SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1999
                         Commission file number 0-23044

                      AMERICAN MOBILE SATELLITE CORPORATION
             (Exact name of registrant as specified in its charter)

                DELAWARE                          93-0976127
             (State or other                   (I.R.S. Employer
             jurisdiction of                  Identification No.)
             incorporation or
              organization)

          10802 Parkridge Boulevard
                Reston, VA                       20191-5416
             (Address of principal               (Zip Code)
               executive offices)

                                 (703) 758-6000
                         (Registrant's telephone number,
                              including area code)


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

Number of shares of Common Stock outstanding at July 31, 1999: 39,307,615










                         PART I - FINANCIAL INFORMATION
                         ------------------------------

Item 1.  Financial Statements
- -------  --------------------

             American Mobile Satellite Corporation and Subsidiaries

                 Consolidated Condensed Statements of Operations
                                   (Unaudited)




                                                                  Three Months Ended June 30,        Six Months Ended June 30,
                                                                  1999              1998             1999            1998
                                                                  ----              ----             ----            ----
                                                                           (in thousands, except per share data)

REVENUES
                                                                                                       
  Services                                                     $  16,622        $  16,670          $32,786         $23,088
  Sales of equipment                                               6,251            5,740           10,317           9,344
                                                                   -----            -----           ------           -----
  Total Revenues                                                  22,873           22,410           43,103          32,432

COSTS AND EXPENSES
  Cost of service and operations                                  16,516           16,225           34,386          23,953
  Cost of equipment sold                                           6,594            5,415           11,122           9,296
  Sales and advertising                                            5,721            5,404           10,470           8,426
  General and administrative                                       4,708            5,773            9,477           9,404
  Depreciation and amortization                                   13,632           14,457           27,404          24,620
                                                                 -------          -------           ------          ------

  Operating Loss                                                 (24,298)         (24,864)         (49,756)        (43,267)

INTEREST EXPENSE                                                 (16,891)         (15,706)         (32,821)        (22,344)
INTEREST AND OTHER INCOME                                          1,893            1,607            3,632           1,748
UNREALIZED LOSS ON NOTE RECEIVABLE FROM XM RADIO                  (9,919)              --           (9,919)             --
UNREALIZED GAIN ON NOTE PAYABLE TO RELATED PARTY                  10,036               --           10,036              --
EQUITY IN LOSS OF XM RADIO                                        (3,198)          (4,026)          (6,692)         (6,532)
                                                                 --------        ---------          -------         -------

  NET LOSS                                                      $(42,377)        $(42,989)        $(85,520)       $(70,395)
                                                                =========        =========        =========        ========

Basic and Diluted Loss Per Share of common stock                $  (1.31)        $ ( 1.36)         $ (2.65)        $ (2.47)

Weighted-average common shares outstanding during the
  period                                                          32,416           31,719           32,321          28,502



See notes to consolidated condensed financial statements.







             American Mobile Satellite Corporation and Subsidiaries
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)



                                                                     June 30,      December 31,
                                                                       1999            1998
                                                                       ----            ----
                                                                          (In thousands)
                                     ASSETS
CURRENT ASSETS
                                                                              
  Cash and cash equivalents                                        $   1,314        $   2,285
  Inventory                                                           18,426           18,593
  Prepaid in-orbit insurance                                             483            3,381
  Accounts receivable-- net                                           20,010           15,325
  Restricted short-term investments                                   41,038           41,038
  Note receivable from XM Radio, fair value                           12,477               --
  Other current assets                                                15,180           13,231
                                                                      ------           ------
         Total current assets                                        108,928           93,853
PROPERTY & EQUIPMENT-- net                                           229,050          246,553
GOODWILL & INTANGIBLES-- net                                          52,156           53,235
RESTRICTED INVESTMENTS                                                50,477           67,199
DEFERRED CHARGES & OTHER ASSETS-- net                                 24,241           28,954
                                                                      ------           ------
         Total assets                                               $464,852         $489,794
                                                                    ========         ========
                       LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
  Accounts payable & accrued expenses                              $  30,745        $  33,797
  Obligations under capital leases due within one year                 3,992            5,971
  Vendor financing due to related party within one year                1,674              543
  Deferred trade payables due within one year                          1,262            4,498
  Other current liabilities                                               --              162
                                                                      ------         --------
         Total current liabilities                                    37,673           44,971

LONG-TERM LIABILITIES
  Obligations under  Bank Financing                                  172,000          132,000
  Obligations under Senior Notes, net of discount                    327,571          327,147
  Capital lease obligations                                            5,120            5,824
  Net assets acquired in excess of purchase price                      1,681            2,028
  Vendor financing due to related party                                3,108            1,069
  Convertible note payable to related party, fair value               12,055               --
  Deferred trade payables                                                213              620
  Investment in XM Radio                                              19,310           12,618
  Other long-term liabilities                                          1,359              540
                                                                       -----              ---
         Total long-term liabilities                                 542,417          481,846
                                                                     -------          -------
         Total liabilities                                           580,090          526,817

STOCKHOLDERS' DEFICIT
  Preferred Stock                                                         --               --
  Common Stock                                                           327              322
  Additional paid-in capital                                         514,732          508,084
  Deferred compensation                                               (4,931)          (1,528)
  Common Stock purchase warrants                                      60,588           59,108
  Unamortized guarantee warrants                                     (31,103)         (33,678)
  Cumulative loss                                                   (654,851)        (569,331)
                                                                    --------         --------
         Total stockholders' deficit                                (115,238)         (37,023)
                                                                    ---------         -------
         Total liabilities and stockholders' deficit                $464,852         $489,794
                                                                    ========         ========


See notes to consolidated financial statements.










