the increase in demand for our VSAT
services results in an increase in the cost of services related to purchasing
space segment from satellite operators and higher personnel costs associated
with designing and delivering a customized VSAT solution. As a result, we have
experienced a decline in our gross margin as a percentage of revenue as the
gross margin associated with our VSAT network revenue is lower than that
associated with our microwave network derived revenue.

    The Xantic Acquisition

    On February 14, 2006, we acquired all the issued and outstanding equity
interests in Xantic for an aggregate purchase price of $185.3 million,
including transaction costs of $7.2 million, net of cash acquired of
$33.2 million. The cash purchase price paid at closing of $191.3 million was
subject to post-closing adjustments. On February 2, 2007, we paid a purchase
price adjustment of $20.0 million pursuant to a final settlement agreement
with the former owners of Xantic.
    The Xantic acquisition was accounted for using the purchase method
resulting in total assets and liabilities recorded of $274.8 million and
$89.5 million, respectively, as described in Note 3 to the Interim Financial
Statements. Estimated restructuring and integration costs of $10.6 million
were included in the purchase price allocation. Results of operations have
been included in the consolidated statements of operations from the date of
acquisition. Consequently, the results for the nine months ended September 30,
2007 include Xantic's operations for the full period compared to the nine
months ended September 30, 2006 which only includes Xantic's operations for
the period from February 14, 2006 to September 30, 2006. The three months
ended September 30, 2007 and the three months ended September 30, 2006 include
Xantic's operations for the full period. Xantic was not integrated into our
information systems in 2006 but has been fully integrated in 2007.
    During 2006 and the first half of 2007, we executed our detailed
integration plans including rationalization of sales and marketing, finance
and other back-office functions including customer service and billing, and
information technology infrastructure. We also completed the integration of
our LES network during the first quarter of 2007 and discontinued operation of
our LES located in Goonhilly, United Kingdom and transitioned the ongoing LES
services to our LES in Burum, the Netherlands. Our integration activities are
complete and we achieved approximately $30 million of annual expense and
capital expenditure synergies. In connection with the acquisition, we incurred
one-time cash integration costs, excluding transaction costs, since the
acquisition of approximately $21.0 million. Integration costs include employee
severance costs related to operating synergies, IT systems conversion and data
migration and other costs related to integrating Xantic and Stratos.

    Impact of Hurricanes

    During 2006, network reconstruction and recovery efforts were completed
on our Broadband microwave network and related telecommunications
infrastructure in the Gulf of Mexico which were damaged by hurricanes Katrina
and Rita in 2005. During 2005 and 2006, we incurred $6.9 million of capital
expenditures and received advance payments of $2.5 million from insurance
carriers in respect of reconstruction efforts related to the hurricane damage.
Connectivity was restored to the entire network on April 1, 2006. In January
2007, we received additional advance payments of $1.7 million from our
insurance carriers. The final settlement was completed during the second
quarter of 2007 and we received an additional $5.0 million related to our
property claims. This resulted in a gain from insurance proceeds during the
three months ended June 30, 2007 of $4.5 million. See "Other (Income) Costs".
    We have business interruption insurance and filed a claim with our
insurance carriers with respect to the impact on our business caused by the
hurricanes. During the first quarter of 2006, we received an advance payment
of $0.5 million from our insurance carriers for business interruption which
was included in deferred revenue pending final resolution of the business
interruption claim. This claim was resolved during the second quarter of 2007
and we received an additional payment of $1.2 million. The total amount
received of $1.7 million was recognized as income in the three months ended
June 30, 2007. See "Other (Income) Costs".
    As a result of the damage caused by the hurricanes, we have rebuilt the
microwave network and our gross margins have been negatively impacted as
certain customers have not returned to the microwave network. We experienced
higher revenue related to lower margin VSAT services provided to our customers
affected by the hurricanes. We expect that the change in product mix caused by
the hurricanes will continue to impact our gross margins and segment earnings
in the future. The impact is based on a number of factors, including activity
levels in the Gulf of Mexico, our customer's assessment of their continuing
communication requirements and certain customers choosing to remain with VSAT
solutions.

    How We Evaluate our Operating Results and Financial Condition

    In our public disclosure documents, we provide certain financial and
related information about our business and each of our operating segments. Our
objective in providing this information is to help users of our consolidated
financial statements: (i) better understand our overall performance, (ii)
better assess the profitability of our two operating segments, (iii) better
assess our prospects for future net cash flows, and (iv) make more informed
judgments about us as a whole. In our effort to achieve this objective, we
provide information about segment revenues and segment earnings because these
financial measures are used by our key decision makers in making operating
decisions and assessing performance. We define "segment earnings" as earnings
for a segment before interest expense, depreciation and amortization, other
(income) costs, non-controlling interest, equity in earnings of investee and
income taxes. For additional information about our segment revenues and
segment earnings, including a reconciliation of these measures to our
consolidated financial statements, see note 18 to our Interim Financial
Statements.

    Comparison of Three and Nine Months Ended September 30, 2007 and
    September 30, 2006

    The following table sets forth statement of operations data and key
statistics for the three and nine months ended September 30, 2007 and
September 30, 2006.

    
                                       --------------------------------------
                                          Three Months        Nine Months
                                              Ended               Ended
                                          September 30        September 30
                                       ------------------  ------------------
                                         2007      2006      2007      2006
                                       --------------------------------------
                                         ($ in millions, except percentages)
    Revenue
    - MSS                              $ 122.6   $ 107.7   $ 355.6   $ 302.9
    - Broadband                           31.7      30.9      93.3      94.3
    -------------------------------------------------------------------------
                                         154.3     138.6     448.9     397.2
    -------------------------------------------------------------------------
    Gross margin                          47.2      39.8     122.7     103.7
      As a % of revenue                    31%       29%       27%       26%

    Operating expenses                    14.3      17.2      47.4      51.7
      As a % of revenue                     9%       12%       11%       13%
    -------------------------------------------------------------------------

    Segment earnings
    - MSS                                 27.7      20.3      66.7      44.2
    - Broadband                            5.2       2.3       8.6       7.8
    -------------------------------------------------------------------------
                                          32.9      22.6      75.3      52.0
    -------------------------------------------------------------------------
      As a % of revenue                    21%       16%       17%       13%

    Interest expense                       8.3       8.7      24.9      26.2
    Depreciation and amortization         10.3      11.0      30.7      30.9
    Other (income) costs                   0.3       3.8       0.6      29.1
    Non-controlling interest                 -         -      (0.1)        -
    Equity in earnings of investee        (0.2)     (0.2)     (0.8)     (0.7)
    -------------------------------------------------------------------------

    Earnings (loss) before income taxes   14.2      (0.7)     20.0     (33.5)
    Income tax expense (recovery)          4.7      (1.1)      8.1      (5.1)
    -------------------------------------------------------------------------

    Net earnings (loss)                $   9.5   $   0.5   $  11.9   $ (28.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Revenue

    Our total revenue for the three and nine months ended September 30, 2007
was $154.3 million and $448.9 million, respectively, an increase of
$15.7 million, or 11%, and $51.7 million, or 13%, from the same periods in the
prior year. MSS segment revenue of $122.6 million and $355.6 million was up
$14.9 million and $52.7 million, respectively, from the same periods of the
prior year. Broadband segment revenue increased by $0.8 million in the three
months ended September 30, 2007 when compared to the three months ended
September 30, 2006 and decreased $1.0 million in the first nine months of 2007
when compared to the same period of 2006.
    The increase in our MSS segment revenue for the three months ended
September 30, 2007 when compared to the three months ended September 2006
resulted primarily from increased traffic volumes related to certain Inmarsat
high speed data products, increased sales of mobile terminals and equipment
and increased Iridium revenue. The increase in revenue for the nine months
ended September 30, 2007 was attributable to the increases noted above as well
as revenue from Xantic being included for the nine months ending September 30,
2007 whereas 2006 only included Xantic revenue from February 14 to
September 30, 2006 as previously discussed - see "Overview - The Xantic
Acquisition".
    The following table sets forth our Inmarsat revenues for the three and
nine months ended September 30, 2007 and September 30, 2006 for our key market
sectors.

    
                                       --------------------------------------
                                          Three Months        Nine Months
                                              Ended               Ended
                                          September 30        September 30
                                       ------------------  ------------------
                                         2007     2006(1)    2007     2006(1)
                                       --------------------------------------
    Revenues                                      ($ in millions)

    Maritime sector:
      Voice services                   $  31.9   $  33.8   $  96.1   $  91.4
      Data services                       17.6      12.3      51.8      31.9
    -------------------------------------------------------------------------
    Total maritime sector                 49.5      46.1     147.9     123.3

    Land sector:
      Voice services                       5.0       4.7      15.6      15.2
      Data services                       18.0      14.6      51.5      40.1
    -------------------------------------------------------------------------
    Total land sector                     23.0      19.3      67.1      55.3

    Aeronautical sector                    5.7       5.0      19.2      13.1
    Leasing                               19.8      18.1      57.8      53.6
    -------------------------------------------------------------------------

    Total Inmarsat revenue             $  98.0   $  88.5   $ 292.0   $ 245.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Certain previously reported amounts have been reclassified to other
        market sectors based on additional information available after the
        Xantic integration.
    

    The increase of $3.4 million in the maritime sector for the three months
ended September 30, 2007 is due primarily to the growth in our Inmarsat F high
speed maritime service. The increase of $24.6 million in the maritime sector
for the nine months ended September 30, 2007 is due to the Inmarsat F service
growth combined with the additional period of revenue for Xantic. Revenues in
the land sector increased $3.7 million and $11.8 million, respectively, for
the three and nine months ended September 30, 2007 when compared to the same
periods in the prior year. The increase for the three months ended
September 30, 2007 is primarily due to the growth in BGAN and increases in GAN
usage. We experience volatility in usage patterns for GAN services used to a
significant extent by our government and military customers operating in the
land sector. The increase for the nine months ended September 30, 2007 is due
to this BGAN and GAN growth combined with the additional period of revenue for
Xantic. The $0.7 million increase in the aeronautical revenue for the three
months ended September 30, 2007 when compared to the same period in 2006 is
due to growth in our Swift 64 aeronautical service. This growth combined with
the increased period of revenue for Xantic has resulted in a $6.1 million
increase in the aeronautical revenue for the nine months ended September 30,
2007 compared to the prior year period. Our leasing services, primarily
Inmarsat B, continue to enjoy modest growth as a result of increased usage by
government and military customers. This has resulted in increases of $1.7
million and $4.2 million, respectively, for the three and nine month periods
ended September 30, 2007 compared to the same periods in the prior year.
    The increase in our Broadband segment revenue during the three months
ended September 30, 2007 when compared to the same period of the prior year is
due to an increase in revenue from engineering projects during the period
partially offset by decreases in VSAT equipment and rental revenue and
decreases in microwave equipment and rental revenue. The decrease in revenue
for the nine months ended September 30, 2007 is primarily due to the fact that
revenues for the nine months ended September 30, 2006 included recoveries of
$1.7 million related to a positive experience resolving service interruption
issues with certain of our microwave customers impacted by the 2005
hurricanes. Decreases in VSAT revenue as a result of lower equipment sales,
the expiry of certain contracts entered into during the hurricanes and
increased competition from lower cost VSAT providers also contributed to the
revenue decline in the third quarter ended September 30, 2007. Partially
offsetting these decreases is increased revenue from engineering projects and
increased microwave revenue in the first half of the year as a result of rate
increases introduced in the second half of 2006 and early 2007.

    Gross Margin

    Gross margin for the three months ended September 30, 2007 was
$47.2 million, an increase of $7.4 million compared to the same period in
2006. Gross margin for the first nine months of 2007 increased $19.0 million
to $122.7 million when compared to the first nine months of 2006. As a
percentage of revenue, gross margin was 31% and 27%, respectively, for the
three and nine months ended September 30, 2007, compared to 29% and 26% for
the same periods of the prior year.
    Gross margin consists of revenue less cost of goods and services. Cost of
goods and services includes variable expenses such as the cost of airtime and
space segment we purchase from satellite owners, cost of equipment, materials
and services we re-sell, and variable labor costs related to our repair and
service workforce. Cost of goods and services also includes costs such as
network infrastructure operating costs, customer support center costs,
telecommunications services purchased from terrestrial providers, rents and
salaries that do not vary significantly with changes in our volumes of goods
and services sold.
    In the MSS segment, gross margin for the three months ended September 30,
2007 increased as a result of the growth in certain services as previously
noted. The gross margin in the third quarter of 2006 was positively impacted
by approximately $3.3 million as a result of favorable commercial settlements
with suppliers, including a $2.6 million settlement in respect of one-time
adjustments to satellite airtime volume discounts of which $2.1 million
related to prior years. The gross margin for the nine months ended
September 30, 2007 increased as a result of the growth in revenue from certain
products and services as noted previously and increased revenue related to the
Xantic acquisition. As a percentage of segment revenue, gross margin in the
MSS segment for the three and nine months ended September 30, 2007 has
increased when compared to the same periods in the prior year as a result of
synergies obtained from the Xantic acquisition including increased volume
discounts as a result of the increased traffic volume.
    In the Broadband segment, gross margin increased in absolute terms and as
a percentage of revenue in the three months ended September 30, 2007 when
compared to the same period of 2006. This increase was due primarily to the
increased margin on engineering projects, a favorable commercial settlement
with a customer for $0.9 million and a one-time contract cancellation fee from
a customer of $0.7 million. The decrease for the nine months ended
September 30, 2007 was primarily attributable to $1.7 million of revenue
recoveries included in the nine months ended September 30, 2006 and losses of
$1.9 million related to fixed price engineering projects in the first six
months of 2007. These decreases were partially offset by the increase in the
third quarter as noted above.

    Operating Expenses

    Operating expenses for the three and nine months ended September 30, 2007
of $14.3 million and $47.4 million, respectively, were $2.9 million and
$4.3 million lower than the same periods in 2006. Operating expenses
represented 9% and 11% of our revenue for the three and nine months ended
September 30, 2007 compared to 12% and 13% for the same periods in the prior
year. Our operating expenses decreased as a result of synergies realized from
our integration activities and cost saving initiatives as well as a recovery
of professional fees during the three months ended September 30, 2007 of
$0.9 million, as described further below.
    In April 2006, we commenced an arbitration proceeding with Inmarsat,
contending that Inmarsat's appointment of a new Distribution Partner ("DP")
for BGAN services breached the terms of the Commercial Framework Agreement
("CFA") and BGAN Services Distribution Agreement ("BGAN SDA"). On January 3,
2007, the arbitrator issued a decision ("Award I") holding that the Inmarsat
appointment of the proposed DP breached the terms of the CFA and BGAN SDA.
Following the arbitrator's decision, a party related to the proposed DP was
presented as a potential DP, which we also opposed. On February 15, 2007, in a
separate proceeding ("Award II"), the arbitrator ruled that this related party
met the selection criteria to be a DP. The parties petitioned the arbitrator
for the recovery of professional fees and costs relating to the proceedings,
and, on October 4, 2007, the arbitrator awarded us our fees and costs for
Award I and Inmarsat its fees and costs for Award II, with a net recovery to
Stratos of $0.9 million. The decisions of the arbitrator are final and
binding.
    The operating expense decreases were partially offset during the nine
months ended September 30, 2007 by additional compensation expense of
$0.4 million as a result of the earlier than anticipated vesting of stock
options due to the Arrangement transaction. As part of the Arrangement
agreement all existing stock options vested immediately prior to the
shareholder vote in June 2007. This required the expensing of the additional
deferred stock option cost but no payments will be made to the holders of the
stock options as the exercise prices of all options are above the current per
share price under the Arrangement. The decrease for the nine months ended
September 30, 2007 was also partially offset by Xantic's operating expenses
being included for the full nine month period in 2007 but only for the period
from February 14 to September 30 in 2006. In addition, the nine months ended
September 30, 2006 included gains on foreign exchange forward contracts
related to Xantic of $0.8 million.
    Our operating expenses include general and administrative costs
associated with our corporate management and back office billing, credit,
accounting and information technology operations, public company costs, costs
associated with our worldwide sales and marketing organization and related
legal, audit and other professional fees we require to operate our business.

    Segment Earnings

    MSS segment earnings increased $7.4 million and $22.5 million,
respectively, in the three and nine months ended September 30, 2007, compared
to the same periods of the prior year. The increases were primarily a result
of the increases in gross margin and the decrease in the operating expenses.
As a percentage of revenue, MSS segment earnings represented 23% and 19%,
respectively, of the MSS segment revenue in the three and nine months ended
September 30, 2007 compared to 19% and 15% for the same periods of 2006. When
compared to the same periods in the prior year, MSS segment earnings as a
percentage of revenue increased for the three and nine months ended
September 30, 2007 as a result of the increased gross margin percentage and a
decrease in operating expenses as a percentage of revenue.
    Due to the reset of the Inmarsat volume discount arrangements in the
first quarter of the year, MSS gross margin and segment earnings are expected
to remain high in the fourth quarter of 2007 as cumulative volumes achieved
result in higher discounts when compared to Inmarsat's undiscounted prices.
Volume discounts received for the three and nine months ended September 30,
2007 were $10.8 million and $20.8 million, respectively. Based on our
expectations of the volume and mix of Inmarsat services for the remainder of
2007, we estimate that total Inmarsat volume discounts for the remainder of
2007 would be approximately $9.5 million. The final determination of volume
discounts is dependent on future traffic volumes and, in particular, traffic
volumes in our land high-speed sector.
    Broadband segment earnings increased $2.9 million and $0.8 million,
respectively, in the three and nine months ended September 30, 2007, compared
to the same periods of the prior year. As a percentage of segment revenue,
Broadband segment earnings increased to 16% and 9%, respectively, for the
three and nine months ended September 30, 2007 from 7% and 8%, respectively,
in the same periods in the prior year. The increase both in absolute terms and
as a percentage of revenue is due to the increase in gross margin and the
reduction in operating expenses.