             American Mobile Satellite Corporation and Subsidiaries

                 Consolidated Condensed Statements of Cash Flows
                                   (Unaudited)




                                                          Six Months Ended
                                                              June 30,
                                                          1999           1998
                                                          ----           ----
                                                              (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
                                                                 
Net loss                                                $(85,520)      ($70,395)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Amortization of guarantee warrants, debt discount and
    issuance costs                                         9,196          7,368
  Depreciation and amortization                           27,404         24,220
  Equity in loss in XM Radio                               6,692          6,532
  Interest payable on Senior Notes                        10,259         10,259
  Unrealized loss on note receivable from XM Radio         9,919             --
  Unrealized gain on note payable to related party       (10,036)            --
  Changes in assets and liabilities:
    Inventory                                                168          1,889
    Prepaid in-orbit insurance                             2,898          2,571
    Trade accounts receivable                             (4,685)         1,941
    Other current assets                                  (2,477)            67
    Accounts payable and accrued expenses                  8,937         (9,015)
    Deferred trade payables                               (3,644)        (7,680)
    Deferred items-- net                                    (466)          (124)
                                                            -----         ------
Net cash used in operating activities                    (31,355)       (32,367)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment                       (5,631)        (5,558)
Purchase of XM Radio note receivable                     (21,419)            --
Acquisition of ARDIS                                          --        (51,440)
Purchase of long-term, restricted investments             (3,781)      (141,899)
                                                          -------      ---------
Net cash used in investing activities                    (30,831)      (198,897)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock                     2,913            236
Principal payments under capital leases                   (2,781)        (1,234)
Principal payments under Vendor Financing                   (197)            --
Proceeds from New Bank Financing                          40,000         24,000
Proceeds from note payable to related party               21,500             --
Repayment of Bank Financing                                   --       (100,000)
Proceeds from bridge financing                                --         10,000
Repayment of bridge financing                                 --        (10,000)
Payments on long-term debt                                    --         (4,933)
Proceeds from Senior Notes and Stock Purchase                 --        335,000
Warrants
Debt issuance costs & deferred charges                      (220)       (14,967)
                                                            -----       --------
Net cash provided by financing activities                 61,215        238,102
Net (decrease) increase in cash and cash equivalents        (971)         6,838
CASH AND CASH EQUIVALENTS, beginning of period             2,285          2,106
                                                           -----          -----
CASH AND CASH EQUIVALENTS, end of period                  $1,314         $8,944
                                                          ======         ======


See notes to consolidated financial statements.








                         PART I - FINANCIAL INFORMATION
                         ------------------------------
                    Item 1. Financial Statements (continued)
                    ----------------------------------------
             American Mobile Satellite Corporation and Subsidiaries
              Notes to Consolidated Condensed Financial Statements
                                  June 30, 1999
                                   (Unaudited)

1. Organization and Business
- ----------------------------

    American Mobile  Satellite  Corporation  (with its  subsidiaries,  "American
Mobile" or the  "Company") is a nationwide  provider of wireless  communications
services,  including data, dispatch,  and voice services,  primarily to business
customers in the United States.

    American  Mobile is devoting its efforts to  expanding  its  business.  This
effort involves substantial risk. Specifically, future operating results will be
subject  to  significant  business,   economic,   regulatory,   technical,   and
competitive  uncertainties  and  contingencies.  Depending  on their  extent and
timing, these factors,  individually or in the aggregate,  could have an adverse
effect on the Company's financial condition and future results of operations.

     On July 7, 1999, XM Satellite  Radio  Holdings Inc.  became a  wholly-owned
subsidiary of the Company as a result of the Company's acquisition of certain of
WorldSpace, Inc.'s debt and equity interests in XM Satellite Radio Holdings Inc.
This  acquisition  will be accounted  for as a purchase in the third  quarter of
1999. The Company's proportionate share of losses of XM Radio have been recorded
in the  accompanying  statements of operations  pursuant to the equity method of
accounting.  XM  Satellite  Radio  Holdings  Inc.,  through  its  subsidiary  XM
Satellite  Radio Inc.  (together  with XM Satellite  Radio  Holdings  Inc.,  "XM
Radio"),  is one  of two  entities  awarded  a  license  by the  FCC to  provide
satellite-based  Digital  Audio Radio  Service  ("DARS")  throughout  the United
States.  XM Radio is  currently  engaged in efforts to construct  its  satellite
system.  The Company is not  required to provide  any  additional  funding to XM
Radio. See footnote 8-Subsequent Events.