    Interest Expense

    Interest expense for the three months ended September 30, 2007 of
$8.3 million reflected a decrease of $0.4 million when compared to the same
period in 2006. Interest expense for the nine months ended September 30, 2007
decreased $1.3 million to $24.9 million when compared to the prior year. The
decrease for the three months ended September 30, 2007 was due to a decrease
in amortization of deferred financing costs as a result of a change in
accounting for financial instruments - see "Changes in Accounting Policies", a
lower long term debt balance as a result of a $2.3 million principal repayment
in February 2007 and lower commitment fees resulting from the termination of
the undrawn $20.0 million Term A facility in January 2007. The decrease for
the nine months ended September 30, 2007 was due primarily to the fact that
the 2006 expense included $2.8 million related to the write-off of previously
deferred financing costs and a bridge facility fee of $1.0 million. This was
partially offset by the impact of the refinancing being included for the full
period in the nine months ended September 30, 2007 and only for the period
from February 13 to September 30 in 2006. On February 13, 2006, we refinanced
our senior credit facilities adding $61.5 million of Term B debt when compared
to our former Term B and revolving operating facilities, and issued
$150.0 million of senior unsecured notes in connection with the Xantic
acquisition. The LIBOR margin on the refinanced Term B facilities is 2.75%
compared to 2.25% under the prior Term B facility. The interest rate on the
senior unsecured notes is 9.875%.

    Depreciation and Amortization

    Depreciation and amortization for the three months ended September 30,
2007 decreased $0.7 million to $10.3 million. For the nine months ended
September 30, 2007, depreciation and amortization decreased $0.2 million to
$30.7 million when compared to the same period for 2006. The decrease for the
three months ended September 30, 2007 is due primarily to reduced depreciation
and amortization related to certain capital assets and other assets which were
fully amortized during 2006. The decrease for the nine months ended
September 30, 2007 is due to the decrease during the three months ended
September 30, 2007 partially offset by the amortization of customer
relationship intangibles related to the Xantic acquisition and depreciation
expense related to Xantic capital assets being included for the entire nine
months ended September 30, 2007 compared to being included from February 14 to
September 30, 2006 and capital expenditures that were incurred during 2006.

    Other (Income) Costs

    Other (income) costs of $0.3 million and $0.6 million for the three and
nine months ended September 30, 2007 included the following:

    
    -   Costs incurred for financial advisory, legal and other costs of
        $1.4 million and $6.6 million, respectively, during the three and
        nine month periods ended September 30, 2007 in relation to the
        Arrangement transaction. See "Arrangement with CIP".

    -   Gain on sale of capital assets during the third quarter related to
        the sale of certain aeronautical equipment. Total proceeds were
        $1.0 million, resulting in a gain of $1.0 million, as the equipment
        had been fully depreciated.

    -   Gain from insurance settlements related to hurricanes Katrina and
        Rita of $6.2 million. We reached final agreements with our insurance
        carriers during the second quarter and received the final payments.
        The $6.2 million of income represents total proceeds received,
        including advance payments previously noted, net of deductibles, book
        value of assets disposed of and other costs incurred. It is comprised
        of $4.5 million for property damage and $1.7 million for business
        interruption.

    -   Costs incurred of $0.4 million during the second quarter to move
        assets from Goonhilly, United Kingdom to Burum, the Netherlands as
        part of the rationalization of our LES network.

    -   Severance and other costs of $0.8 million in the first quarter and
        $0.1 million in the second quarter included severance and consultant
        costs related to corporate wide restructuring measures designed to
        reduce costs.

    Other costs of $29.1 million for the nine months ended September 30, 2006
consisted of the following:

    -   A $19.6 million asset impairment charge in the first quarter
        resulting from an evaluation of our consolidated post acquisition LES
        network infrastructure with the acquisition of Xantic.

    -   An asset impairment charge of $4.2 million in the first quarter
        related to the write-off of capital assets representing costs
        incurred under a contract to customize and integrate customer
        relationship management software for use within our mobile satellite
        business. We filed a claim for $7.0 million in damages, plus costs
        and interest, as a result of the third party consultant's breach of
        contract and the defendant filed a counterclaim alleging breach of
        the same contract and seeking $6.7 million in damages, plus costs and
        interest.

    -   Severance and other costs of $4.0 million recorded in the third
        quarter of 2006 including severance costs of $3.2 million related to
        restructuring measures implemented in the global MSS operations and
        sales and marketing groups and in the Broadband European operations
        groups. In addition, consultant costs of $0.8 million were recorded
        in respect of restructuring activities.

    -   Other income of $0.2 million recorded in the third quarter of 2006
        related to the successful appeal of the court ruling in favor of a
        former director and officer provided for in 2005.

    -   Severance and other costs of $0.2 million in the first quarter and
        $1.3 million in the second quarter as a result of the integration of
        Xantic related to positions existing within our MSS segment prior to
        the acquisition and a restructuring of the Broadband sales and
        operations groups.
    

    Income Tax

    Income tax expense for the quarter ended September 30, 2007 was
$4.7 million based on earnings before tax of $14.2 million compared to an
income tax recovery of $1.1 million based on a loss before tax of $0.7 million
for the quarter ended September 30, 2006. Income tax expense for the nine
months ended September 30, 2007 was $8.1 million based on earnings before tax
of $20.0 million compared to income tax recovery of $5.1 million based on a
loss before tax of $33.5 million for the nine months ended September 30, 2006.
    The difference in the effective income tax rate for the third quarter and
nine months ended September 30 from the 36% Canadian statutory rate is due, in
both years, primarily to losses incurred in foreign jurisdictions for which no
tax benefit has been recognized, expenses which are not deductible for tax
purposes, as well as differences in financial reporting in some jurisdictions
as compared to consolidated financial reporting. The expenses which are not
deductible for tax purposes in 2007 relate primarily to $5.7 million in costs
incurred in relation to the Arrangement transaction. The losses for which no
tax benefit was recognized in 2006 relate primarily to the asset impairment
charge of $19.6 million described above. These benefits will be recognized in
the future if their realization is determined to be more likely than not.

    Net Earnings (Loss)

    We recorded net earnings of $9.5 million and $11.9 million, respectively,
during the third quarter and first nine months of 2007 compared to net
earnings of $0.5 million and a net loss of $28.5 million, respectively, for
the same periods of 2006. The basic earnings per share for the three and nine
months ended September 30, 2007 was $0.23 and $0.28, respectively, compared to
basic earnings per share of $0.01 and basic loss per share of $0.68,
respectively, in the same periods of the prior year.

    Quarterly Information

    The table below sets forth selected financial data related to our
revenue, net earnings (loss) and earnings (loss) per common share for each of
the eight most recently completed quarters. The financial data is derived from
our interim unaudited consolidated financial statements, which are prepared in
accordance with Canadian GAAP.

    
    -------------------------------------------------------------------------
                        (U.S. Dollars; in millions, except per share amounts)
                                                    2007                2006
    -------------------------------------------------------------------------
                                      Sept. 30   June 30   Mar. 31   Dec. 31
    -------------------------------------------------------------------------
    Revenue                            $ 154.3   $ 149.9   $ 144.6   $ 140.7
    Net Earnings (Loss)                    9.5       6.6      (4.2)      1.7
    Basic and Diluted Earnings (Loss)
     Per Common Share                     0.23      0.16     (0.10)     0.04
    -------------------------------------------------------------------------

                        (U.S. Dollars; in millions, except per share amounts)
                                                    2006                2005
    -------------------------------------------------------------------------
                                      Sept. 30   June 30   Mar. 31   Dec. 31
    -------------------------------------------------------------------------
    Revenue                            $ 138.6   $ 139.3   $ 119.3   $ 100.6
    Net Earnings (Loss)                    0.5      (4.1)    (24.9)      2.0
    Basic and Diluted Earnings (Loss)
     Per Common Share                     0.01     (0.10)    (0.59)     0.05
    -------------------------------------------------------------------------
    

    The fourth quarter of 2005 included increased revenue in the Broadband
division related to VSAT and other services provided to customers affected by
the hurricanes. Revenues in the four quarters of 2006 included the increased
revenues from the Xantic acquisition partially offset by declines in GAN
revenues. In addition, Broadband segment revenues decreased modestly in the
first quarter of 2006 due to decreases in VSAT equipment revenues and in the
second quarter of 2006 due to lower revenue recoveries related to resolving
service interruption issues with our customers impacted by the hurricanes in
2005. In the third quarter of 2006, MSS and Broadband segment revenue remained
essentially consistent with the prior quarter. Revenue in the fourth quarter
of 2006 increased compared to the prior quarter primarily due to increased
microwave equipment sales to a customer in the Gulf of Mexico. Revenues in the
first quarter of 2007 increased 3% when compared to the prior quarter due
mainly to increased volume in certain Inmarsat products, especially GAN,
Fleet, Swift 64 and BGAN. Revenues in the second quarter of 2007 increased a
further 4% when compared to the prior quarter due mainly to continued
increased volume in certain Inmarsat products, especially GAN and Fleet,
offsetting reduced microwave equipment sales. The revenues in the third
quarter increased a further 3% compared to the prior quarter. This increase
was due mainly to increased sales of mobile terminals and equipment and
increased Iridium revenue in our MSS segment as well as increased engineering
project revenue in our Broadband segment.
    Inmarsat volume discount arrangements become effective on January 1st of
each year. As a result of accumulated volumes in the fourth quarter of 2005,
we achieved reductions in the cost of goods and services of approximately
$0.6 million when compared to the immediately preceding quarter. With the
annual reset of the volume discount arrangements on January 1, 2006, cost of
goods and services in the MSS segment, excluding Xantic, increased $1.9
million when compared to the fourth quarter of 2005. As a result of
accumulated volumes in the first, second, third and fourth quarters of 2006
and the additional volumes in Xantic, we achieved combined reductions in the
cost of goods and services of approximately $1.5 million, $4.3 million, $7.4
million and $9.2 million, respectively, when compared to undiscounted rates.
In addition, the third quarter of 2006 was positively impacted by
approximately $2.6 million as a result of a favorable commercial settlement
and adjustments to satellite airtime volume discounts of which $2.1 million
related to prior fiscal years. With the annual reset of the volume discount
arrangements on January 1, 2007, costs of goods and services in the MSS
segment for the first quarter of 2007 increased $7.2 million when compared to
the fourth quarter of 2006. As a result of accumulated volumes in the second
and third quarters of 2007, we achieved reductions in the cost of goods and
services of approximately $4.6 million and $3.5 million, respectively, when
compared to similar costs in the immediately preceding quarter.
    The first, second, third and fourth quarters of 2006 include other costs
of $30.9 million, primarily related to the acquisition of Xantic - see "Other
(Income) Costs". The first, second and third quarters of 2007 include other
costs of $0.3 million as outlined in "Other (Income) Costs".

    Related Party Transactions

    In the normal course of operations, we engage in transactions with our
equity owned investee, Navarino Telecom SA and NTS Maritime Ltd (collectively
referred to as "Navarino"), one of Stratos' largest distributors. Sales of
airtime and equipment to Navarino for the three and nine months ended
September 30, 2007 were $4.8 million and $13.5 million, respectively, and
$4.2 million and $11.5 million, respectively, for the same periods last year.
These transactions are measured at the amounts exchanged. The amount
receivable from Navarino at September 30, 2007 was $7.9 million compared to
$5.7 million at September 30, 2006.

    Liquidity and Capital Resources

    Operating Activities

    We generated $24.0 million in operating cash flow (before changes in
non-cash working capital) during the quarter ended September 30, 2007 and
$47.3 million during the nine month period ended September 30, 2007, an
increase of $10.7 million and $16.9 million, respectively, from the $13.3
million and $30.4 million generated for the three and nine months ended
September 30, 2006. These increases primarily related to increases in net
income of $9.0 million and $40.4 million, respectively, for the three and nine
month periods ended September 30, 2007. The operating cash flow for the nine
months ended September 30, 2006 was increased by non-cash charges during the
period including the asset impairment charge of $23.8 million and the
amortization of deferred financing charges of $2.8 million.
    We increased our investment in non-cash working capital during the
quarter ended September 30, 2007 by $21.4 million resulting in a net increase
in working capital for the nine months ended September 30, 2007 of
$22.2 million. The increase during the quarter ended September 30, 2007
resulted from a decrease in accounts payable due to the payment of income
taxes payable, the payment of accrued interest and the timing of other
payments, an increase in accounts receivable as a result of increased traffic
volume during the quarter and the timing of certain cash collections, and an
increase in prepaids and other. We increased our investment in non-cash
working capital during the quarter and nine months ended September 30, 2006 by
$10.3 million and $13.1 million, respectively, excluding the effect of opening
non-cash working capital balances arising from the Xantic acquisition. The
increases primarily result from an increase in trade accounts receivable from
the timing of certain cash collections.
    Net operating cash flow for the quarter ended September 30, 2007 was
$2.6 million, a decrease of $0.4 million compared with the $3.0 million for
the quarter ended September 30, 2006. Net operating cash flow for the nine
months ended September 30, 2007 was $25.2 million, an increase of $7.9 million
compared with the $17.3 million generated during the same period in 2006.

    Investing Activities

    Cash used in investing activities was $3.6 million and $29.5 million for
the quarter and nine months ended September 30, 2007, compared to an
investment of $8.4 million and $194.0 million for the same periods last year.
The $164.5 million change for the nine month period ended September 30, 2007
when compared with the same period in 2006 was primarily due to the
acquisition of Xantic for $162.0 million in 2006 compared to an investment of
$20.0 million in 2007 representing the payment of the final purchase price
adjustment for the Xantic acquisition. In addition, the nine months ended
September 30, 2006 included deferred costs associated with the refinancing of
our senior credit facilities in the first quarter of 2006. The nine months
ended September 30, 2007 also includes proceeds of $4.5 million received from
insurance related to capital assets damaged during the hurricanes in 2005. See
"Overview - Impact of Hurricanes". Capital asset additions for the three and
nine months ended September 30, 2007 of $3.6 million and $14.0 million,
respectively, decreased by $5.2 million and $6.9 million, respectively, from
$8.8 million and $20.9 million incurred during the three and nine months ended
September 30, 2006. Capital asset additions for the nine months ended
September 30, 2007 related primarily to investment in MSS infrastructure
upgrades and Broadband equipment purchases and infrastructure upgrades.
Capital asset additions for the nine months ended September 30, 2006 related
primarily to the rebuild of telecommunications assets in the Gulf of Mexico
which were damaged by hurricanes Katrina and Rita, investment in capital
infrastructure associated with the Xantic integration as well as purchases of
VSAT telecommunications equipment.

    Financing Activities

    Financing activities used cash of $0.9 million and $4.1 million,
respectively, for the three and nine months ended September 30, 2007 compared
to a generation of cash of $0.1 million and $211.0 million for the three and
nine months ended September 30, 2006. During the first quarter of 2006, we
refinanced our senior credit facilities. The cash used in 2007 was primarily
for the annual principal payment due on the Term B facility of $2.3 million
and deferred financing costs of $0.8 million to obtain amendments to certain
covenants and a waiver of the change of control provision under the Term B
credit facility in connection with the Arrangement transaction. Cash generated
for the nine month period of 2006 was primarily due to long-term debt proceeds
of $225.0 million from the amended and restated Term B facility which was
partially used to repay the outstanding balances of $148.5 million under the
prior Term B facility and $15.0 million under the prior revolving operating
facility. The remaining proceeds from the amended and restated Term B facility
were used to fund a portion of the Xantic acquisition. In addition, we issued
senior unsecured notes of $150.0 million to finance the remaining portion of
the Xantic acquisition, transaction and integration costs.
    At September 30, 2007, long-term debt (including current portion and
senior unsecured notes) totaled $373.3 million and shareholders' equity
totaled $211.2 million. At December 31, 2006, long-term debt (including
current portion and senior unsecured notes) totaled $375.6 million and
shareholders' equity totaled $197.9 million. The long-term debt to equity
ratio was 1.8:1 at September 30, 2007 and 1.9:1 at December 31, 2006.

    Cash, Short-Term and Long-Term Borrowings

    At September 30, 2007, we held cash and short-term investments of
$39.7 million. This was a decrease of $8.4 million from the December 31, 2006
cash and short-term investment balance of $48.1 million. This decrease
resulted primarily from the payment of the $20 million final purchase price
adjustment for Xantic, capital expenditures and long-term debt principal
repayment as noted above offsetting cash provided by operations for the nine
months ended September 30, 2007.
    In connection with the acquisition of Xantic on February 14, 2006, we
incurred long-term debt in order to refinance our existing senior credit
facilities and fund the purchase price of Xantic paid at closing, as well as
transaction and integration costs. Effective February 13, 2006, our refinanced
senior secured credit facilities consisted of: (i) a five year $25.0 million
revolving operating facility; (ii) a five year Term A facility of up to
$20.0 million; and (iii) a six year Term B facility of $225.0 million. In
addition, on February 13, 2006 we issued $150.0 million of 9.875% senior
unsecured notes due in 2013. On January 31, 2007, we terminated the undrawn
Term A facility which was only available to fund purchase price adjustments
related to the Xantic acquisition. On February 2, 2007, the Xantic purchase
price adjustment of $20.0 million was funded from cash on hand. The refinanced
senior credit facilities were provided by a syndicate of financial
institutions. No amounts have been drawn under the new revolving operating
facility. The terms of our refinanced senior credit facilities and the senior
unsecured notes are described in Note 9 to our Interim Financial Statements.
During the first quarter of 2007, we requested and received adjustments for
2007 to certain financial covenants under our existing senior credit
facilities in order to provide additional flexibility while we completed the
integration of Xantic. In connection with the Arrangement described under
"Arrangement with CIP", we requested and received a waiver of the change of
control provision and a related ancillary amendment from the lenders under our
senior credit facilities during the second quarter of 2007.
    If a change of control occurs in connection with the Arrangement
transaction, we are required by the indenture governing our $150 million
senior unsecured notes to make an offer to the senior unsecured noteholders to
repurchase all notes at a purchase price in cash equal to not less than 101%
of the aggregate principal amount plus accrued and unpaid interest to the date
of repurchase. CIP has agreed to make the tender offer for the senior
unsecured notes subsequent to the completion of the Arrangement and CIP has
arranged a committed facility to fund cash payments that arise in respect of
any tendered senior unsecured notes.
    We believe our cash and cash equivalents, the cash flow from operations
and the available $25.0 million of revolving operating facility will provide
the resources required to meet our expenditure requirements for the
foreseeable future. Expenditure requirements include working capital
requirements, debt service, ongoing capital expenditure requirements and cash
outlays associated with the Arrangement transaction which we estimate to be
approximately $20 million, the majority of which would be payable upon closing
of the Arrangement. The cash outlays primarily include financial advisors' and
consultant fees, legal and accounting fees and payment of restricted stock
units to members of the Board of Directors and certain employees.

    Contractual Obligations

    A summary of our total contractual obligations and commercial commitments
to make future payments as at September 30, 2007 is presented in the table
below.

    
                                         Payments due by September 30
                                                ($ in millions)
    Contractual                 ---------------------------------------------
     obligations         Total   2008   2009   2010   2011   2012  Thereafter
    -------------------------------------------------------------------------
    Long-term debt(1)  $ 373.3  $ 2.4  $ 2.4  $ 2.4  $ 2.3  $ 2.3    $ 361.5
    Operating leases      24.8    4.9    3.2    2.6    2.5    2.0        9.6
    Maintenance
     contracts             0.7    0.5    0.2      -      -      -          -
    Capital expenditure
     obligations           0.4    0.3    0.1      -      -      -          -
    Purchase
     obligations(2)       32.3   20.7    8.6    2.4    0.4    0.1        0.1
    Other obligations     16.5    2.7    1.1    1.6    1.4    1.6        8.1
    -------------------------------------------------------------------------
    Total contractual
     obligations       $ 448.0 $ 31.5 $ 15.6  $ 9.0  $ 6.6  $ 6.0    $ 379.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Excludes interest.
    (2) Purchase obligations are related primarily to space segment costs and
        will be funded from contracts to provide space segment and related
        services to our customers.
    

    Off-Balance Sheet Arrangements

    We have no material off-balance sheet arrangements.

    Outstanding Share Capital

    We are authorized to issue an unlimited number of preferred shares,
issuable in series, and an unlimited number of common shares. As at
September 30, 2007, we had issued and outstanding 42.0 million (2006 -
42.0 million) common shares with a stated value of $216.2 million (2006 -
$216.2 million). No preferred shares have been issued.

    Critical Accounting Estimates

    The preparation of our Interim Financial Statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the dates of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. These estimates
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. By their nature,
estimates are subject to an inherent degree of uncertainty. Actual results
that differ from these estimates could have a significant adverse effect on
our operating results and financial position. Our critical accounting
estimates are discussed in the MD&A contained in our 2006 Annual Filings.

    Risk and Risk Management

    Foreign Currency Exchange Rate Risk

    We prepare our consolidated financial statements in U.S. dollars and each
of our subsidiaries operates with U.S. dollars as the functional currency as a
substantial portion of our business is conducted in U.S. dollars. By virtue of
our international operations, we conduct business in a number of foreign
currencies other than the U.S. dollar. Transactions which have occurred in
currencies other than U.S. dollars have been converted to U.S. dollars at the
exchange rate in effect at the transaction date. Carrying values of monetary
assets and liabilities in currencies other than U.S. dollars have been
converted at the U.S. rate at the balance sheet date with the resulting gain
or loss included in income.
    Our exposure to foreign currencies is limited due to the substantial
portion of our customer contracts, major expenditures and debt denominated in
U.S. dollars. To mitigate potential risks with respect to foreign currencies,
our strategy has been to match cash inflows and outflows by currency, thereby
minimizing net currency exposures to the greatest extent possible.
Consequently, we have not entered into forward contracts to manage exposure to
exchange rate fluctuations pertaining to our future net cash flows from
operations. Xantic had entered into forward exchange contracts to manage
exposure to Euros for its operations in 2006. Foreign currency exchange rate
fluctuations related to the translation of transactions occurring in
currencies other than U.S. dollars and foreign exchange gains and losses
related to the translation of monetary assets and liabilities have not been
significant in the three and nine months ended September 30, 2007 and 2006.
    To perform a sensitivity analysis, we assess the risk of loss in fair
values due to the impact of hypothetical changes in foreign currency exchange
rates on monetary assets and liabilities denominated in currencies other than
U.S. dollars. Our primary exposures to foreign currency exchange fluctuations
are Euros/U.S. dollar, Canadian dollar/U.S. dollar and Pound Sterling/U.S.
dollar. For the nine months ended September 30, 2007, the potential reduction
in earnings from a hypothetical instantaneous 10% adverse change in the
September 30, 2007 quoted foreign currency spot rates applied to Euro,
Canadian dollar and Pound Sterling denominated monetary assets and liabilities
included in the September 30, 2007 balance sheet would have been approximately
$0.4 million, $0.2 million and $0.2 million, respectively.

    Interest Rate Risk

    Our Term B credit facility outstanding on September 30, 2007 bears
interest based on LIBOR and therefore is affected by changes in market
interest rates. As outlined in Note 19 to our Interim Financial Statements, we
have entered into interest rate swap agreements to hedge a portion of our
exposure to such fluctuations. The amount of our remaining variable rate debt
was $22.8 million at September 30, 2007. If the LIBOR rate were to increase by
1%, our annual net income before tax would be reduced by approximately
$0.2 million based on these levels.
    The foregoing risks should be read in conjunction with the additional
risks relating to Stratos and the remote telecommunications industry described
in the MD&A contained in our 2006 Annual Filings and our Annual Information
Form filed with Canadian Securities Regulatory Authorities and the annual
report filed with the SEC on Form 40-F. Risks relating to the completion of
the Arrangement transaction are described in our management proxy circular
dated May 4, 2007 filed with Canadian Securities Regulatory Authorities.

    Changes in Accounting Policies

    A summary of our significant accounting policies is presented in Note
2(a) to our Interim Financial Statements for the three and nine months ended
September 30, 2007 and 2006. These policies are consistent with those included
in the 2006 Annual Filings except for the changes outlined in Note 2(b) to our
Interim Financial Statements which are summarized below.

    Accounting Changes in 2007

    On January 1, 2007, we adopted, on a retroactive basis without
restatement, three new accounting standards that were issued by the Canadian
Institute of Chartered Accountants ("CICA"): Handbook Section 3855, Financial
Instruments - Recognition and Measurement, Handbook Section 1530,
Comprehensive Income, and Handbook Section 3865, Hedges. These standards, and
the impact on our financial position and results of operations, are discussed
in Note 2(b) to our Interim Financial Statements.

    Internal Control over Financial Reporting

    No changes were made in our internal control over financial reporting
during the three month period ended September 30, 2007 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

    Arrangement with CIP

    On March 19, 2007, we announced we had entered into a definitive
Arrangement Agreement (the "Arrangement Agreement") to be acquired by CIP
Canada Investment Inc. ("CIP Canada"), a wholly-owned subsidiary of
Communications Investments Partners Limited ("CIP"), a professional investment
company with a focus on satellite services.
    Under the terms of the Arrangement Agreement, CIP Canada would acquire
beneficial ownership of 100 percent of our common shares through a plan of
arrangement under the Canada Business Corporations Act for a cash purchase
price of C$7.00 per common share.
    The Arrangement required, among other things, approval by the Ontario
Superior Court and by 66 2/3% of the votes cast in person or by proxy at a
special meeting of our shareholders. These approvals were obtained during the
second quarter of 2007. The Arrangement was also subject to customary
conditions and regulatory approvals, including any clearances under applicable
competition laws and approval of the FCC. The approval of the FCC remains
outstanding. Based on the current status of the FCC approval process, we
expect the Arrangement will be completed in the fourth quarter of 2007.

    Outlook

    We will continue to execute on our key operational and financial
objectives for the remainder of 2007 including driving profitable organic
growth in key markets and products such as our U.S. government and BGAN
initiatives. We will also continue to focus on the completion of the
Arrangement with CIP.

    Glossary of Terms for Management's Discussion and Analysis of Financial
    Condition and Results of Operations

    BGAN

    An acronym for Broadband Global Area Network, a Stratos-provided Inmarsat
service launched in December 2005, providing high-speed IP based data
capabilities.

    Broadband

    A transmission system that multiplexes multiple independent signals onto
one cable. In telecommunications terminology, any channel having a bandwidth
greater than a voice-grade channel (4 kHz). In LAN terminology, a coaxial
cable on which analog signaling is used. Also called wideband.

    DIRECWAY(R)

    A VSAT satellite service operated by Hughes Network Systems (HNS) that
provides broadband connectivity to consumers and businesses in fixed-site,
remote locations, primarily where terrestrial services, such as DSL and cable
broadband, are unavailable. Stratos is a value-added reseller of DIRECWAY in
the U.S. and Canada.

    FleetBroadband

    Stratos-provided Inmarsat service that provides cost-effective,
high-speed data and voice communications, available simultaneously, at speeds
up to 432 kbps. It also provides on-demand guaranteed IP data rates,
regardless of the vessel's location. It will use stabilized, compact
directional antennas, which will vary in size and weight but will be smaller
than most existing Fleet products.

    Fleet F77, F55 and F33

    Stratos-provided Inmarsat services that offer highly advanced
communications capabilities, including voice, HSD and packet data services for
the marine market while at the same time lowering service costs. These
services give shipboard crew members the same global access to voice and data
communications as any major land-based office. F77 is designed for large
vessels, while F55 and F33 offer lighter weight antennas to serve medium- and
small-sized vessels, respectively.

    GAN

    An acronym for Global Area Network, a Stratos-provided Inmarsat service
providing global, mobile, high-speed data and voice communications primarily
in land based applications.

    Hubs

    A fixed antenna used to send and receive satellite transmission signals,
interconnecting telecommunications between a satellite and VSATs.

    Inmarsat(R)

    An acronym for International Maritime Satellite service that provides
mobile communications for land, air and sea worldwide.

    Inmarsat B, C and Mini-M

    Stratos-provided legacy Inmarsat services providing voice and/or data
services in land and maritime applications.

    IP

    Internet Protocol. Software that tracks the Internet address of nodes,
routes outgoing messages, and recognizes and routes incoming messages.

    Iridium(R)

    A global mobile satellite telephone and paging service. Global coverage
is provided by low-earth-orbiting satellites, allowing users to make and
receive calls virtually anywhere in the world.

    Microwave

    A high-frequency electromagnetic wave, one millimeter to one meter in
wavelength, intermediate between infrared and short-wave radio wavelengths.
Can be used as a long-range voice and data communications medium.

    MSV

    Mobile Satellite Ventures. A satellite network that provides voice, data
and wide area dispatch maritime communications services. MSV uses spot beam
technology to provide secure communication for North and Central America, the
northern tip of South America, the Caribbean, and Hawaii.

    Regional BGAN

    A Stratos-provided Inmarsat service that brings high-speed data
communications to developed and developing nations in its service area, with
usage charges based on the amount of data sent or received rather than the
conventional "per minute" charge for satellite airtime.

    StratosITek(TM)

    A Stratos-provided IP VSAT service that provides high-speed, always-on
connectivity for remote-location land and maritime applications on a global
scale. StratosITek offers speeds of up to 2 Mbps and is available in several
configurations that allow it to be installed on maritime vessels or moved
quickly and easily from location to location on land.

    StratosNet(R)

    Stratos' Internet e-mail system, StratosNet, is an Internet service
optimized for cost-effective mobile communications through multiple mobile
satellite networks. StratosNet provides the ability to transmit data at
2.4 kbps or higher while also gaining from the benefits of compression.
StratosNet makes the Inmarsat-C service extremely efficient for e-mail at sea
on a vessel of any size.

    Swift 64(TM)

    A Stratos-provided Inmarsat service that provides global in-flight data
communications services to commercial and private aircraft at speeds up to
64kbps. Swift 64 services have been designed to meet the needs of aircraft
passengers, corporate users and the flight deck, and are designed to take
advantage of existing Inmarsat Aero H/H+ installations already found on a
large number of aircraft.

    SwiftBroadband

    A Stratos-provided Inmarsat service that provides cost-effective,
high-speed data and voice communications, available simultaneously, at speeds
up to 432 kbps. It also provides on-demand guaranteed IP data rates,
regardless of the aircraft's location. The service is compatible with most
government-grade encryption and secure-communications standards. It works
through existing Inmarsat equipment already installed on more than 4,000
aircraft, through upgrades of existing Inmarsat Swift64 and Inmarsat Aero H/H+
installations.

    VSAT

    Very Small Aperture Terminal. A relatively small satellite antenna used
for satellite-based point-to-multipoint data communications.



    
    Consolidated Financial Statements of


    STRATOS GLOBAL CORPORATION


    As at September 30, 2007 and December 31, 2006 and
    for the three and nine months ended September 30, 2007 and 2006



    Consolidated Balance Sheets
    As at September 30, 2007 and December 31, 2006 (U.S. dollars; in
    thousands)
    (Unaudited)
    Incorporated under the laws of Canada
    -------------------------------------------------------------------------
                                                             2007       2006
    -------------------------------------------------------------------------
    Assets (Note 9(a))

    Current
      Cash and cash equivalents                         $  39,716  $  48,115
      Accounts receivable (Notes 19 and 21)               108,742     98,714
      Unbilled revenue                                     38,426     32,010
      Inventory                                             9,792     10,182
      Prepaids and other                                   19,320     20,519
      Future income taxes (Note 15)                         3,170      4,053
    -------------------------------------------------------------------------
                                                          219,166    213,593

    Investments (Note 5)                                    6,765      6,661
    Capital assets (Note 4)                               126,036    134,375
    Goodwill and other intangible assets (Note 6)         399,433    407,563
    Other assets (Note 7)                                   2,304     15,478
    -------------------------------------------------------------------------
                                                        $ 753,704  $ 777,670
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities

    Current
      Payables and accruals (Note 8)                    $ 131,859  $ 157,924
      Deferred revenue                                     10,464     11,323
      Current portion of long-term debt (Note 9)            2,392      2,371
    -------------------------------------------------------------------------
                                                          144,715    171,618
    Long-term debt (Note 9)                               359,603    373,207
    Other liabilities (Note 10)                            14,280     15,659
    Future income taxes (Note 15)                          23,520     18,773
    -------------------------------------------------------------------------
    Total liabilities                                     542,118    579,257

    Non-controlling interest                                  411        500

    Shareholders' equity                                  211,175    197,913
    -------------------------------------------------------------------------
                                                        $ 753,704  $ 777,670
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commitments and contingencies (Note 20)


    -------------------------------------------------------------------------
    See accompanying notes



    Consolidated Statements of Operations
    (Unaudited)
    Three and nine months ended September 30 (U.S. dollars; in thousands,
    except per share amounts)
    -------------------------------------------------------------------------
                                         Three Months          Nine Months
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Revenue                       $ 154,375  $ 138,576  $ 448,899  $ 397,156
    Cost of goods and services      107,139     98,825    326,142    293,460
    -------------------------------------------------------------------------

    Gross margin                     47,236     39,751    122,757    103,696
    -------------------------------------------------------------------------
    Operating expenses               14,329     17,199     47,426     51,679
    Interest expense (Note 13)        8,331      8,674     24,858     26,218
    Depreciation and amortization    10,317     10,995     30,731     30,906
    Other costs (income) (Note 14)      311      3,826        607     29,111
    Non-controlling interest             10        (45)       (89)        13
    Equity in earnings of investee     (224)      (234)      (827)      (688)
    -------------------------------------------------------------------------

                                     33,074     40,415    102,706    137,239
    -------------------------------------------------------------------------

    Earnings (loss) before income
     taxes                           14,162       (664)    20,051    (33,543)

    Income tax expense (recovery)
     (Note 15)                        4,637     (1,125)     8,125     (5,079)
    -------------------------------------------------------------------------

    Net earnings (loss)               9,525        461     11,926    (28,464)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings
     (loss) per share (Note 16)   $    0.23  $    0.01  $    0.28  $   (0.68)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    Consolidated Statements of Shareholders' Equity
    (Unaudited)
    Nine months ended September 30 (U.S. dollars; in thousands)
    -------------------------------------------------------------------------
                                                             2007       2006
    -------------------------------------------------------------------------
    (Deficit) retained earnings, beginning of period    $ (21,175) $   5,585
    Financial instruments - recognition and measurement
     (Note 2(b))                                              280          -
    Net earnings (loss)                                    11,926    (28,464)
    -------------------------------------------------------------------------
    Deficit, end of period                                 (8,969)   (22,879)

    Capital stock (Note 11)                               216,153    216,153
    Contributed surplus (Note 11)                           4,563      2,530
    Accumulated other comprehensive loss (Note 12)           (572)         -
    -------------------------------------------------------------------------