2. Significant Accounting Policies
- ----------------------------------

Basis of Presentation
- ---------------------

    The unaudited  consolidated  condensed financial  statements included herein
have been prepared  pursuant to the rules and  regulations of the Securities and
Exchange  Commission.  Certain  information  and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While the Company believes
that the disclosures  made are adequate to not make the information  misleading,
these consolidated  financial  statements should be read in conjunction with the
consolidated  financial  statements  and related notes included in the Company's
filings with the Securities and Exchange Commission.

    The  consolidated  balance sheet as of June 30, 1999,  and the  consolidated
statements  of  operations  for the three and six months ended June 30, 1999 and
1998,  and the cash flows for the six months ended June 30, 1999 and 1998,  have
been prepared by the Company and are  unaudited.  In the opinion of  management,
all  adjustments  (consisting  of normal  recurring  adjustments)  necessary  to






present fairly the financial  position,  results of operations and cash flows at
June 30, 1999,  and for all periods  presented have been made. The balance sheet
at December 31, 1998,  the statement of operations  for the three and six months
ended June 30,  1998,  and the  statement  of cash flow for the six months ended
June 30,  1998,  have been  restated to record our portion of the losses from XM
Radio which had been previously suspended under the equity method of accounting,
as described in footnote 8-Subsequent Events.

    Certain  amounts  from  prior  years  have been  reclassified  to conform to
current year presentation.

Net Loss Per Share
- ------------------

    Basic and  diluted  loss per common  share is based on the  weighted-average
number of shares of Common Stock  outstanding  during the period.  Stock options
and common stock purchase warrants are not reflected since their effect would be
antidilutive.  As of June 30, 1999, there were approximately 5.2 million options
and warrants  that would have been included in this  calculation  had the effect
not been antidilutive.

Comprehensive Income
- --------------------

    SFAS No. 130, "Reporting of Comprehensive  Income," requires  "comprehensive
income" and the components of "other comprehensive income" to be reported in the
financial  statements and/or notes thereto.  Since the Company does not have any
components of "other  comprehensive  income," reported net income is the same as
"comprehensive  income"  for the three and six months  ended  June 30,  1999 and
1998.

Segment Disclosures
- -------------------

    In accordance  with SFAS 131,  "Disclosures  about Segments of an Enterprise
and Related  Information,"  the Company has only one operating  segment which is
engaged in the  provision  of  nationwide  wireless  communication.  The Company
provides  services  within  North  America and parts of Central  America and the
Caribbean, and all revenues are derived from customers within the United States.
The following summarizes service revenue by major product lines:





                                               Revenue for the             Revenue for the
                                                 Three Months             Six  Months Ended
                                                Ended June 30,                June 30,
                                            1999            1998          1999          1998
                                            ----            ----          ----          ----
                                                               (in millions)
                                                                          
Voice Service                           $  5.0        $   5.7             $  9.0      $  10.2
Data Service                              16.8           15.9               31.9         20.4
Capacity Resellers and Other               1.1            0.8                2.2          1.8






Recently Adopted Accounting Pronouncements
- ------------------------------------------

     In June 1998,  FASB issued  Statement No. 133,  "Accounting  for Derivative
Instruments  and Hedging  Activities,"  which  requires the  recognition  of all
derivatives  as either  assets  or  liabilities  measured  at fair  value.  This
statement is effective for the year ending December 31, 2000. In June 1999, FASB
issued  Statement N. 147,  which defers the effective  date of Statement No. 133
until  fiscal  quarters  beginning  after June 15,  2000.  The Company  does not
believe that the adoption of this statement  will have a material  impact on its
financial position, results of operations and cash flows.

    In March  1999,  FASB  issued  an  Exposure  Draft on an  Interpretation  of
Accounting  Principles Board Opinion No. 25 Accounting for Certain  Transactions
involving Stock Compensation.  This proposed  Interpretation  would make it more
likely that  expense  would be required to be  recognized  in the case of, among
other things,  stock (including stock options) issued to non-employee members of
an entity's  board of  directors.  The Company has  assessed  the impact of this
proposed   Interpretation   and  does  not   believe   that   adoption  of  this
Interpretation  would have a material impact on its financial position,  results
of operations and cash flows.

Other
- -----

    The  Company  paid  approximately  $3.7  million  and  $9.4  million  in the
six-month periods ended June 30, 1999 and 1998, respectively, to related parties
for  capital  assets,   service-   related   obligations,   and  payments  under
pre-existing  financing agreements.  There were no payments from related parties
in the  six-month  period ended June 30,  1999,  as compared to $2.5 million for
communication  services and equipment  purchases in the  six-month  period ended
June 30,  1998.  Total  indebtedness  to  related  parties  as of June 30,  1999
approximated $17.7 million, with amounts due from related parties as of June 30,
1999 totaling $12.5 million.

3. Liquidity and Financing
- --------------------------

Liquidity and Financing Requirements
- ------------------------------------

    Adequate liquidity and capital are critical for the Company to continue as a
going concern and to fund subscriber  acquisition  programs necessary to achieve
positive cash flow and profitable operations. The Company expects to continue to
make significant capital outlays to fund interest expense,  capital expenditures
and working  capital prior to the time that it begins to generate  positive cash
flow from operations and for the foreseeable future thereafter.