    Total shareholders' equity                          $ 211,175  $ 195,804
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    Consolidated Statement of Comprehensive Income (Loss)
    (Unaudited)
    Three and nine months ended September 30 (U.S. dollars; in thousands)
    -------------------------------------------------------------------------
                                         Three Months          Nine Months
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Net earnings (loss)           $   9,525  $     461  $  11,926  $ (28,464)

    Other comprehensive loss:
      Unrealized loss on
       derivatives designated as
       cash flow hedges, net of
       income taxes (three months
       $531; nine months $566)
       (Note 2(b))                   (1,055)         -     (1,122)         -
    -------------------------------------------------------------------------

    Comprehensive income (loss)   $   8,470  $     461  $  10,804  $ (28,464)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    Consolidated Statements of Cash Flow
    (Unaudited)
    Three and nine months ended September 30 (U.S. dollars; in thousands)
    -------------------------------------------------------------------------
                                         Three Months          Nine Months
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Operating activities
      Net earnings (loss)         $   9,525  $     461  $  11,926  $ (28,464)
      Items not requiring
       (generating) cash
        Depreciation and
         amortization                10,317     10,995     30,731     30,906
        Asset impairment charge
         (Note 14)                        -          -          -     23,786
        Foreign exchange loss           529        673        742        150
        Future income tax expense
         (recovery)                   3,867         59      5,966     (2,179)
        Amortization of deferred
         financing costs (Note 13)      447        549      1,271      4,141
        Equity in earnings of
         investee - net of dividends     77       (234)      (104)      (324)
        Stock-based compensation
         expense                          -        478      1,628      1,312
        Gain on insurance proceeds
         (Note 14)                        -          -     (4,502)         -
        Gain on disposal of capital
         assets (Note 14)            (1,000)         -     (1,000)         -
        Other                           222        302        658      1,068
    -------------------------------------------------------------------------
                                     23,984     13,283     47,316     30,396
        Change in non-cash working
         capital items related to
         operating activities
         (Note 17)                  (21,377)   (10,268)   (22,161)   (13,072)
    -------------------------------------------------------------------------
                                      2,607      3,015     25,155     17,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Investing activities
      Business acquisitions (net of
       cash acquired) (Note 3)            -          -    (20,000)  (162,037)
      Capital asset expenditures     (3,580)    (8,773)   (14,033)   (20,914)
      Proceeds from disposal of
       capital assets                   144          -        144          -
      Proceeds from insurance on
       disposal of capital assets         -          -      4,502          -
      Deferred costs                   (152)      (532)      (102)   (11,938)
      Proceeds on disposal of
       investment                         -        867          -        867
    -------------------------------------------------------------------------
                                     (3,588)    (8,438)   (29,489)  (194,022)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Financing activities
      Long-term debt proceeds             -          -          -    375,000
      Long-term debt repayments         (34)       (34)    (2,347)  (163,627)
      Deferred financing costs            -          -       (755)         -
      Capital stock issuances
       (Note 11)                          -          -          -         24
      Other liabilities                (827)        87       (963)      (401)
    -------------------------------------------------------------------------
                                       (861)        53     (4,065)   210,996
    -------------------------------------------------------------------------
    Change in cash and cash
     equivalents during the period   (1,842)    (5,370)    (8,399)    34,298
    Cash and cash equivalents,
     beginning of period             41,558     54,140     48,115     14,472
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                $  39,716  $  48,770  $  39,716  $  48,770
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary cash flow
     information
      Interest paid               $  11,582  $  12,113  $  27,460  $  20,884
      Income taxes paid
       (refunded)                 $   5,091  $      17  $   4,442  $    (814)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    Notes to the Consolidated Financial Statements
    (Unaudited)
    September 30, 2007 (U.S. dollars; tabular amounts in thousands except
    share and per share amounts)
    -------------------------------------------------------------------------

    1.  Description of the business

        Nature of operations and ownership

        Stratos Global Corporation (the "Corporation" or "Stratos") provides
        advanced mobile and fixed-site remote telecommunications services to
        customers operating beyond the reach of traditional terrestrial
        telecommunication networks. With its extensive portfolio of advanced
        satellite and microwave technologies, the Corporation provides
        Internet Protocol, data, and voice solutions to an array of diverse
        markets worldwide, which primarily include government and military,
        oil and gas, and maritime. The Corporation provides communications
        services and solutions for its customers through wholesale
        arrangements with a number of satellite system operators and its
        owned and operated telecommunications facilities.

        Regulation

        Stratos' U.S. subsidiaries are subject to regulation by the U.S.
        Federal Communications Commission ("FCC"), which is responsible for
        most aspects of U.S. regulation of telecommunication services
        provided by private companies, including licensing of services and
        equipment, assigning of frequencies, regulatory implementation of
        communications statutes and adjudicating complaints alleging
        violation of those statutes. Stratos' U.S. subsidiaries hold a number
        of U.S. common carrier and spectrum licenses to provide mobile
        satellite, fixed satellite and microwave services.

        The Corporation's subsidiaries in the Netherlands are subject to
        regulation under the Telecommunications Act 1998, which was revised
        on May 19, 2004 and is enforced by the Independent Post and
        Telecommunications Authority. On July 26, 2004, Xantic B.V. was
        granted registrations as a public telecommunication network provider
        and a provider of telecommunication services.

        Stratos' U.K. subsidiaries are subject to regulation by the U.K.
        Office of Communications ("Ofcom"), which in late 2003 replaced and
        consolidated the activities of several regulatory bodies, including
        the Office of Telecommunications and the Radiocommunications Agency,
        with respect to the provision of telecommunications services,
        operation of networks, and use of radio spectrum. Pursuant to a
        number of European Union directives, the U.K. adopted the
        Communications Act 2003 effective July 17, 2003, substantially
        replacing the Telecommunications Act 1984. Under this new regulatory
        regime, telecommunications licenses that were required under the
        previous legislation to operate networks or provide
        telecommunications services have been revoked and replaced with a
        series of general conditions of authorization to which all providers
        of public telecommunications networks and services (including Stratos
        Global Limited, the primary U.K. operating subsidiary) are subject.
        However, Stratos Global Limited is still required to hold a number of
        spectrum licenses for operation of satellite earth stations, which
        are issued by Ofcom.

        The Corporation's Australian earth station operations are regulated
        by the Radiocommunications Act 1992 and the Telecommunications Act
        1997. The Radiocommunications Act provides for the licensing and
        management of the radio frequency spectrum used to transmit and
        receive services to and from land earth stations, satellites and any
        mobile earth station situated in Australia. The Telecommunications
        Act regulates the use of land earth stations and satellite equipment
        to the extent that they are used to provide telecommunications
        services within Australia. The Corporation's subsidiaries hold all
        required licenses under these Acts.

        Stratos provides telecommunications services in New Zealand through
        its operating subsidiary, Stratos New Zealand Limited. Satellite
        services in New Zealand are governed and regulated by two different
        industry-specific statutes: the Telecommunications Act 2001 and the
        Radiocommunications Act 1989. Except for radio and spectrum licenses
        required under the Radiocommunications Act 1989, no licenses or
        registrations are required to own or operate land earth stations or
        to provide public telecommunications services in New Zealand.

        The Corporation's Canadian subsidiary, Stratos Wireless Inc., is
        subject to regulation by the Canadian Radio-television and
        Telecommunications Commission ("CRTC") with respect to the regulation
        of telecommunications in Canada and by Industry Canada with respect
        to the management and allocation of radio spectrum in Canada and the
        certification of radio equipment. It holds an international
        telecommunications service license issued by the CRTC and a spectrum
        license, various radio equipment certifications and various radio
        licenses issued by Industry Canada in respect of its satellite assets
        and services in Canada.

        The Corporation's German subsidiaries are subject to regulation by
        the German Telecommunication Act 2004 in respect of very small
        aperture terminal ("VSAT") satellite services. Stratos' German
        subsidiaries hold various licenses in Germany, including a Class II
        license from the German telecommunications and postal regulatory
        authority, authorizing the operation of telecommunication services
        via satellite.

        The Corporation's Russian subsidiary is subject to regulation by the
        Russian communications ministry and holds various licenses in Russia
        in respect of its satellite communications operations.

    2.  Summary of significant accounting policies and accounting changes

        a) Significant accounting policies

        Basis of presentation

        The unaudited consolidated interim financial statements have been
        prepared in accordance with Canadian generally accepted accounting
        principles ("Canadian GAAP") with respect to the preparation of
        interim financial statements and are in accordance with generally
        accepted accounting principles in the United States ("U.S. GAAP")
        except as described in Note 23. The interim financial statements
        should be read in conjunction with the most recently prepared annual
        audited consolidated financial statements for the year ended
        December 31, 2006.

        These interim financial statements follow the same accounting
        policies and methods of application as the most recent annual
        financial statements for the year ended December 31, 2006, except as
        outlined in Note 2(b).

        The consolidated financial statements include the accounts of the
        Corporation and its subsidiaries. As at September 30, 2007, the
        principal operating subsidiaries of the Corporation, all of which are
        directly or indirectly wholly owned unless otherwise noted below, are
        as follows:

                     Stratos Wireless Inc.
                     Stratos Mobile Networks, Inc.
                     Stratos Mobile Networks (USA), L.L.C.
                     Stratos Government Services Inc.
                     Stratos Communications, Inc.
                     Stratos Offshore Services Company
                     Stratos Global Limited
                     Stratos Aeronautical Limited
                     Stratos Services Limited
                     Stratos New Zealand Limited
                     Stratos Communications (Australia) Pty Limited
                     Plenexis Gesellschaft Fur Satelliten - Kommunikation mbH
                     Moskowskij Teleport (75% ownership interest)
                     Xantic B.V.
                     Xantic Sales B.V.

        Translation of foreign currencies

        The Corporation and each of its subsidiaries use the U.S. dollar as
        their currency of measurement and reporting as a substantial portion
        of the Corporation's ongoing business is conducted in U.S. dollars.

        Transactions which have occurred in currencies other than U.S.
        dollars have been converted to U.S. dollars at the exchange rate in
        effect at the transaction date. Carrying values of monetary assets
        and liabilities in currencies other than U.S. dollars have been
        converted at the U.S. rate at the balance sheet date and the
        resulting exchange gain or loss included in income. Monetary assets
        and liabilities denominated in foreign currencies and translated at
        exchange rates in effect at September 30, 2007 have been translated
        to U.S. dollars at Cdn $1.00 = U.S. $0.995;
        1.00 GBP = U.S. $2.02; 1.00 Euros = U.S.$1.41
        (December 31, 2006 - Cdn $1.00 = U.S. $0.86;
        1.00 GBP = U.S. $1.96; 1.00 Euros = U.S.$1.31).

        Cash and cash equivalents

        Cash and cash equivalents consist of cash on hand, balances with
        banks, and investments in money market instruments with original
        maturities of less than 90 days that are readily convertible to known
        amounts of cash and are subject to an insignificant risk of a
        material change in value.

        Unbilled revenue

        Unbilled revenue represents the amounts receivable for
        telecommunications services provided to customers, which will become
        billable in accordance with contractual trade terms.

        Inventory

        Inventory consists of telecommunications equipment held for resale
        and is carried at the lower of average cost and net realizable value.

        Capital assets

        Capital assets are recorded at cost. Depreciation is computed using
        either the straight-line or declining-balance methods at rates that
        will reduce original cost to estimated residual value over the useful
        lives of the assets, principally as follows:

                                                     Basis              Rate
        ---------------------------------------------------------------------
          Telecommunications equipment     Declining-balance        5% - 20%
          Earth station equipment              Straight-line     10-12 years
          Computer hardware and software   Declining-balance             30%
          Furniture and other                  Straight-line         5 years
          Buildings                        Declining-balance         4% - 5%
        ---------------------------------------------------------------------

        Impairment of long-lived assets

        Impairment of long-lived assets is assessed using a two step
        approach. Under the first step, the impairment of capital assets and
        finite-life intangible assets is tested when events or changes in
        circumstances indicate that the asset's carrying value is not
        recoverable and may be in excess of its fair value. The carrying
        amount of a long-lived asset is not recoverable if its carrying value
        exceeds the sum of the undiscounted cash flows expected to result
        from its use and eventual disposition.

        If the asset's carrying amount is in excess of the undiscounted cash
        flows, step two of the asset impairment test must be performed. Under
        step two of the test, impairment is measured as the excess of an
        asset's carrying value over fair value. Fair value is measured using
        a discounted cash flow approach.

        Asset retirement obligation

        The fair value of legal obligations associated with the retirement of
        tangible long-lived assets is recognized in the financial statements
        in the period in which the liability is incurred. Upon initial
        recognition of a liability for an asset retirement obligation, a
        corresponding asset retirement cost is added to the carrying amount
        of the related asset, which is subsequently amortized to income over
        the remaining useful life of the asset. Following the initial
        recognition of an asset retirement obligation, the carrying amount of
        the liability is increased for the passage of time by applying an
        interest method of allocation to the liability with a corresponding
        accretion cost reflected in operating expenses.

        Revisions to either the timing or the amount of the original estimate
        of undiscounted cash flows are recognized each period as an
        adjustment to the carrying amount of the asset retirement obligation
        and the related long-lived asset.

        Investments

        Long-term investments through which the Corporation exerts
        significant influence over the investee are accounted for by the
        equity method. Under this method, the investment is initially
        recorded at cost and the carrying value is adjusted thereafter to
        include the Corporation's pro-rata share of post acquisition earnings
        of the investee. All other long-term investments are carried at cost
        and income on these investments is recognized only to the extent of
        dividends received. When there has been a decline in the value of an
        investment that is other than a temporary decline, the investment is
        written down to estimated net realizable value.

        Goodwill and other intangible assets

        Goodwill represents the excess of the cost of investments in
        subsidiaries over the fair value of the net identifiable tangible and
        intangible assets acquired. The Corporation reviews the goodwill of
        all its reporting units on at least an annual basis to ensure its
        fair value is in excess of its carrying value. The annual impairment
        test is as of November 30. Any impairment in the value of goodwill is
        charged to income in the period such impairment is determined.

        Other intangible assets consist of licenses and customer
        relationships and contracts which have a limited life. Licenses
        reflect the cost of acquiring the right to transmit radio signals in
        a given licensed area. These are amortized over the shorter of the
        duration of the license term and their estimated economic lives
        ranging from three to ten years. Customer contracts represent the
        fair value of order backlogs and contracts acquired. Customer
        contracts acquired in connection with the acquisition of Plenexis
        Holding GmbH and its subsidiaries ("Plenexis") are being amortized on
        a straight line basis over the expected period of benefit of three
        years. Customer relationships acquired in connection with the
        acquisition of Xantic B.V. and its subsidiaries ("Xantic") are being
        amortized at varying percentages of cost based on the expected
        benefit to be derived in each year determined using the undiscounted
        cash flows expected from the customer relationships for the period
        from 2006 to 2018. As a percentage of the original cost, the annual
        average percentages used to determine amortization expense for
        customer relationships from 2006 to 2018 is as follows:

        ---------------------------------------------------------------------
                      2006 - 2009                          10%
                      2010 - 2013                           9%
                      2014 - 2018                           5%
        ---------------------------------------------------------------------

        Deferred financing costs

        Costs incurred in connection with obtaining debt financing have been
        deferred and are recorded as a reduction to the principal amount of
        the debt. The costs are amortized over the terms of the related debt
        using the effective interest rate method (Note 2(b)).

        Deferred start-up costs

        Costs incurred in the start-up period of new business ventures are
        deferred until commercial viability is attained. These costs are
        amortized over a period not to exceed five years commencing on
        completion of the start-up period.

        Government assistance

        Government assistance related to capital assets is recorded as a
        deferred credit and amortized to income on the same basis as the
        related capital assets are depreciated.

        Revenue recognition

        The Corporation derives revenue principally from the sale of airtime,
        typically pursuant to service agreements or fixed-term contracts. The
        Corporation provides its customers with telecommunications services
        that are typically usage based, determined on metered bases such as
        the number of dedicated circuits or data lines provided or leased,
        data units transmitted, or minutes used. Revenues are recognized at
        the time service is provided to customers. Estimates are included to
        provide for that portion of fixed-to-mobile revenue that has not been
        reported or confirmed by domestic carriers. Revenue is subject to
        final determination and settlement with these carriers.

        Revenues generated from sales of communications equipment are
        recognized when the risks and rewards of ownership are transferred to
        the purchaser. Revenues related to service agreements are recognized
        as the services are performed.

        Payments received in advance for services to be provided in future
        periods are recorded in current or long-term deferred revenue in
        accordance with the duration of the service period and are recognized
        in revenue as the services are provided.

        Employee benefits

        The Corporation has defined contribution pension plans covering
        substantially all of its employees whereby the Corporation matches a
        portion of employee contributions to the plan. The Corporation's
        contributions to the defined contribution pension plans, including
        contributions to defined contribution pension plans acquired upon the
        acquisition of Xantic, for the three and nine months ended
        September 30, 2007 were $0.5 million and $1.5 million, respectively
        (three and nine months ended September 30, 2006 - $0.5 million and
        $1.5 million, respectively).

        As part of the acquisition of Plenexis, the Corporation assumed
        defined benefit pension plans which are unfunded. The unfunded
        defined benefit pension liability at September 30, 2007 was
        $0.4 million (2006 - $0.4 million) and covers one employee and three
        former employees. In valuing pension obligations for its defined
        benefit pension plans, the Corporation uses the projected unit credit
        method.

        As part of the acquisition of Xantic, the Corporation also assumed
        defined benefit pension plans administered by KPN N.V. ("KPN") for
        employees in the Netherlands. The assets of these plans are not
        segregated from the assets of other KPN administered plans and
        therefore they are treated as multi-employer plans and are accounted
        for in the same manner as defined contribution plans. Pension expense
        for these plans for the three and nine months ended September 30,
        2007 was $0.2 million and $0.6, respectively (three and nine months
        ended September 30, 2006 - $0.8 million and $1.9 million,
        respectively).

        The Corporation also assumed Xantic's early retirement plan in the
        Netherlands. This is a defined benefit plan that is neither funded
        nor insured through a third party, but is paid directly to employees
        upon early retirement. The Corporation recognizes a provision for all
        benefits that will become a payment obligation in accordance with the
        then prevailing collective labour agreement. The provision for early
        retirement is calculated using the projected unit credit method.
        Pension expense for this plan for the three and nine months ended
        September 30, 2007 was $0.1 and $0.2 million, respectively (three and
        nine months ended September 30, 2006 - $Nil and $0.1 million,
        respectively).

        The Corporation does not provide other post-retirement benefits. The
        cost of compensated absences and other employment benefits, such as
        health care, dental, and similar employee benefit plans, are expensed
        as employment services are rendered.

        Income taxes

        The Corporation follows the liability method of accounting for income
        taxes. Under the liability method, future income tax assets and
        liabilities are determined based on the differences between the
        financial reporting and tax bases of assets and liabilities, and are
        measured using substantively enacted tax rates and laws that are
        expected to be in effect in the periods in which the future tax
        assets or liabilities are expected to be realized or settled.

        The effect of a change in income tax rates on future income tax
        assets and liabilities is recognized in income in the period that the
        change occurs. A valuation allowance is provided to the extent that
        it is more likely than not that future income tax assets will not be
        realized.

        Earnings per share

        Basic earnings per share is based on the weighted average number of
        common shares outstanding for the year. Diluted earnings per share is
        computed in accordance with the treasury stock method and based on
        the weighted average number of common shares and dilutive common
        share equivalents.

        Stock-based compensation plans

        The Corporation has three stock-based compensation plans which are
        described in Note 11.

        (i)   Stock Option Plan

              The Corporation records compensation expense for stock options
              issued on or after January 1, 2003 using the fair value method.
              The Corporation discloses pro forma net earnings and earnings
              per share using the fair value method for stock-based
              compensation awards granted in 2002.

        (ii)  Deferred Share Unit Plan

              The Corporation has a deferred share unit ("DSU") plan for the
              non-employee directors of the Corporation with respect to a
              portion of directors' compensation.

              The Corporation uses the fair value method to determine
              compensation expense associated with DSUs. The DSU obligation
              is valued at the current market price of a common share.
              Changes in the market value of the DSU during the period are
              recorded in operating income and result in an increase or
              decrease in compensation expense.

        (iii) Performance Share Unit Plan

              The Corporation has a performance share unit ("PSU") plan for
              certain senior employees. The Corporation uses the fair value
              method to determine compensation expense associated with such
              PSUs.

        Derivative financial instruments

        Derivative financial instruments may be utilized by the Corporation
        in the management of its foreign currency and interest rate
        exposures. The Corporation's policy is not to utilize derivative
        financial instruments for trading or speculative purposes.

        The Corporation formally documents all relationships between hedging
        instruments and hedged items, as well as its risk management
        objective and strategy for undertaking various hedge transactions.
        This process includes linking all derivatives to specific assets and
        liabilities on the balance sheet or to specific firm commitments. The
        Corporation also formally assesses, both at the hedge's inception and
        on an ongoing basis, whether the derivatives that are used in hedging
        transactions are effective in offsetting changes in fair values or
        cash flows of hedged items.

        Foreign exchange translation gains and losses on foreign currency
        denominated derivative financial instruments used to hedge foreign
        currency investing and financing commitments are recorded as an
        adjustment to the applicable investing or financing activity.

        Previously realized and unrealized gains or losses associated with
        derivative instruments, which have been terminated or cease to be
        effective prior to maturity, remain in accumulated other
        comprehensive income and are recognized in income in the period in
        which the underlying hedged transaction is recognized. In the event a
        designated hedged item is sold, extinguished or matures prior to the
        termination of the related derivative instrument and is not replaced,
        any realized or unrealized gain or loss on such derivative instrument
        previously recorded in accumulated other comprehensive income is
        recognized in income.

        The Corporation enters into interest rate swaps in order to reduce
        the impact of fluctuating interest rates on its long-term debt. The
        fair value of these derivatives are recorded on the balance sheet.
        These swap agreements require the periodic exchange of payments
        without the exchange of the notional principal amount on which the
        payments are based. The Corporation designates its interest rate swap
        agreements as hedges of the underlying debt. Interest expense on the
        debt is adjusted to include the payments made or received under the
        interest rate swaps. The change in value of the effective portion of
        the hedges is recognized in other comprehensive income. Any
        ineffectiveness within an effective cash flow hedge is recognized in
        income as it arises in the same income account as the hedged items
        when realized.

        In connection with the acquisition of Xantic, the Corporation assumed
        a series of foreign exchange forward contracts used to manage foreign
        exchange risks. As the prescribed documentation for hedge accounting
        was not in place for these derivatives, changes in the fair value of
        the forward exchange contracts are recognized in income. These
        forward contracts expired monthly from April 2006 to December 2006.

        Use of accounting estimates

        The preparation of financial statements in conformity with Canadian
        and U.S. GAAP 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. Significant areas requiring the
        use of management estimates include the determination of the
        allowance for uncollectability of accounts receivable and revenue
        adjustments; the valuation of capital assets, intangibles and
        goodwill and the provision for income taxes. Actual results could
        differ from those estimates.

        Comparative figures

        Certain comparative figures have been reclassified to conform to the
        current year's presentation.

        b) Accounting changes

        Financial instruments - recognition and measurement

        On January 1, 2007, the Corporation adopted Section 3855 of the
        Canadian Institute of Chartered Accountants' (CICA) Handbook,
        "Financial Instruments - Recognition and Measurement". This section
        defines the standards for recognizing and measuring financial
        instruments in the balance sheet and the standards for reporting
        gains and losses in the financial statements. Under Section 3855, all
        financial instruments are classified into one of five categories:
        held-for-trading, held-to-maturity investments, loans and
        receivables, available-for-sale financial assets or other financial
        liabilities. All financial instruments and derivatives are initially
        recorded in the balance sheet at fair value. In subsequent periods,
        loans and receivables, held-to-maturity investments and other
        financial liabilities are measured at amortized cost; held-for-
        trading financial assets and liabilities are measured at fair value
        and changes in fair value are recognized in net income, and
        available-for-sale financial instruments are measured at fair value
        with changes in fair value recorded in other comprehensive income
        until the instrument is derecognized or impaired. All derivative
        instruments, including embedded derivatives, are recorded in the
        balance sheet at fair value unless they qualify for the normal sale
        normal purchase exemption. All changes in their fair value are
        recorded in income unless cash flow hedge accounting is used, in
        which case changes in fair value are recorded in other comprehensive
        income (loss).

        The Corporation has made the following classifications:

        -  Cash and cash equivalents are classified as held-for-trading
           financial assets. These assets are measured at fair value and
           changes in fair value are recognized in consolidated earnings.
        -  Trade accounts receivable are classified as loans and receivables
           and are measured at amortized cost, which is generally the amount
           on initial recognition.
        -  Long term investments accounted for by the equity method are
           specifically excluded from the requirements of Section 3855(a).
        -  Payables and accruals are classified as other financial
           liabilities and are measured at amortized cost, which is generally
           the amount on initial recognition.
        -  Senior credit facilities, senior unsecured notes and mortgage
           obligations are classified as other financial liabilities and are
           measured at amortized cost, using the effective interest rate
           method. Transaction costs relating to other financial liabilities
           are applied against the carrying amount of the related financial
           liabilities. Previously, these liabilities were measured at cost.

        The retroactive adoption of this section is completed without
        restatement of the consolidated financial statements of prior
        periods. As at January 1, 2007, the impact on the consolidated
        balance sheet of measuring the financial assets and liabilities using
        the effective interest rate method and of reclassifying the
        transaction costs directly attributable to the issuance of the Term B
        facility and the senior unsecured notes were decreases of
        $12.0 million in other assets, $11.8 million in long-term debt, and
        $0.1 million in long-term future income tax liability, and an
        increase of $0.1 million in opening deficit. The impact on the
        statement of operations for the three and nine months ended
        September 30, 2007 was a reduction in amortization of deferred
        financing costs of $0.1 million and $0.3 million, respectively.

        As a result of adopting this section, financial instruments
        designated as hedges are now recorded on the balance sheet at fair
        value. Changes in the fair values of these hedging derivatives are
        reflected in other comprehensive income (loss). The impact on the
        consolidated balance sheet of measuring hedging derivatives at fair
        value as at January 1, 2007 were increases in other liabilities and
        long-term future income tax liability of $0.1 million and
        $0.3 million, respectively, and decreases in other assets and opening
        accumulated other comprehensive income of $0.1 million and
        $0.5 million, respectively.

        In adopting this section the Corporation selected January 1, 2003 as
        its transition date for embedded derivatives. An embedded derivative
        is a component of a financial instrument or another contract of which
        the characteristics are similar to a derivative. This had no impact
        on the consolidated financial statements.

        Comprehensive income

        On January 1, 2007, the Corporation adopted Section 1530 of the CICA
        Handbook, "Comprehensive Income". This section describes reporting
        and disclosure recommendations with respect to comprehensive income
        and its components. Comprehensive income is the change in
        shareholders' equity resulting from transactions and events from non-
        shareholder sources. These transactions and events include unrealized
        gains and losses resulting from changes in fair value of certain
        financial instruments. The adoption of this section results in the
        Corporation now presenting a consolidated statement of comprehensive
        income (loss) as part of the consolidated financial statements.

        Hedges

        On January 1, 2007, the Corporation adopted Section 3865 of the CICA
        Handbook, "Hedges". The recommendations of this section expand the
        guidelines required by Accounting Guideline (AcG-13), Hedging
        Relationships. This section describes when and how hedge accounting
        can be applied as well as the disclosure requirements. Hedge
        accounting enables the recording of gains, losses, revenues and
        expenses from the derivative financial instruments in the same period
        as for those related to the hedged item. As a result of adopting this
        section, the Corporation reclassified deferred gains relating to
        previous hedging relationships to accumulated other comprehensive
        income (loss). The change was applied retroactively with an
        adjustment to opening deficit. The impact of this change were
        decreases in other liabilities of $1.1 million, opening deficit of
        $0.4 million and prepaid expenses of $0.4 million, and increases in
        other assets of $1.0 million, long-term future income tax liability
        of $0.2 million, and opening accumulated other comprehensive income
        of $1.1 million.

    3.  Business acquisition

        Xantic

        On February 14, 2006, the Corporation acquired all the issued and
        outstanding equity interests in Xantic for an aggregate purchase
        price of $185.3 million, including transaction costs of $7.2 million,
        net of cash acquired of $33.2 million. The cash purchase price paid
        at closing of $191.3 million was subject to post-closing adjustments.
        On February 2, 2007, the Corporation paid a purchase price adjustment
        of $20.0 million pursuant to a final settlement agreement with the
        former owners of Xantic.

        The Xantic acquisition was accounted for using the purchase method
        and results of operations have been included in the consolidated
        statement of operations from the date of acquisition. The following
        table summarizes the purchase price allocation based on the estimated
        fair values of the assets acquired less liabilities assumed for the
        acquisition. The Corporation engaged external valuation specialists
        to assist in the valuation of capital assets and intangible assets.
        Restructuring and integration costs of $10.6 million are included in
        the purchase price allocation, of which a liability for $1.7 million
        remains outstanding at September 30, 2007.

        Details of the estimates of the fair value of assets and liabilities
        acquired are as follows:

                                                                  Purchase
                                                               Consideration
        ---------------------------------------------------------------------
        Fair value of assets acquired

          Current assets                                         $    43,350
          Capital assets                                              26,239
          Intangible assets including customer relationships          84,800
          Future income taxes                                          3,968
          Investment                                                     879
        ---------------------------------------------------------------------
                                                                 $   159,236
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Less: Liabilities assumed
          Current liabilities                                    $    75,069
          Long-term liabilities                                        9,073
          Future income taxes                                          5,351
        ---------------------------------------------------------------------
                                                                 $    89,493
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Fair value of net identifiable assets acquired           $    69,743
        Goodwill                                                     115,540
        ---------------------------------------------------------------------
        Purchase consideration (net of cash acquired)            $   185,283
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    4.  Capital assets

                                               September 30, 2007
        ---------------------------------------------------------------------
                                                   Accumulated      Net Book
                                            Cost  Depreciation         Value
        ---------------------------------------------------------------------
        Telecommunications equipment $   151,984   $    98,502   $    53,482
        Earth station equipment           81,521        38,294        43,227
        Computer hardware and software    53,764        35,758        18,006
        Furniture and other                8,759         6,143         2,616
        Buildings                         12,235         4,536         7,699
        Land                               1,006             -         1,006
        ---------------------------------------------------------------------
                                     $   309,269   $   183,233   $   126,036
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                               December 31, 2006
        ---------------------------------------------------------------------
                                                   Accumulated      Net Book
                                            Cost  Depreciation         Value
        ---------------------------------------------------------------------
        Telecommunications equipment $   155,116   $    95,725   $    59,391
        Earth station equipment          117,076        70,585        46,491
        Computer hardware and software    55,302        37,353        17,949
        Furniture and other                8,120         5,867         2,253
        Buildings                         11,504         4,219         7,285
        Land                               1,006             -         1,006
        ---------------------------------------------------------------------
                                     $   348,124   $   213,749   $   134,375
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Depreciation expense related to capital assets for the three and nine
        months ended September 30, 2007 was $7.6 million and $22.5 million,
        respectively (three and nine months ended September 30, 2006 -
        $8.2 million and $23.7 million, respectively). In the first quarter
        of 2006 the Corporation recorded a capital asset impairment charge in
        connection with its Land Earth Station ("LES") in Goonhilly, England
        (Note 14). During the second quarter of 2007 the Corporation disposed
        of these fully depreciated LES assets, resulting in a decrease in
        cost and accumulated depreciation of $39.1 million. Accumulated
        depreciation at September 30, 2006 includes $22.3 million related to
        impairment of capital assets (Note 14).

        Capital assets under development totaling $0.8 million (December 31,
        2006 - $3.5 million) will commence amortization when they are put
        into productive use.

    5.  Investments

        The Corporation owns a 49% ownership interest in Navarino Telecom SA
        and NTS Maritime Limited (together, "Navarino"). The Corporation has
        an option to acquire the remaining ownership interest in Navarino,
        which expires January 13, 2008.

        The long-term investment in Navarino is recorded using the equity
        method and had a value of $6.8 million at September 30, 2007
        (December 31, 2006 - $6.7 million). Cash dividends received for the
        three and nine months ended September 30, 2007 totaled $0.3 million
        and $0.7 million, respectively (three and nine months ended
        September 30, 2006 - $Nil and $0.4 million, respectively).

    6.  Goodwill and other intangible assets

                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        Goodwill                                   $   325,869   $   325,869
        Customer relationships, contracts
         and other                                      72,287        80,064
        Licenses                                         1,277         1,630
        ---------------------------------------------------------------------
                                                   $   399,433   $   407,563
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Amortization expense related to intangible assets for the three and
        nine months ended September 30, 2007 was $2.7 million and
        $8.1 million, respectively (three and nine months ended September 30,
        2006 - $2.6 million and $6.8 million, respectively). Accumulated
        amortization related to intangible assets was $22.3 million at
        September 30, 2007 (September 30, 2006 - $16.4 million). Accumulated
        amortization at September 30, 2007 includes $1.8 million
        (September 30, 2006 - $1.8 million) related to impairment of licenses
        (Note 14).

        Estimated aggregate amortization expense related to intangible assets
        for the next five years from September 30 is as follows:

                2007          2008          2009          2010          2011
        ---------------------------------------------------------------------
         $     8,058   $     9,014   $     9,561   $     9,209   $     8,553
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  Other assets

                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        Interest rate swap contracts               $       856   $     1,279
        Other                                            1,448         2,207
        Deferred financing costs                             -        11,992
        ---------------------------------------------------------------------
                                                   $     2,304   $    15,478
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Amortization expense related to other assets for the three and nine
        months ended September 30, 2007 was $0.1 million and $0.2 million,
        respectively (three and nine months ended September 30, 2006 -
        $0.2 million and $0.4 million, respectively).

    8.  Payables and accruals
                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        Trade accounts payable                     $   115,930   $   139,560
        Accrued employee costs                          13,268        14,911
        Other accrued liabilities                        2,661         3,453
        ---------------------------------------------------------------------
                                                   $   131,859   $   157,924
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  Long-term debt

                                   Interest Rate
                                 at September 30, September 30,  December 31,
                                            2007          2007          2006
        ---------------------------------------------------------------------
        Senior credit facilities    LIBOR + 2.75%  $   222,750   $   225,000
        Senior unsecured notes             9.875%      150,000       150,000
        Mortgage obligation                 7.03%          562           574
        Capital lease obligations                            -             4
        ---------------------------------------------------------------------
                                                       373,312       375,578
        Less:  long-term debt due
                within one year                          2,392         2,371
        Less:  unamortized financing
                costs                                   11,317             -
        ---------------------------------------------------------------------
                                                   $   359,603   $   373,207
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        a) Senior credit facilities

        Effective February 13, 2006, the Corporation entered into an amended
        and restated credit agreement to finance a portion of the Xantic
        acquisition and refinance its existing credit facilities. The
        refinanced senior credit facilities consist of a five year
        $25.0 million revolving operating facility and a six year Term B
        facility of $225.0 million. The refinanced senior credit facilities
        are provided by a syndicate of financial institutions. A portion of
        the proceeds from the amended and restated Term B facility were
        principally used to repay the remaining $148.5 million of the former
        Term B facility and $15.0 million of the former revolving operating
        facility then outstanding. A five year Term A facility of up to
        $20.0 million included in the amended and restated credit agreement
        was terminated by the Corporation on January 31, 2007.