    On March 31, 1998, AMSC Acquisition Company, Inc. ("Acquisition Company"), a
wholly-owned  subsidiary of the Company, issued $335 million of units consisting
of 12 1/4%  Senior  Notes due 2008 (the  "Senior  Notes"),  and one  warrant  to
purchase 3.75749 shares of Common Stock of the Company for each $1,000 principal
amount of Senior Notes (the "Warrants"), and also restructured its existing bank
financing (the "New Bank Financing").  The New Bank Financing consists of a $100
million unsecured  five-year  reducing  Revolving Credit Facility maturing March
31,  2003 and a $100  million  five-year  Term  Loan  Facility  with up to three
additional  one-year  extensions subject to lender approval,  a portion of which
has been permanently  reduced,  as discussed below.  Additionally,  on March 29,
1999,  the Bank  Facility  Guarantors  (as  defined in Item 2 under the  caption





"Liquidity  and  Capital  Resources")  agreed  to  eliminate  certain  covenants
relating to the Company's future earnings before interest, taxes,  depreciation,
and  amortization   ("EBITDA")  and  service  revenue.   In  exchange  for  this
elimination of covenants,  the Company agreed to reprice the Guarantee  Warrants
(as defined in Item 2 under the  caption  "Liquidity  and  Capital  Resources"),
effective  April 1, 1999,  from $12.51 to $7.50.  The value of the repricing was
approximately  $1.5 million.  As of June 30, 1999, the Company had $28.0 million
available  for  borrowing  under the Revolving  Credit  Facility.  Additionally,
Motorola  has agreed to provide  the  Company  with up to $10  million of vendor
financing (the "Vendor Financing Commitment"),  which is available to finance up
to 75% of the purchase price of additional  base stations  needed to meet ARDIS'
buildout  requirements  under certain customer  contracts.  As of June 30, 1999,
$4.8 million was outstanding under this facility.

     On August 3, 1999,  the Company  raised $116 million,  net of  underwriting
discounts and expenses, through the issuance of 7.0 million shares of its common
stock in a public  offering.  Of these proceeds,  approximately  $58 million was
used to pay down a portion of the Term Loan  Facility,  and is not available for
re-borrowing.  The  remainder of the proceeds were used to pay down a portion of
the  Revolving  Credit  Facility,  which will be available for  re-borrowing  as
needed for general working capital purposes. As a result of the partial pay down
of the Term Loan  Facility,  the Company  will record an  extraordinary  loss on
extinguishment  of debt of  approximately  $12.1 million in the third quarter of
1999, which reflects the write-off,  on a pro-rata basis, of Guarantee  Warrants
and  deferred  financing  fees  associated  with the  placement  of the New Bank
Financing.

     As a result of the automatic  application of certain adjustment  provisions
following  the issuance of the 7.0 million  shares,  the  exercise  price of the
Guarantee  Warrants was reduced to $7.3571 per share and the Guarantee  Warrants
became exercisable for an additional 126,246 shares. Additionally,  the exercise
price of the warrants associated with the Senior Notes was reduced to $12.28 per
share and the  aggregate  number of shares  issuable  upon the  exercise of such
warrants was increased by 24,291 shares.  The additional  Guarantee Warrants and
repricing were valued at $2.4 million,  and the additional Senior Notes warrants
and repricing were valued at $440,000.

     The Company's current operating assumptions and projections,  which reflect
management's  best  estimate  of  subscriber  and revenue  growth and  operating
expenses,  indicate that anticipated  capital  expenditures,  operating  losses,
working capital and debt service  requirements  through 1999 and beyond,  can be
met by cash flows from operations,  the net proceeds from the issuance of common
stock in August  1999,  the net  proceeds  from the sale of the Senior Notes and
Warrants,  together  with the  borrowings  under the New Bank  Financing and the
Vendor  Financing  Commitment;  however,  the  Company's  ability  to  meet  its
projections is subject to numerous  uncertainties  and there can be no assurance
that the Company's  current  projections  regarding the timing of its ability to
achieve positive operating cash flow will be accurate, and if the Company's cash
requirements  are more  than  projected,  the  Company  may  require  additional
financing  in  amounts  which may be  material.  The type,  timing  and terms of
financing  selected by the Company will be  dependent  upon the  Company's  cash
needs, the availability of other financing sources and the prevailing conditions
in the financial  markets.  There can be no assurance that any such sources will
be available to the Company at any given time or available on favorable terms.




4.  Investment in XM Radio
- --------------------------

    As previously  mentioned (see "Organization and Business"),  the Company has
an investment in XM Radio, which is one of two entities awarded a license by the
FCC to provide  satellite-based  Digital Audio Radio Service ("DARS") throughout
the United  States.  XM Radio is currently  engaged in efforts to construct  its
satellite system.  The Company is not required to provide any additional funding
to XM Radio. See Note 8 - Subsequent Events.