        Term B facility

        The indebtedness under the amended and restated Term B facility is
        repayable in annual principal payments of $2.3 million with the
        balance due at maturity in February 2012 and bears interest at LIBOR
        plus an applicable margin, which currently is 275 basis points per
        annum based on the Corporation's leverage ratio. An improvement in
        this ratio to 3.5:1 would result in a reduction of the margin rate to
        250 basis points as defined in the credit agreement. The applicable
        LIBOR rates at September 30, 2007 and December 31, 2006 were 5.20%
        and 5.36%, respectively. At September 30, 2007, the Corporation had
        in place interest rate swap agreements to exchange LIBOR floating
        interest rates on $200.0 million of its amended and restated Term B
        facility. LIBOR floating rates of 5.20% are exchanged for fixed rates
        of 3.95%, 4.28%, and 5.15% on notional amounts of $75.0 million,
        $50.0 million, and $75.0 million, respectively (Note 19).

        Revolving operating facility

        The amended and restated revolving operating facility has a term of
        five years and matures in February 2011. The revolving operating
        facility is available to the Corporation in Canadian or U.S. dollars
        and bears interest at varying base rates plus 100 - 225 basis points
        per annum, based on the Corporation's leverage ratio as set out in
        the credit agreement. As at September 30, 2007, no amounts were drawn
        on the revolving operating facility. If any amounts had been drawn on
        the revolving operating facility, as at September 30, 2007, the
        applicable interest rate would have been LIBOR plus 225 basis points.
        The $25.0 million revolving operating facility at September 30, 2007
        is subject to an annual standby fee of 50 basis points. This rate is
        subject to change based on the Corporation's leverage ratio as set
        out in the credit agreement. Letters of credit totaling $1.1 million
        were in place at September 30, 2007, leaving $23.9 million of credit
        available to the Corporation at September 30, 2007.

        As collateral for the amended and restated revolving operating
        facility and the amended and restated Term B facility, the
        Corporation has provided a first priority perfected security interest
        over all of the assets of the Corporation and its subsidiaries, with
        the exception of Plenexis and its subsidiaries, Stratos
        Communications (Australia) Pty Limited and Stratos Global (Japan) KK.
        Concurrent with the acquisition of Xantic, the Corporation
        supplemented the collateral securing the credit facilities with a
        first priority perfected security interest on its equity interest in
        Xantic. As additional security, all of the subsidiaries of the
        Corporation other than Plenexis and its subsidiaries, Xantic and its
        subsidiaries, Stratos Communications (Australia) Pty Limited and
        Stratos Global (Japan) KK have guaranteed obligations under the
        refinanced senior credit facilities.

        Under the refinanced senior credit facilities, the Corporation is
        subject to certain financial covenants. The Corporation is permitted
        to make additional borrowings, payments related to dividends, as well
        as redemptions and repurchases of equity interests of the Corporation
        provided it maintains certain financial covenants as set out in the
        credit agreement. During the first quarter, the Corporation received
        adjustments for 2007 to certain financial covenants in order to
        provide additional flexibility while it completed the integration of
        Xantic B.V. In connection with the proposed arrangement with CIP
        (Note 22), the Corporation obtained a waiver of the change of control
        provision and related ancillary amendment from the lenders under the
        senior credit facility during the second quarter of 2007.

        In addition to scheduled repayments, if leverage ratios exceed
        certain thresholds, specified proceeds from new debt and equity
        issuances as well as a stated percentage of excess cash flows, as
        defined in the credit agreement, are to be applied to indebtedness
        outstanding under the facilities.

        b) Senior unsecured notes

        On February 13, 2006, the Corporation issued $150.0 million of senior
        unsecured notes (the "Notes") to finance the remainder of the Xantic
        acquisition. The Notes are due at maturity on February 15, 2013 and
        bear interest at a rate of 9.875% per annum, payable semi-annually in
        arrears on February 15 and August 15, commencing August 15, 2006. On
        September 18, 2006, the Corporation filed a Registration Statement
        with the United States Securities and Exchange Commission ("SEC")
        which was declared effective on September 19, 2006. Pursuant to the
        Exchange Offer, holders of the Notes had until November 6, 2006 to
        exchange the Notes for the new series of notes which have been
        registered with the SEC.

        The Notes are unsecured obligations of the Corporation and are
        subordinated to all existing and any future secured indebtedness of
        the Corporation including borrowings under the senior credit
        facilities. The Notes rank equally with any future, unsecured,
        unsubordinated senior indebtedness of the Corporation. The Notes are
        guaranteed jointly and severally by the same subsidiaries which have
        guaranteed the Corporation's obligations under the refinanced senior
        credit facilities.

        At any time on or before February 15, 2009, the Corporation may, at
        its option, on one or more occasions, redeem up to 35% of the
        aggregate principal amount of the Notes within 60 days of an equity
        offering, with the net proceeds of such offering, at a redemption
        price of 109.875% of the principal amount thereof, plus accrued and
        unpaid interest, provided that immediately after giving effect to
        such redemption, at least 65% of the original principal amount of the
        Notes remain outstanding.

        In addition, at any time, the Corporation may at its option redeem
        all or part of the Notes at a redemption price equal to 100% of the
        principal amount thereof plus the applicable premium and any accrued
        and unpaid interest. If a change of control occurs in connection with
        the proposed arrangement with CIP (Note 22), the Corporation is
        required, under the indenture governing the Notes, to make an offer
        to note holders to repurchase all notes at a purchase price in cash
        equal to not less than 101% of the aggregate principal amount plus
        accrued and unpaid interest to the date of repurchase.

        c) Mortgage obligation

        The first mortgage bears interest at a rate of 7.03% per annum, is
        repayable in blended monthly installments of $15.0 thousand Cdn.,
        matures in April 2011, is amortized over a 10 year period, and is
        collateralized by land and a building owned by the Corporation.

        The mortgage obligation is denominated in Canadian dollars. The
        Canadian dollar equivalent was $0.6 million at September 30, 2007
        (December 31, 2006 - $0.7 million).

        d) Repayment requirements

        The following outlines the annual principal repayment requirements
        related to the total debt obligations over the next five years from
        September 30:

                 2007       2008       2009       2010       2011 Thereafter
        ---------------------------------------------------------------------
            $   2,393  $   2,403  $   2,414  $   2,352  $   2,250  $ 361,500
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The average interest rate on total debt for the three months ended
        September 30, 2007 was 8.45% (September 30, 2006 - 8.65%).


    10. Other liabilities

                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        Asset retirement obligation                $     3,414   $     3,207
        Government assistance, net of accumulated
         amortization of $1,363 (2006 - $1,069)            475           506
        Defined benefit pension obligation
         - Plenexis                                        423           416
        Defined benefit pension obligation
         - Xantic early retirement plan                  6,427         6,746
        Other employment benefits                          633           853
        Restructuring provision                            325           765
        Other                                            2,583         3,166
        ---------------------------------------------------------------------
                                                   $    14,280   $    15,659
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        In the Mobile Satellite Services ("MSS") segment, the Corporation has
        lease contracts in connection with its Inmarsat LESs. Long-lived
        assets employed at these sites include various LES and
        telecommunications equipment. Upon termination of these lease
        contracts, the Corporation is required to satisfy certain asset
        retirement obligations including removal of equipment such as
        antennas from the buildings and land and restoration of land and
        premises to their original condition.

        The total estimated undiscounted cash flows at September 30, 2007
        required to settle the asset retirement obligations in the MSS
        segment are $1.4 million. These obligations are expected to be
        settled over various future periods as follows:

        ---------------------------------------------------------------------
        Range of Expected Settlement Dates  Estimated Undiscounted Cash Flows
        ---------------------------------------------------------------------
                    2007 - 2010                         $ 1,240
                    2014 - 2015                             199
        ---------------------------------------------------------------------
                                                        $ 1,439
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Credit adjusted risk-free rates, based on the period over which the
        liability will be settled, used to discount these cash flows ranged
        from 6.84% to 9.61%.

        In the Broadband Services ("Broadband") segment, the Corporation has
        microwave equipment, rental equipment and towers installed at various
        leased customer sites. Asset retirement obligations relate to the
        requirement for removal of the equipment upon termination of the
        leases.

        The total estimated undiscounted cash flows at September 30, 2007
        required to settle the asset retirement obligations in the Broadband
        segment are $5.3 million. These obligations are expected to be
        settled over various future periods as follows:

        ---------------------------------------------------------------------
        Range of Expected Settlement Dates  Estimated Undiscounted Cash Flows
        ---------------------------------------------------------------------
                    2007 - 2011                         $   551
                    2015 - 2016                           4,141
                    2021                                    572
        ---------------------------------------------------------------------
                                                        $ 5,264
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Credit adjusted risk-free rates, based on the period over which the
        liability will be settled, used to discount these cash flows ranged
        from 5.50% to 9.43%.

        The asset retirement obligation associated with long-lived assets is
        as follows:

                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        Asset retirement obligation, beginning
         of period                                 $     4,819   $     3,920
        Asset retirement obligation assumed
         on acquisition                                      -            33
        Revision in estimated cash flows and
         timing of settlement                               93           800
        Settlement of asset retirement obligation         (846)         (220)
        Accretion expense                                  184           286
        ---------------------------------------------------------------------
        Asset retirement obligation, end of period       4,250         4,819
        Less: asset retirement obligation due
         within one year (included in payables
         and accruals)                                     836         1,612
        ---------------------------------------------------------------------
                                                   $     3,414   $     3,207
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. Capital stock

        The Corporation is authorized to issue an unlimited number of
        preferred shares, issuable in series, and an unlimited number of
        common shares with no par value. No preferred shares have been
        issued, while the issued common shares were as follows:


                                  September 30, 2007       December 31, 2006
        ---------------------------------------------------------------------
                                              Stated                  Stated
                                  Number       Value      Number       Value
        ---------------------------------------------------------------------
        Beginning of period   41,998,207  $  216,153  41,991,874  $  216,128
        Issued pursuant to
         exercise of options           -           -       6,333          24
        Transfers from
         contributed surplus
         related to exercise
         of options                    -           -           -           1
        ---------------------------------------------------------------------
        End of period         41,998,207  $  216,153  41,998,207  $  216,153
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Stock based compensation

        (i) Stock option plan

        The Corporation has a stock-based compensation plan under which stock
        options to acquire common shares in the Corporation have been granted
        to certain senior employees, officers and directors. Effective
        February 11, 2003, stock options are no longer granted to non-
        employee directors under the Corporation's stock option plan.

        Total common shares reserved for issuance under the Corporation's
        stock option plan is 5,500,000, of which 1,230,376 common shares
        remain available for grant at September 30, 2007. The options are
        granted at exercise prices equivalent to or above the fair market
        value of the Corporation's common shares as of the date the options
        are granted, and have varying vesting terms. The maximum term over
        which options may be held under the plan before they are exercised is
        10 years from the date of grant.

        Pursuant to an amendment to the plan implemented in 2004, tandem
        stock appreciation rights ("SARs") may be issued at or after the
        grant of the related stock options. The SARs entitle the participant
        to receive an amount equal to the excess of the fair market value of
        a common share over the exercise price of the related option, which
        is payable at the discretion of the Board of Directors, in cash or
        common shares. In the event the participant elects to exercise the
        SAR, the related option is cancelled. Effective on February 17, 2005,
        these tandem SARs were retroactively attached to all options to
        purchase common shares of the Corporation that were previously
        granted and remain outstanding in accordance with the Corporation's
        stock option plan.

        Details of stock options outstanding are as follows:

                                  September 30, 2007       December 31, 2006
        ---------------------------------------------------------------------
                                  Number    Weighted      Number    Weighted
                                             average                 average
                                            exercise                exercise
                                               price                   Price
        ---------------------------------------------------------------------
        Outstanding at
         beginning of period   1,849,290  $     9.84   1,814,165  $     9.99
        Granted                        -           -     236,200        8.15
        Exercised                      -           -      (6,333)       6.43
        Forfeited, cancelled
         or expired              (59,920)      10.82    (194,742)       9.36
        ---------------------------------------------------------------------
        Outstanding at end
         of period             1,789,370  $    11.09   1,849,290  $     9.84
        ---------------------------------------------------------------------
        Exercisable at end
         of period             1,789,370  $    11.09   1,308,548  $    10.35
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Weighted average
         fair value of
         options granted
         during the period                $        -              $     3.39
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Pursuant to the change of control provisions in the Corporation's
        stock option agreements, the vesting date of all outstanding unvested
        stock options was accelerated to immediately prior to the shareholder
        vote in respect of the proposed arrangement (Note 22). As a result,
        on June 12, 2007, the Corporation vested 360,465 stock options,
        representing all of its outstanding unvested stock options, and
        recorded a compensation expense of $0.8 million. Under the individual
        stock option agreements these options were expected to vest over a
        graded vesting period up to March 2009.

        The following table summarizes information about stock options
        outstanding and exercisable at September 30, 2007:

                              Options Outstanding        Options Exercisable
        ---------------------------------------------------------------------
        Range of            Number  Weighted  Weighted      Number  Weighted
        exercise       outstanding   average   average exercisable   average
        price                      remaining  exercise              exercise
                                       life      price                 price
                                     (years)
        ---------------------------------------------------------------------
        $ 7.25 - $ 9.74    858,395        5   $   8.08    858,395   $   8.08
        $ 9.75 - $12.24    585,875        4      10.32    585,875      10.32
        $12.25 - $17.00    345,100        5      15.81    345,100      15.81
        ---------------------------------------------------------------------
                         1,789,370            $  11.09  1,789,370   $  11.09
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Corporation issues stock options with both U.S. and Canadian
        dollar exercise prices. The Corporation's common shares and stock
        options are denominated in Canadian dollars.

        Exercise prices have been translated to U.S. dollars at the period
        end exchange rates disclosed in Note 2(a).

        Stock-based compensation expense recognized in income for the three
        and nine months ended September 30, 2007 related to stock options
        granted on or after January 1, 2003 was $Nil and $1.6 million,
        respectively (three and nine months ended September 30, 2006 -
        $0.5 million and $1.3 million, respectively) with a corresponding
        increase in contributed surplus.

        The following outlines the pro forma net earnings and basic and
        diluted earnings per share impact for the three and nine months ended
        September 30, 2007 and 2006 had the Corporation used the fair value
        method of accounting for stock-based compensation awards issued in
        2002. The pro forma adjustments presented below exclude stock options
        granted after 2002, for which compensation expense was recorded.

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Reported net earnings
         (loss)               $    9,525  $      461  $   11,926  $  (28,464)
        Stock based
         compensation expense          -        (105)       (105)       (310)
        ---------------------------------------------------------------------
        Adjusted net earnings
         (loss)               $    9,525  $      356  $   11,821  $  (28,774)
        ---------------------------------------------------------------------
        Adjusted basic and
         diluted earnings
         (loss) per share     $     0.23  $     0.01  $     0.28  $    (0.68)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The fair value of each option grant is estimated on the date of grant
        using the Black Scholes option-pricing model. There were no options
        granted during the nine months ended September 30, 2007 as a result
        of the proposed arrangement with CIP (Note 22). The following
        weighted average assumptions were used for options granted during the
        nine months ended September 30, 2006:

        ---------------------------------------------------------------------
                                                                September 30,
                                                                        2006
        ---------------------------------------------------------------------
        Risk free interest rate                                        4.63%
        Expected life                                               6.00 yrs
        Expected volatility                                            35.9%
        Expected dividends                                              0.0%
        ---------------------------------------------------------------------

        (ii) Deferred share unit plan

        The Corporation has established a DSU plan requiring non-employee
        members of the Board of Directors to receive a minimum of 50% of
        their directors' compensation in the form of DSUs. Directors may
        elect to receive a greater proportion of their compensation in DSUs
        by filing an election with the Corporation. The number of DSUs
        granted is determined by dividing the portion of the fees to be paid
        in DSUs by the market value of the DSU. The market value of a DSU on
        any particular date is equal to the average closing price of a common
        share of the Corporation on the preceding five trading days on the
        Toronto Stock Exchange. Additional DSUs are to be granted if
        dividends are paid.

        The DSUs vest immediately upon issue and are required to be settled
        in cash. DSUs are redeemed when a director ceases to be a member of
        the Board of Directors. The cash value to be paid for each DSU is
        equivalent to the market value of the DSU on the redemption date.

        DSUs, in respect of directors' fees, payable for the quarter ended
        September 30, 2007 will be issued in October 2007. Compensation
        expense (recovery) recognized in income for the three and nine months
        ended September 30, 2007 related to DSUs that have been issued up to
        September 30, 2007 was $0.1 million and $1.1 million, respectively
        (three and nine months ended September 30, 2006 - $(0.4) million and
        $(0.7) million, respectively). The amount recorded in current
        liabilities at September 30, 2007 related to DSUs was $1.8 million
        (September 30, 2006 - $0.4 million).

        (iii) Performance share unit plan

        The Corporation has established a PSU plan for certain senior
        employees. The PSU plan, in conjunction with a separate Grant
        Agreement executed between the Corporation and the employee, gives
        the employee the right to receive compensation, subject to the
        achievement of performance targets specified in the agreement. The
        compensation will consist of shares of the Corporation or at the
        Corporation's discretion, a cash payment equal to the fair market
        value of the PSU. The amount of compensation expense (recovery)
        recognized in income for the three and nine months ended
        September 30, 2007 related to PSUs was $0.2 million and $1.0 million,
        respectively (three and nine months ended September 30, 2006 -
        $(0.2) million and $0.2 million, respectively). The amount recorded
        in current liabilities at September 30, 2007 related to PSUs was
        $1.9 million (September 30, 2006 - $0.4 million).

    12. Accumulated other comprehensive income

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Balance, beginning
         of period            $      506  $        -  $        -  $        -
        Fair value of
         derivatives
         designated as cash
         flow hedges, net of
         income taxes of $320          -           -         634           -
        Reclassification
         adjustment for gains
         included in net loss,
         net of income taxes
         (three months $16;
         nine months $43)            (23)          -         (84)          -
        Other comprehensive
         loss                     (1,055)          -      (1,122)          -
        ---------------------------------------------------------------------
        Balance,
         end of period        $     (572) $        -  $     (572) $        -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    13. Interest expense

        The components of interest expense for the three and nine months
        ended September 30 are as follows:

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Long-term debt        $    7,833  $    8,053  $   23,401  $   21,806
        Amortization of
         deferred financing
         costs                       447         549       1,271       4,141
        Bank indebtedness             51          72         186         271
        ---------------------------------------------------------------------
                              $    8,331  $    8,674  $   24,858  $   26,218
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Amortization of deferred financing costs for the nine months ended
        September 30, 2006 includes $2.8 million related to the write-off of
        costs deferred in connection with credit facilities in place prior to
        the refinancing on February 13, 2006.

    14. Other costs (income)

        Other costs (income) for the three and nine months ended September 30
        are comprised of the following:

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Costs related to the
         proposed arrangement $    1,380  $        -  $    6,596  $        -
        Severance and other
         costs                       (69)      3,995       1,172       5,494
        Asset impairment charge        -           -           -      23,786
        Gain on sale of
         capital assets           (1,000)          -      (1,000)          -
        Gain from insurance
         settlements                   -           -      (6,161)          -
        Provision for legal
         claim (recovery)              -        (169)          -        (169)
        ---------------------------------------------------------------------
                              $      311  $    3,826  $      607  $   29,111
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Costs related to the proposed arrangement with CIP

        During the three and nine months ended September 30, 2007, the
        Corporation incurred financial advisory, legal, and other costs
        associated with the proposed sale of the Corporation by way of a plan
        of arrangement (Note 22).

        Severance and other costs

        Severance and other costs in the second quarter of 2007 included
        costs to move capital assets from Goonhilly, England to Burum, The
        Netherlands as part of the Corporation's rationalization of its LES
        network.

        Severance and other costs in the first quarter of 2007 included
        severance and consultant costs related to corporate wide
        restructuring measures designed to reduce costs.

        Severance and other costs of $4.0 million recorded in the third
        quarter of 2006 included severance costs of $3.2 million related to
        restructuring measures designed to reduce costs in the global MSS
        operations and sales and marketing groups and in the Broadband
        European operations groups. In addition, consultant costs of
        $0.8 million were recorded in respect of restructuring activities.

        Severance and other costs in the first quarter of 2006 primarily
        related to restructuring activities in the Broadband sales group and
        at the corporate level.

        As at September 30, 2007, the remaining unpaid balance related to
        severance and other costs incurred in the current and prior periods
        was $0.6 million (December 31, 2006 - $1.9 million).

        Asset impairment charge

        Coincident with the acquisition of Xantic, management completed an
        evaluation of the Corporation's consolidated post-acquisition LES
        network infrastructure and services. As a result, during the first
        quarter of 2006, the Corporation recorded an asset impairment charge
        of $19.6 million in connection with capital assets and licenses used
        in its LES in Goonhilly, England and certain related software assets.

        The Corporation also recorded an asset impairment charge of
        $4.2 million in the first quarter of 2006 related to the write-off of
        capital assets, representing costs incurred under a project to
        customize and integrate customer relationship management software for
        use within the mobile satellite business. The Corporation has filed a
        claim in the Supreme Court of Newfoundland and Labrador, Canada, for
        U.S. $7.0 million in damages, plus costs and interest due to a third
        party consultant's breach of contract and has received a counterclaim
        from the defendant, alleging breach of the same contract and seeking
        $6.7 million in damages plus costs and interest.

        Gain on sale of capital assets

        Gain on sale of capital assets during the third quarter of 2007
        relates to the sale of certain aeronautical equipment. Total proceeds
        were $1.0 million, resulting in a gain of $1.0 million, as the
        equipment had been fully depreciated by the Corporation.

        Gain from insurance settlements

        Gain from insurance settlements during the second quarter of 2007
        relate to hurricanes Katrina and Rita. The settlements are comprised
        of $4.5 million related to capital assets disposed of and
        $1.7 million related to business interruption.

        Provision for legal claim

        During the second quarter of 2005, the Corporation recorded a
        provision of $1.7 million consisting of damages, interest and costs
        associated with a court ruling in favour of a former director and
        officer of the Corporation regarding the sale of a subsidiary to such
        individual in 1998. The Corporation appealed this ruling and during
        September 2006 was successful in recovering $0.2 million of judgment
        costs previously paid to the court.

    15. Income taxes

        Reconciliation to statutory rates

        The following is a reconciliation of income taxes, calculated at the
        Canadian combined federal and provincial statutory income tax rates,
        to the income tax provision recorded in the consolidated statements
        of operations for the three and nine months ended September 30:

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Earnings (loss) before
         income taxes         $   14,162  $     (664) $   20,051  $  (33,543)

        Income tax expense
         (recovery) based
         upon statutory rates      5,098        (239)      7,218     (12,075)

        Increase (decrease)
         in income taxes
         resulting from:
          Non-taxable items       (1,913)     (1,821)     (1,132)     (2,572)
          Benefit of current
           year's non-capital
           losses not recognized   2,166       1,156       3,668       9,815
          Difference in foreign
           tax rates                (722)         46      (1,635)        (39)
          Effect of
           substantively
           enacted rates              (6)       (304)        (56)       (304)
          Capital tax                 14          37          62          96
        ---------------------------------------------------------------------
        Income tax expense
         (recovery)           $    4,637  $   (1,125) $    8,125  $   (5,079)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Provision for income taxes

        The components of the provision for (recovery of) income taxes for
        the three and nine months ended September 30 are as follows:

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Canadian
          Current taxes       $      383  $      389  $      390  $     (129)
          Future income taxes        (82)       (178)       (459)     (3,147)
        ---------------------------------------------------------------------
                              $      301  $      211  $      (69) $   (3,276)
        ---------------------------------------------------------------------
        Foreign
          Current taxes       $      387  $   (1,573) $    1,769  $   (2,771)
          Future income taxes      3,949         237       6,425         968
        ---------------------------------------------------------------------
                              $    4,336  $   (1,336) $    8,194  $   (1,803)
        ---------------------------------------------------------------------
        Income tax expense
         (recovery)           $    4,637  $   (1,125) $    8,125  $   (5,079)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Future income taxes

        The tax effects of temporary differences which give rise to future
        tax assets and liabilities are as follows:

        ---------------------------------------------------------------------
                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        Loss carry-forwards                        $    53,277   $    56,627
        Capital assets                                   1,302        (1,446)
        Goodwill and other intangible assets           (42,015)      (39,712)
        Current assets                                   1,931         1,958
        Asset retirement obligation                      1,355         1,420
        Other                                            1,636         1,465
        Current liabilities                               (140)          817
        Valuation allowance                            (37,696)      (35,849)
        ---------------------------------------------------------------------
        Total future income taxes                  $   (20,350)  $   (14,720)
        ---------------------------------------------------------------------

        Future income taxes comprise:

                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        Future income tax asset - current portion  $     3,170   $     4,053
        Future income tax liability - long-term
         portion                                       (23,520)      (18,773)
        ---------------------------------------------------------------------

        Net future income tax liability            $   (20,350)  $   (14,720)
        ---------------------------------------------------------------------

        Tax losses

        The Corporation has estimated non-capital tax losses carried forward
        at September 30, 2007 amounting to approximately $142.7 million of
        which $58.7 million arises in subsidiaries outside Canada, the U.S.
        and the Netherlands and can be carried forward indefinitely. The
        balance of $84.0 million arises in subsidiaries in Canada, the U.S.
        and the Netherlands, and expires at various dates from 2011 to 2027.
        The use of approximately $3.1 million of these losses is limited to
        an annual amount on a straight line basis over twenty years as
        prescribed by tax legislation. The Corporation has a net capital loss
        of $6.2 million which can only be utilized against capital gains.

        The valuation allowance at September 30, 2007 primarily relates to
        the potential future benefits in respect of net loss carryforwards of
        $73.1 million or $26.5 million of the valuation allowance
        (December 31, 2006 - $67.4 million or $23.8 million of the valuation
        allowance) and in respect of other deductible differences of
        $37.5 million or $11.2 million of the valuation allowance
        (December 31, 2006 - $40.2 million or $12.0 million of the valuation
        allowance). These tax assets will be recognized in future periods
        when it becomes more likely than not that the benefits will be
        realized.

    16. Per share information

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Net earnings (loss)   $    9,525  $      461  $   11,926  $  (28,464)
        ---------------------------------------------------------------------
        Weighted average
         common shares used in
         the calculation of
         basic earnings per
         share and diluted
         earnings per share       41,998      41,998      41,998      41,996
        ---------------------------------------------------------------------
        Basic and diluted
         earnings (loss)
         per share             $    0.23  $     0.01  $     0.28  $    (0.68)
        ---------------------------------------------------------------------

        Options to purchase 1,789,370 common shares were outstanding at
        September 30, 2007 (September 30, 2006 - 1,876,335). Options to
        purchase 1,789,370 and 1,797,412 common shares were not included in
        the computation of diluted earnings per share for the three and nine
        months ended September 30, 2007 (September 30, 2006 - 1,876,335 and
        1,718,012, respectively) because the exercise prices of such options
        were greater than or equal to the average market price of the common
        shares during the period.

    17. Change in non-cash working capital

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Accounts receivable   $   (5,301) $  (11,816) $  (10,028) $   (1,578)
        Unbilled revenue             212       4,203      (6,416)     (5,672)
        Inventory                   (260)     (1,733)        390      (3,234)
        Prepaids and other        (2,295)     (1,985)      1,656      (2,913)
        Payables and accruals    (14,012)        503      (6,904)       (286)
        Deferred revenue             279         560        (859)        611
        ---------------------------------------------------------------------
                              $  (21,377) $  (10,268) $  (22,161) $  (13,072)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    18. Business segments

        The Corporation's reportable segments are Mobile Satellite Services
        and Broadband Services.

        The MSS segment includes the sale of airtime and equipment for
        Stratos' Inmarsat, Iridium, aeronautical and other mobile satellite
        operations. The Broadband segment includes the sale of airtime,
        equipment and services for Stratos' microwave and VSAT operations.

        The Corporation evaluates performance and allocates resources based
        on segment earnings before interest expense, depreciation and
        amortization, other (income) costs, non-controlling interest, equity
        in earnings of investee, and income taxes ("Segment earnings").
        Intersegment transactions are not significant and are eliminated upon
        consolidation.

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Revenue
          MSS                 $  122,636  $  107,647  $  355,646  $  302,859
          Broadband               31,739      30,929      93,253      94,297
        ---------------------------------------------------------------------
                              $  154,375  $  138,576  $  448,899  $  397,156
        ---------------------------------------------------------------------
        Segment earnings
          MSS                 $   27,710  $   20,242  $   66,728  $   44,242
          Broadband                5,197       2,310       8,603       7,775
        ---------------------------------------------------------------------
                              $   32,907  $   22,552  $   75,331  $   52,017
        ---------------------------------------------------------------------
        Interest expense      $    8,331  $    8,674  $   24,858  $   26,218
        Depreciation and
         amortization             10,317      10,995      30,731      30,906
        Other costs (income)         311       3,826         607      29,111
        Non-controlling
         interest                     10         (45)        (89)         13
        Equity in earnings
         of investee                (224)       (234)       (827)       (688)
        ---------------------------------------------------------------------
                              $   18,745  $   23,216  $   55,280  $   85,560
        ---------------------------------------------------------------------
        Earnings (loss)
         before income taxes  $   14,162  $     (664) $   20,051  $  (33,543)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
                                                  September 30,  December 31,
        Total identifiable assets                         2007          2006
        ---------------------------------------------------------------------
          MSS                                      $   320,756   $   324,679
          Broadband                                    107,079       127,122
        ---------------------------------------------------------------------
                                                   $   427,835   $   451,801
        ---------------------------------------------------------------------
        Goodwill
          MSS                                      $   278,131   $   278,131
          Broadband                                     47,738        47,738
        ---------------------------------------------------------------------
                                                   $   325,869   $   325,869
        ---------------------------------------------------------------------
                                                   $   753,704   $   777,670
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Geographic Information - Revenue
        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        United States         $   55,186  $   52,456  $  158,432  $  157,817
        United Kingdom            17,548      17,241      54,288      50,887
        Canada                     8,829       5,919      23,025      15,708
        Australia                 15,940      10,472      42,405      30,747
        Other                     56,872      52,488     170,749     141,997
        ---------------------------------------------------------------------
                              $  154,375  $  138,576  $  448,899 $   397,156
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Geographic Information - Capital Assets and Goodwill

                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        United States                              $    94,213   $    98,242
        United Kingdom                                 122,721       131,361
        Canada                                          48,997        51,185
        Netherlands                                    142,426       132,178
        Other                                           43,548        47,278
        ---------------------------------------------------------------------
                                                   $   451,905   $   460,244
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Revenues are attributed to different countries based on the billing
        address of the customer for whom the service was provided.

    19. Financial instruments

        Risk management

        The Corporation's earnings and cash flow may be negatively impacted
        by fluctuations in interest and foreign currency exchange rates. In
        special investing and financing situations, the Corporation enters
        into foreign currency forward contracts in order to mitigate earnings
        volatility associated with foreign currency fluctuations and match
        the timing of cash flow requirements.

        Derivative financial instruments entered into by the Corporation are
        subject to standard credit terms and conditions, financial controls,
        and risk monitoring procedures. The Corporation does not hold or
        issue derivative financial instruments for speculative or trading
        purposes.

        Interest rate exposures

        The Term B facility is issued at floating rates of interest and is
        therefore subject to risks associated with fluctuating interest
        rates. The Corporation has entered into, for hedging purposes, three
        interest rate swap transactions as at September 30, 2007. The fair
        values of these instruments are recorded on the balance sheet and the
        change in value is reflected in other comprehensive income net of
        income taxes.

        One of the swap transactions was entered into with a U.S. bank and
        expires on January 14, 2009. This swap transaction involves the
        exchange of the underlying three month U.S. dollar LIBOR rate for a
        fixed rate of 3.95%. The notional amount of this swap transaction is
        $75.0 million which remains fixed throughout its term. The fair value
        of this swap transaction, which at September 30, 2007 was
        $0.7 million (December 31, 2006 - $1.6 million), is recorded on the
        balance sheet in other assets.

        The Corporation entered into the remaining two swap transactions with
        a Canadian chartered bank. One swap transaction involves the exchange
        of the underlying three month U.S. dollar LIBOR rate for a fixed rate
        of 4.28% and expires March 31, 2008. The notional amount of this swap
        transaction is $50.0 million which remains fixed throughout its term.
        The fair value of this swap transaction, which at September 30, 2007
        was $0.2 million (December 31, 2006 - $0.5 million), is recorded on
        the balance sheet in other assets.

        The third swap transaction involves the exchange of the underlying
        three month U.S. dollar LIBOR rate for a fixed rate of 5.15% and
        expires December 31, 2008. The notional amount of this swap
        transaction is $75.0 million which remains fixed throughout its term.
        The fair value of this swap transaction, which at September 30, 2007
        was $(0.5) million (December 31, 2006 - $0.1 million), is recorded on
        the balance sheet in other liabilities.

        Effective January 1, 2006, when the Corporation was engaged in the
        refinancing of its Term B credit facility, certain of the terms of
        the underlying debt did not match the terms of the swap transaction
        entered into on January 14, 2005. As a result, the hedging
        relationship became ineffective and the Corporation recorded an asset
        of $1.7 million representing the fair value of swap transactions as
        at January 1, 2006 and a corresponding deferred liability.

        In accordance with the transitional provisions of Section 3855 of the
        CICA Handbook, this deferred liability was reclassified to
        accumulated other comprehensive income. The balance in accumulated
        other comprehensive income is amortized to income in the same period
        in which the previously underlying hedged transaction is recognized
        into income. A mark to market adjustment to the date of redesignation
        in April 2006 resulted in the recognition of a $0.5 million gain in
        income for the nine months ended September 30, 2006. Upon
        redesignation of the January 14, 2005 swap transaction as a hedge of
        the Term B facility in April 2006, the hedging relationship became
        eligible for hedge accounting.

        Foreign currency exposures

        The Corporation has long-term debt that is denominated primarily in
        U.S. dollars, as disclosed in Note 9, which is therefore not subject
        to risks associated with fluctuating foreign currency rates of
        exchange since the Corporation's reporting and functional currency is
        U.S. dollars.

        The Corporation operates internationally and is therefore exposed to
        market risks related to foreign currency exchange rate fluctuations.
        Concurrent with the acquisition of Xantic, the Corporation assumed
        foreign exchange forward contracts with a notional value of
        13.5 million Euros to buy Euros and sell U.S. dollars. These
        contracts were put in place to manage exposure to exchange rate
        fluctuations pertaining to Xantic's future net cash flows from
        operations. These forward contracts expired in increments of
        1.5 million Euros monthly from April 2006 to December 2006.