     On January 15, 1999,  the Company issued to Baron Asset Fund  ("Baron"),  a
related party, a $21.5 million note  convertible  into shares of common stock of
XM Satellite Radio Holdings Inc. (the "Baron XM Radio  Convertible  Note").  The
Company  subsequently loaned approximately $21.4 million to XM Radio in exchange
for XM Radio common stock and a note  convertible  into XM Radio shares (the "XM
Radio Note  Receivable").  The Baron XM Radio Convertible Note ranks subordinate
to all other debt  securities  of the  Company  and is fully  collateralized  by
approximately one-half of the shares received by the Company as a result of this
transaction.  The  XM  Radio  Note  Receivable  is a  non-recourse  note  and is
exchangeable into  approximately half of the additional XM Radio common stock to
be received by the  Company as a result of the  January 15  transaction.  The XM
Radio Note Receivable earns interest at LIBOR plus 5% and is due on December 31,
2004,  unless extended,  in certain  circumstances if XM Radio issues high yield
debt securities, and the Baron XM Radio Convertible Note accrues interest at the
rate of 6% annually,  with all payments  deferred until  maturity,  December 31,
2004, or extinguished upon conversion. The Company has the option to satisfy the
Baron XM Radio Convertible Note by tendering the shares into which it would have
been  convertible  in lieu of any cash  payments.  The  Company's  June 30, 1999
consolidated  condensed balance sheet reflects management's estimate of the fair
value of the XM Radio  Note  Receivable  and  Baron XM Radio  Convertible  Note.
Changes  in the fair value of the XM Radio  Note  Receivable  and Baron XM Radio
Convertible  Note are reflected in the  accompanying  statement of operations as
unrealized  losses  on note  receivable  from XM  Radio  ($9.9  million  for the
six-months  ended June 30, 1999) and unrealized  gain on note payable to related
party ($10.0 million for the six-months ended June 30, 1999), respectively.

    Summarized  financial  information for XM Radio as of June 30, 1999, and for
the three months and six months ended June 30, 1999 and 1998, and for the period
from  December 15, 1992 (date of  inception)  through June 30, 1999 is set forth
below.





                                      Three Months                   Six Months             December 15,
                                            Ended                       Ended               1992 through
                                        June 30,                      June 30,                June 30,
                                    1999            1998          1999         1998             1999
                                    ----            ----          ----         ----             ----
                                                            (dollars in thousands)
                                                                                
Gross sales                         $   --          $   --      $  --         $  --            $    --
Operating expenses                   4,020           5,032      8,441         8,132             25,744
Loss from operations                 4,020           5,032      8,441         8,132             25,744
Interest expense                       (22)             --        (76)           --                447
(income)
Net loss                            (3,998)         (5,032)    (8,365)       (8,132)           (26,191)







                                               As of                  As of
                                             June 30,               December 31,
                                                1999                   1998
                                                ----                   ----
                                                              
Current assets                                  $255                   $482
Non-current assets                           263,646                170,003
Current liabilities                          198,353                130,823
Non-current liabilities                       81,096                 46,845
Total stockholders' deficit                  (15,548)                (7,183)


5. Legal and Regulatory Matters
- -------------------------------

    The  ownership  and operation of the mobile  satellite  services  system and
ground-based  two-way  wireless  data  system  are  subject  to  the  rules  and
regulations of the FCC, which acts under authority granted by the Communications
Act and related federal laws. Among other things,  the FCC allocates portions of
the radio  frequency  spectrum to certain  services  and grants  licenses to and
regulates  individual  entities  using the spectrum.  American  Mobile  operates
pursuant to various licenses granted by the FCC.

    The successful  operation of the satellite  network is dependent on a number
of  factors,  including  the amount of L-band  spectrum  made  available  to the
Company pursuant to an international  coordination process. The United States is
currently  engaged in an  international  process of  coordinating  the Company's
access to the  spectrum  that the FCC has  assigned  to the  Company.  While the
Company  believes that  substantial  progress has been made in the  coordination
process and expects that the United  States  government  will be  successful  in
securing the necessary spectrum,  the process is not yet complete. The inability
of the United States  government  to secure  sufficient  spectrum  could have an
adverse effect on the Company's  financial  position,  results of operations and
cash flows.

    The  Company  has the  necessary  regulatory  approvals,  some of which  are
pursuant to special temporary authority, to continue its operations as currently
contemplated.  The  Company has filed  applications  with the FCC and expects to
file applications in the future with respect to the continued operations, change
in  operation  and  expansion  of its network and  certain  types of  subscriber
equipment.  Certain of its  applications  pertaining to future service have been
opposed.  While the Company, for various reasons,  believes that it will receive
the necessary  approvals on a timely basis,  there can be no assurance  that the
requests  will be granted,  will be granted on a timely basis or will be granted
on  conditions  favorable  to  the  Company.  Any  significant  changes  to  the
applications resulting from the FCC's review process or any significant delay in
their approval could adversely affect the Company's financial position,  results
of operations and cash flows.