        Credit exposure

        The Corporation is exposed to credit risk in the event of non-
        performance by counterparties to its derivative financial
        instruments. Non-performance is not anticipated since these
        counterparties are highly rated financial institutions.

        The Corporation is also exposed to credit risk with respect to
        accounts receivable from customers. The Corporation provides services
        to many customers across different geographic areas. No customer
        accounted for 10% or more of the Corporation's accounts receivable at
        September 30, 2007 or December 31, 2006.

        The Corporation has credit evaluation, approval and monitoring
        processes intended to mitigate potential credit risks, and maintains
        provisions for potential credit losses that are assessed on an
        ongoing basis. The allowance for uncollectability of accounts
        receivable and revenue adjustments at September 30, 2007 was
        $12.1 million (December 31, 2006 - $12.5 million).

        Fair values

        Fair value estimates are made as of a specific point in time, using
        available information about the financial instruments and current
        market conditions. The estimates are subjective in nature involving
        uncertainties and significant judgment.

        The carrying values of financial instruments included in current
        assets and current liabilities in the consolidated balance sheets
        approximate their fair values, reflecting the short-term maturity and
        normal trade credit terms of these instruments. The fair value of the
        long-term debt is based on current pricing of financial instruments
        with comparable terms. This fair value reflects a point-in-time
        estimate that may not be relevant in predicting the Corporation's
        future income or cash flows. As at September 30, 2007 and
        December 31, 2006, the estimated fair value of long-term debt
        corresponds to its carrying value.

    20. Commitments and contingencies

        Commitments

        The estimated future minimum payments for operating leases,
        maintenance contracts, committed capital expenditures and purchase
        obligations for the next five years and thereafter from September 30,
        2007 are $58.3 million, payable as follows:

                  2007                                    $ 26.5
                  2008                                    $ 12.1
                  2009                                    $  5.0
                  2010                                    $  2.9
                  2011                                    $  2.1
                  Thereafter                              $  9.7

        Telecommunications agreements

        The Corporation is party to various telecommunications service
        agreements in the normal course of business, as required to
        interconnect with other carriers and to allow Stratos to provide
        diverse multi-network telecommunications services to its customers.
        These agreements are subject to normal commercial terms as negotiated
        from time to time, which establish the terms of service and
        settlement with regards to interconnection and other services
        provided.

        Contingencies

        In the normal course of operations, the Corporation is subject to
        litigation and claims from third parties, customers, suppliers, and
        former employees. Management believes that adequate provisions have
        been recorded in the accounts where required.

    21. Related party transactions

        In the normal course of operations, the Corporation engages in
        transactions with its equity owned investee, Navarino. These
        transactions represent sales of airtime and equipment and are
        measured at the amounts exchanged.

        Revenue from the related party for the three and nine months ended
        September 30, 2007 was $4.8 million and $13.5 million, respectively
        (three and nine months ended September 30, 2006 - $4.2 million and
        $11.5 million, respectively). The amount receivable from the related
        party as at September 30, 2007 was $7.9 million (December 31, 2006 -
        $6.9 million).

    22. Proposed Arrangement with CIP

        On March 19, 2007, the Corporation announced that it had entered into
        a definitive Arrangement Agreement (the "Arrangement Agreement") to
        be acquired by CIP Canada Investment Inc. ("CIP Canada"), a wholly-
        owned subsidiary of Communications Investments Partners Limited
        ("CIP"), a professional investment company with a focus on satellite
        services.

        Under the terms of the Arrangement Agreement, CIP Canada would
        acquire beneficial ownership of 100 percent of the Corporation's
        common shares through a plan of arrangement under the Canada Business
        Corporations Act for a cash purchase price of C$7.00 per common share
        of the Corporation.

        The Arrangement Agreement required, among other things, approval by
        the Ontario Superior Court and by 66 2/3% of the votes cast in person
        or by proxy at a special meeting of Stratos shareholders. These
        approvals were obtained during the second quarter of 2007. The
        acquisition is also subject to customary conditions and regulatory
        approvals, including any clearances under applicable competition laws
        and approval of the U.S. Federal Communications Commission ("FCC").
        The approval of the FCC remains outstanding. Based on the current
        status of the FCC approval process, it is expected the Arrangement
        Agreement will be completed in the fourth quarter of 2007.

    23. Differences between Canadian and United States generally accepted
        accounting principles

        The consolidated financial statements have been prepared in
        accordance with Canadian GAAP which differ in certain respects from
        those principles that the Corporation would have followed had its
        financial statements been prepared in accordance with U.S. GAAP. This
        note summarizes these differences as they relate to the Corporation.

        a) The reconciliation of net earnings in accordance with Canadian
           GAAP to conform to U.S. GAAP for the three and nine months ended
           September 30 is as follows:

           ------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
           ------------------------------------------------------------------
           Net earnings (loss)
            in accordance with
            Canadian GAAP     $    9,525  $      461  $   11,926  $  (28,464)
           Deferred start-up
            costs(iii)                 -          82           -         262
           Stock-based
            compensation
            costs(iv)                  -        (107)       (105)       (503)
           Income tax impact of
            the above(i,iii)           -           -           -          (6)
           ------------------------------------------------------------------
           Net earnings (loss)
            U.S. GAAP         $    9,525  $      436  $   11,821  $  (28,711)
           ------------------------------------------------------------------

           The impact of these adjustments on the shareholders' equity
           accounts of the Corporation at September 30 is as follows:

                                                            2007        2006
           ------------------------------------------------------------------
           Shareholders' equity in accordance with
            Canadian GAAP                             $  211,175  $  195,804
           Business combinations(ii)                     (20,802)    (20,802)
           Deferred start-up costs(iii)                        -         (81)
           Income tax impact of the above(i, ii, iii)      6,027       6,027
           Accumulated other comprehensive income(i)           -       1,583
           ------------------------------------------------------------------

           Shareholders' equity in accordance with
            U.S. GAAP                                 $  196,400  $  182,531
           ------------------------------------------------------------------

           The components of shareholders' equity at September 30 are as
           follows:

                                                            2007        2006
           ------------------------------------------------------------------
           Capital stock                              $  218,191  $  218,191
           Deficit                                       (22,694)    (36,476)
           Contributed surplus(v)                          5,303       3,059
           Other comprehensive income(v)                  (4,400)     (2,243)
           ------------------------------------------------------------------

           Shareholders' equity in accordance with
            U.S. GAAP                                 $  196,400  $  182,531
           ------------------------------------------------------------------

        The balance sheets in accordance with U.S. GAAP at September 30, 2007
        and December 31, 2006 are as follows:

        ---------------------------------------------------------------------
                                         2007                    2006
        ---------------------------------------------------------------------
                                Canadian      U.S.      Canadian      U.S.
                                  GAAP        GAAP        GAAP        GAAP
        ---------------------------------------------------------------------
        Assets
        Current
          Cash and cash
           equivalents        $   39,716  $   39,716  $   48,115  $   48,115
          Accounts receivable    108,742     108,742      98,714      98,714
          Unbilled revenue        38,426      38,426      32,010      32,010
          Derivative
           instruments(i)              -           -         400         788
          Inventory                9,792       9,792      10,182      10,182
          Prepaids and other      19,320      19,320      20,119      20,119
          Future income taxes      3,170       3,170       4,053       4,053
        ---------------------------------------------------------------------
                                 219,166     219,166     213,593     213,981

        Derivative
         instruments(i)              856         856           -           -
        Investments                6,765       6,765       6,661       6,661
        Capital assets           126,036     126,036     134,375     134,375
        Goodwill and other
         intangible assets(ii)   399,433     378,631     407,563     386,761
        Other assets(iii)(i)       1,448      12,765      15,478      15,478
        ---------------------------------------------------------------------
                              $  753,704  $  744,219  $  777,670  $  757,256
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Liabilities
        Current
          Payables and
           accruals(vii)      $  131,859 $   126,104  $  157,924  $  157,924
          Deferred revenue        10,464      10,464      11,323      11,323
          Current portion of
           long-term debt          2,392       2,392       2,371       2,371
        ---------------------------------------------------------------------
                                 144,715     138,960     171,618     171,618

        Long-term debt(i)        359,603     370,920     373,207     373,207
        Derivative
         instruments(i)              479         479           -           -
        Other liabilities(vii)    13,801      19,925      15,659      15,659
        Future income
         taxes(ii,iii,vii)        23,520      17,124      18,773      12,746
        ---------------------------------------------------------------------
        Total liabilities        542,118     547,408     579,257     573,230

        Non-controlling
         interest                    411         411         500         500
        Shareholders' equity     211,175     196,400     197,913     183,526
        ---------------------------------------------------------------------
                              $  753,704  $  744,219  $  777,670  $  757,256
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Following are statements of operations for the three and nine months
        ended September 30 in accordance with U.S. GAAP:

        ---------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Revenue               $  154,375  $  138,576  $  448,899  $  397,156
        Costs of goods and
         services                105,741      97,328     321,856     289,215
        ---------------------------------------------------------------------
        Gross margin              48,634      41,248     127,043     107,941
        ---------------------------------------------------------------------
        Selling, general and
         administrative           13,291      15,754      44,764      49,027
        Rental expense             2,067       2,484       6,425       6,854
        Bad debt expense            (160)       (190)       (114)        134
        Depreciation and
         amortization             10,317      10,995      30,731      30,906
        Asset impairment charge
         (Note 14)                     -           -           -      23,786
        Equity in earnings
         of investee                (224)       (234)       (827)       (688)
        Foreign exchange loss        529         673         742         150
        Non-controlling interest      10         (45)        (89)         13
        Other costs (income)         311       3,826         607       5,325
        ---------------------------------------------------------------------
                                  26,141      33,263      82,239     115,507
        ---------------------------------------------------------------------
        Earnings (loss) from
         operations               22,493       7,985      44,804      (7,566)
        Interest expense           8,331       8,674      24,858      26,218
        ---------------------------------------------------------------------

        Net earnings (loss)
         before income taxes      14,162        (689)     19,946     (33,784)
        Income tax expense
         (recovery)                4,637      (1,125)      8,125      (5,073)
        ---------------------------------------------------------------------
        Net earnings (loss)   $    9,525  $      436  $   11,821  $  (28,711)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Basic and diluted
         earnings (loss) per
         share in accordance
         with U.S. GAAP       $     0.23  $     0.01  $     0.28  $    (0.68)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        i)    Financial instruments

              Effective January 1, 2007, the Corporation adopted Section 3855
              of the CICA Handbook. Consistent with U.S. GAAP, Canadian GAAP
              now requires all derivatives be recorded on the balance sheet
              at fair value. The interest rate swap transactions described in
              Note 19 meet the criteria for hedge accounting and are
              accounted for as hedges under Canadian and U.S. GAAP. In prior
              periods, Canadian GAAP did not require the balance sheet
              recognition of derivatives designated as hedges.

              Under Canadian GAAP, Section 3855 also requires that
              transaction costs relating to financial instruments classified
              as other financial liabilities be applied against the carrying
              amount of the related financial liability and amortized into
              income using the effective interest rate method. Under U.S.
              GAAP, transaction costs are recognized as deferred assets and
              amortized to income using the effective interest rate method.
              While this difference has no impact on the statement of
              operations in the current or future periods, it does create a
              classification difference on the balance sheet.

              In addition, in connection with the equity offering of common
              shares in 2002, the Corporation entered into a forward exchange
              contract in order to fix the U.S. dollar value of the
              anticipated net proceeds from the offering. Under Canadian
              GAAP, this forward contract was accounted for as a hedge of the
              Canadian dollar denominated net proceeds from the offering.
              Therefore, the proceeds from the offering were credited to
              capital stock at the contracted exchange rate. Under U.S. GAAP,
              this forward exchange contract did not meet the criteria
              necessary to be classified as a hedge. Therefore, under U.S.
              GAAP, the proceeds from the offering were recorded at the
              exchange rate prevailing at the date the proceeds were
              received, and the loss on the forward exchange contract was
              charged to income in 2002.

        ii)   Business combinations

              As part of the business combinations completed prior to
              January 1, 2001, transition and integration costs, employee
              retention bonuses, and impairments in value of certain
              redundant assets of the Corporation related to business
              combinations were included as acquisition costs and accounted
              for using the purchase method. Under U.S. GAAP, transition and
              integration costs and asset impairment losses related to
              redundant assets of the acquirer corporation are expensed as
              incurred. Accordingly, the goodwill related to these
              acquisitions under U.S. GAAP is lower than that recorded under
              Canadian GAAP.

        iii)  Deferred start-up costs

              Under Canadian GAAP, start-up costs are deferred and amortized
              over periods not exceeding five years based on the expected
              period and pattern of benefit of the deferred expenditures.
              Under U.S. GAAP, these costs are charged to expense in the
              period incurred. The difference between U.S. GAAP and Canadian
              GAAP represents the start-up costs capitalized in the
              respective year, net of the reversal of amortization expense
              recorded for Canadian GAAP relating to amounts previously
              capitalized. This difference had no impact on the current
              period as deferred start-up costs were fully amortized as at
              December 31, 2006.

        iv)   Stock-based compensation costs

              As described in Note 2(a), during 2003 the Corporation elected
              to adopt the fair value method of accounting for stock options
              granted to directors, officers and employees on or after
              January 1, 2003 under Canadian GAAP.

              In accordance with the transitional provisions available under
              Canadian GAAP, the Corporation provides pro forma disclosures
              of net earnings and related per share amounts using the fair
              value method of accounting for such stock options granted in
              2002.

              Effective January 1, 2006, the Corporation adopted the fair
              value recognition provisions of SFAS 123(R), Share-Based
              Payment, using the modified prospective transition method.
              Stock-based compensation expense recognized for the three and
              nine months ended September 30, 2007 includes compensation cost
              for all stock options issued prior to January 1, 2006 but not
              yet vested as of January 1, 2006 as well as compensation cost
              for options issued on or after January 1, 2006.

        v)    Change in reporting currency

              Effective January 1, 2001, the Corporation changed both its
              functional and reporting currencies from the Canadian dollar
              to the U.S. dollar. Under Canadian GAAP, financial statements
              of all periods prior to January 1, 2001 were translated into
              U.S. dollars in accordance with the translation of convenience
              method using the exchange rate as at December 31, 2000.

              Under U.S. GAAP, these prior period financial statements are
              translated into U.S. dollars using the current rate method, as
              if the reporting currency had always been the U.S. dollar. The
              application of this change resulted in differences in
              individual balances within shareholders' equity between
              Canadian and U.S. GAAP as of January 1, 2001; however, total
              shareholders' equity was unchanged.

              Accumulated other comprehensive income includes $3.8 million
              which arose as a result of this translation method. This amount
              has not changed since January 1, 2001.

        vi)   Advertising costs

              Advertising costs are expensed as incurred.

        vii)  Income taxes

              The Corporation adopted the provisions of FASB Interpretation
              No. 48, "Accounting for Uncertainty in Income Taxes", or FIN
              48, on January 1, 2007. FIN 48 prescribes a recognition
              threshold that a tax position is required to meet before being
              recognized in the financial statements and provides guidance on
              derecognition, measurement, classification, interest and
              penalties, accounting in interim periods, disclosure and
              transition issues.

              Although the implementation of FIN 48 did not impact the amount
              of the Corporation's liability for unrecognized tax benefits,
              $7.2 million of the liability for unrecognized tax benefits was
              reclassified from payable and accruals and future income taxes
              to other long term liabilities to conform with the balance
              sheet presentation requirements of FIN 48. As of January 1,
              2007, the amount of unrecognized tax benefits was $6.7 million
              of which $3.2 million would, if recognized, decrease the
              Corporation's effective tax rate.

              The Corporation files its tax returns as prescribed by the tax
              laws of the jurisdictions in which it operates. Various
              jurisdictions' tax years remain open for examination for
              varying periods.

              During the quarter ended September 30, 2007 the unrecognized
              tax benefit decreased by $1.3 million as the 2003 taxation year
              became statute barred in one of the Corporation's reporting
              jurisdictions.

              The Corporation recognizes interest accrued related to
              unrecognized tax benefits in the provision for income taxes. As
              of January 1, 2007, interest accrued was approximately
              $0.5 million. No penalties have been accrued. Additional
              interest of $(0.1) million and $0.1 million was (recovered)
              accrued in the three and nine months ended September 30, 2007,
              respectively.

        b) The consolidated statements of cash flow comply with International
           Accounting Standard 7. However, there are certain differences
           under U.S. GAAP as a result of other reconciling items for the
           three months and nine months ended September 30, 2006. A summary
           cash flow statement for the three and nine months ended
           September 30 in accordance with U.S. GAAP is presented below.

           ------------------------------------------------------------------
                                      Three Months             Nine Months
                                    2007        2006        2007        2006
           ------------------------------------------------------------------
           Cash flows from
            operating
            activities in
            accordance with
            U.S. GAAP         $    2,607  $    3,097  $   25,155  $   17,586
           ------------------------------------------------------------------

           Cash flows from
            investing
            activities in
            accordance with
            U.S. GAAP         $   (3,588) $   (8,520) $  (30,244) $ (194,284)
           ------------------------------------------------------------------

           Cash flows from
            financing
            activities in
            accordance with
            U.S. GAAP         $     (861) $       53  $   (3,310) $  210,996
           ------------------------------------------------------------------
    

    %SEDAR: 00003648E




For further information:

For further information: Investor Contact: Paula Sturge, FCA, Executive
Vice President & CFO, (709) 724-5227, paula.sturge@stratosglobal.com; Sue
Keith, Marketing Communications, (301) 968-1477, sue.keith@stratosglobal.com

Organization Profile

STRATOS GLOBAL CORPORATION

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890