    There are applications now pending before the FCC to use the Inmarsat system
and  TMI's  Canadian-licensed  system,  both  of  which  operate  in the  Mobile
Satellite  Services ("MSS") L-band  and have satellite  footprints  covering the
United  States,  to provide  service in the United States.  American  Mobile has





opposed  these  filings.  In addition to  providing  additional  competition  to
American  Mobile,  a grant of domestic  authority by the FCC to use any of these
foreign  systems may  increase  the demand by these  systems for spectrum in the
international  coordination process and could adversely affect American Mobile's
ability to coordinate its spectrum access.

    On July  20,  1998,  the  International  Bureau  of the FCC  granted  SatCom
Systems,  Inc. a Special Temporary  Authority ("STA") to use TMI's space segment
to  conduct  market  tests in the U.S.  for six  months  using up to 500  mobile
terminals  for 180  days  on a  private  carrier  basis  so that it may  conduct
marketing  trials;  this  special  temporary  authority is likely to be extended
until the FCC acts on SatCom's  underlying  application for a blanket license to
operate up to 25,000 mobile terminals in the United States on a permanent basis.
On July 30, 1998,  American  Mobile filed an Application for Review and a Motion
for Stay of this STA grant with the FCC, and these filings remain pending.

    American  Mobile  is  authorized  to  build,   launch,   and  operate  three
geosynchronous  satellites  in  accordance  with a specific  schedule.  American
Mobile is not in compliance with the schedule for  commencement and construction
of its second and third satellites and has petitioned the FCC for changes to the
schedule.  Certain  of these  extension  requests  have  been  opposed  by third
parties.  The FCC has not acted on American Mobile's  requests.  The FCC has the
authority to revoke the  authorizations  for the second and third satellites and
in  connection  with such  revocation  could  exercise its  authority to rescind
American  Mobile's  license.  American Mobile believes that the exercise of such
authority to rescind the license is  unlikely.  The term of the license for each
of American  Mobile's three authorized  satellites is ten years,  beginning when
American  Mobile  certifies  that  the  respective  satellite  is  operating  in
compliance  with American  Mobile's  license.  The ten-year term of MSAT-2 began
August 21, 1995. Although American Mobile anticipates that the authorization for
MSAT-2 is likely to be extended in due course to  correspond  to the useful life
of the satellite and a new license granted for any replacement satellites, there
is no assurance of such extension or grants.

6. Commitments and Contingencies
- --------------------------------

     At June 30, 1999,  the Company had  remaining  contractual  commitments  to
purchase both mobile data terminal  inventory and mobile telephone  inventory in
the maximum amount of $1.6 million  during the remainder of 1999.  Additionally,
the  Company had  remaining  contractual  commitments  for the  development  and
production of certain next  generation  data  terminals of  approximately  $26.3
million,  subject to final pricing negotiations,  over a three-year period, with
delivery  starting  in the second  half of 1999.  The  Company  has the right to
terminate  the research  and  development  and  inventory  commitment  by paying
cancellation fees of between $1 million and $2.3 million,  depending on when the
termination  option is exercised  during the term of the  contract.  The Company
also has the  right  to  terminate  the  inventory  commitment  by  incurring  a
cancellation penalty representing a percentage of the unfulfilled portion of the
contract.  The Company has also  contracted for the purchase of $26.2 million of
next generation  wireless data terminals to be delivered  beginning in the third
quarter of 1999. The contract contains a 50% cancellation penalty.

     As described in footnotes 12 and 13 of XM Satellite Radio Holdings Inc. and
Subsidiary's December 31, 1998 financial  statements,  included in the Company's
filings with the Securities and Exchange  Commission,  certain  commitments  and
contingencies,  including legal proceedings,  exist with respect to XM Radio. As
of June 30, 1999,  there have been no significant  changes with respect to these
matters.






7. Condensed Consolidating Financial Statements
- -----------------------------------------------

    In connection  with the Company's  acquisition of ARDIS Company on March 31,
1998 (the  "Acquisition")  and related  financing  discussed  above, the Company
formed  a  new  wholly-owned   subsidiary,   AMSC  Acquisition   Company,   Inc.
("Acquisition  Company"). The Company contributed all of its inter-company notes
receivables and  transferred its rights,  title and interests in AMSC Subsidiary
Corporation,  American Mobile Satellite Sales Corporation,  and AMSC Sales Corp.
Ltd. (together with ARDIS, the "Subsidiary  Guarantors") to Acquisition Company,
and  Acquisition  Company was the acquirer of ARDIS and the issuer of the Senior
Notes.  American Mobile Satellite  Corporation  ("American  Mobile Parent") is a
guarantor of the Senior Notes.  The Senior Notes contain  covenants that,  among
other things,  limit the ability of Acquisition  Company and its Subsidiaries to
incur  additional  indebtedness,  pay  dividends  or make  other  distributions,
repurchase  any  capital  stock  or  subordinated  indebtedness,   make  certain
investments,   create  certain  liens,  enter  into  certain  transactions  with
affiliates,  sell assets,  enter into certain  mergers and  consolidations,  and
enter into sale and leaseback transactions.

    The $335 million of Senior Notes are jointly and  severally  guaranteed on a
full and unconditional basis by the Subsidiary  Guarantors,  Acquisition Company
and American  Mobile Parent.  The following  unaudited  condensed  consolidating
information for these entities presents:

     o    Condensed  consolidating  balance  sheets  as of  June  30,  1999  and
          December 31, 1998 and condensed consolidating statements of operations
          and cash flows for the six month periods ended June 30, 1999 and 1998.

     o    Elimination  entries  necessary  to combine  the  entities  comprising
          American Mobile.




                      Condensed Consolidating Balance Sheet
                               As of June 30, 1999
                                   (Unaudited)
                                 (In Thousands)




                                                                             Consolidated   American                Consolidated
                                      Subsidiary   Acquisition               Acquisition     Mobile               American Mobile
                                      Guarantors     Company   Eliminations    Company       Parent  Eliminations       Parent
                                      ----------     -------   ------------    -------       ------  -----------        ------
                                                                     ASSETS
CURRENT ASSETS:
                                                                                                
 Cash and cash equivalents                $1,314        $--            $--       $1,314         $--      $--           $1,314
 Inventory                                18,426         --             --       18,426          --       --           18,426
 Prepaid in-orbit insurance                  483         --             --          483          --       --              483
 Accounts receivable-- net                20,010         --             --       20,010          --       --           20,010
 Restricted short-term  investments           --     41,038             --       41,038          --       --           41,038
 Note receivable from XM Radio                --         --             --           --      12,477       --           12,477
 Other current assets                      9,230         --             --        9,230       5,950       --           15,180
                                           -----     ------         ------        -----       -----   ------           ------
       Total current assets               49,463     41,038             --       90,501      18,427       --          108,928
PROPERTY AND EQUIPMENT-- NET             243,052         --        (14,002)     229,050          --       --          229,050
GOODWILL & INTANGIBLES-- NET              52,156         --             --       52,156          --       --           52,156
INVESTMENT IN/DUE FROM
 SUBSIDIARY                                   --    294,501       (294,501)          --     (16,762)  16,762               --
DEFERRED CHARGES AND OTHER
 ASSETS-- NET                                350     30,443             --       30,793      (6,552)      --           24,241
RESTRICTED INVESTMENTS                     1,536     36,624             --       38,160      12,317       --           50,477
                                           -----     ------      ---------       ------      ------  -------           ------
       Total assets                     $346,557   $402,606      ($308,503)    $440,660      $7,430  $16,762         $464,852
                                        ========   ========      ==========    ========      ======  =======         ========








                                              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
                                                                                             
 Accounts payable and accrued            $19,338    $10,982            $--      $30,320        $425      $--          $30,745
expenses
Obligations under capital leases due
within one year                            3,992         --             --        3,992          --       --            3,992
 Current portion long-term  debt           2,936         --             --        2,936          --       --            2,936
                                           -----    --------          -----       -----        -----    -----           -----
   Total current liabilities              26,266     10,982             --       37,248         425       --           37,673
DUE TO PARENT/AFFILIATE                  729,198         --       (728,890)         308      (9,123)   8,815               --
LONG-TERM LIABILITIES:
 Obligations under Bank Financing             --     72,000             --       72,000     100,000       --          172,000
 Senior Notes, net of discount                --    327,571             --      327,571          --       --          327,571
 Other long-term debt                      3,320         --             --        3,320      12,056       --           15,376
 Capital lease obligations                 5,120         --             --        5,120          --       --            5,120
 Net assets acquired in excess
   of purchase price                       1,681         --             --        1,681          --       --            1,681
 Investment in XM Radio                       --         --             --           --      19,310       --           19,310
 Other long-term liabilities               1,359         --             --        1,359          --       --            1,359
                                           -----     ------        -------        -----     --------  -------         --------
   Total long-term liabilities            11,480    399,571             --      411,051     131,366       --          542,417
   Total liabilities                     766,944    410,553       (728,890)     448,607     122,668    8,815          580,090
                                         -------    -------       ---------     -------     -------    -----          -------
STOCKHOLDERS' EQUITY (DEFICIT)          (420,387)    (7,947)       420,387       (7,947)   (115,238)   7,947         (115,238)
                                        ---------   -------        -------      -------     --------   -----         ---------
   Total liabilities and stockholders'
       equity (deficit)                 $346,557   $402,606      ($308,503)    $440,660      $7,430  $16,762         $464,852
                                        ========   ========      ==========    ========      ======  =======         ========










                      Condensed Consolidating Balance Sheet
                             As of December 31, 1998
                                   (Unaudited)
                                 (In Thousands)




                                                                            Consolidated  American                  Consolidated
                                     Subsidiary   Acquisition               Acquisition    Mobile                  American Mobile
                                     Guarantors     Company    Eliminations   Company      Parent   Eliminations       Parent
                                     ----------     -------    ------------   -------      ------   ------------   ---------------
                                                                     ASSETS



CURRENT ASSETS:
                                                                                               
 Cash and cash equivalents               $2,285          $--            $--      $2,285       $--          $--        $2,285
 Inventory                               18,593           --             --      18,593        --           --        18,593
 Prepaid in-orbit insurance               3,381           --             --       3,381        --           --         3,381
 Accounts receivable-- net               15,325           --             --      15,325        --           --        15,325
 Restricted short-term  investments          --       41,038             --      41,038        --           --        41,038
 Other current assets                     7,192           20             --       7,212     6,019           --        13,231
                                          -----       ------        -------       -----     -----       ------        ------
       Total current assets              46,776       41,058             --      87,834     6,019           --        93,853
PROPERTY AND EQUIPMENT-- NET            261,607           --        (15,054)    246,553        --           --       246,553
GOODWILL & INTANGIBLES-- NET             53,235           --             --      53,235        --           --        53,235
INVESTMENT IN/DUE FROM SUBSIDIARY            --      304,192       (304,192)         --    63,787      (63,787)           --
DEFERRED CHARGES AND OTHER
 ASSETS-- NET                               386       33,460             --      33,846    (4,892)          --        28,954
RESTRICTED INVESTMENTS                    1,500       54,939             --      56,439    10,760           --        67,199
                                          -----       ------         ------      ------    ------     --------        ------
       Total assets                    $363,504     $433,649      ($319,246)   $477,907   $75,674     ($63,787)     $489,794
                                       ========     ========      ==========   ========   =======     =========     ========






                                            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


CURRENT LIABILITIES:
                                                                                               
Accounts payable and accrued            $23,003      $10,715            $--     $33,718       $79           $--      $33,797
     expenses
Obligations under capital leases due
    within one year                       5,971           --             --       5,971        --            --        5,971
 Current portion long-term debt           5,041           --             --       5,041        --            --        5,041
 Other current liabilities                  162           --             --         162        --            --          162
                                          -----        -----          -----       -----     -----         -----        -----
       Total current liabilities         34,177       10,715             --      44,892        79            --       44,971
DUE TO PARENT/AFFILIATE                 681,029           --       (681,029)         --        --            --           --
LONG-TERM LIABILITIES:
 Obligations under New Bank Financing        --       32,000             --      32,000   100,000            --      132,000
 Senior Notes, net of  discount              --      327,147             --     327,147        --            --      327,147
 Other long-term debt                     1,689           --             --       1,689        --            --        1,689
 Capital lease obligations                5,824           --             --       5,824        --            --        5,824
 Net assets acquired in excess
     of purchase price                    2,028           --             --       2,028        --            --        2,028
 Investment in XM Radio                      --           --             --          --    12,618            --       12,618
 Other long-term liabilities                540           --             --         540        --            --          540
                                          -----        -----          -----       -----     -----         -----        -----
       Total long-term liabilities       10,081      359,147             --     369,228   112,618            --      481,846
       Total liabilities                725,287      369,862       (681,029)    414,120   112,697            --      526,817
                                        -------      -------       ---------    -------   -------         -----      -------
STOCKHOLDERS' EQUITY (DEFICIT)         (361,783)      63,787        361,783      63,787   (37,023)      (63,787)     (37,023)
                                       ---------      ------        -------      ------   --------      --------     --------
  Total liabilities and stockholders'
   equity (deficit)                    $363,504     $433,649      ($319,246)   $477,907   $75,674      ($63,787)    $489,794
                                       ========     =========     ==========   ========   =======      =========    ========










                 Condensed Consolidating Statement of Operations
                        Three Months Ended June 30, 1999
                                   (Unaudited)
                                 (In Thousands)




                                                                           Consolidated   American                   Consolidated
                                    Subsidiary  Acquisition                Acquisition     Mobile                   American Mobile
                                    Guarantors    Company    Eliminations    Company       Parent   Eliminations        Parent
                                    ----------    -------    ------------    -------       ------   ------------        ------

REVENUES
                                                                                                  
 Services                              $16,622         $--           $--     $16,622         $300         $(300)        $16,622
 Sales of equipment                      6,251          --            --       6,251           --            --           6,251
                                         -----       -----         -----       -----        -----         -----           -----
 Total Revenues                         22,873          --            --      22,873          300          (300)         22,873

COSTS AND EXPENSES
 Cost of service and operations         16,516          --            --      16,516           --            --          16,516
 Cost of equipment sold                  6,594          --            --       6,594           --            --           6,594
 Sales and advertising                   5,620          --            --       5,620          101            --           5,721
 General and administrative              4,496         355            --       4,851          157          (300)          4,708
 Depreciation and amortization          14,159          --          (527)     13,632           --            --          13,632
                                        ------       ------         -----     ------       ------        -------          ------
 Operating Loss                        (24,512)       (355)          527     (24,340)          42            --         (24,298)

INTEREST AND OTHER INCOME                  103       4,814        (3,759)      1,158          735            --           1,893

EQUITY IN LOSS OF
 SUBSIDIARIES                               --     (28,786)       28,786          --      (40,110)       36,912          (3,198)

UNREALIZED LOSS ON NOTE
 RECEIVABLE FROM XM RADIO                   --          --            --          --       (9,919)           --          (9,919)

UNREALIZED GAIN ON NOTE PAYABLE
 TO RELATED PARTY                           --          --            --          --       10,036            --          10,036

INTEREST EXPENSE                        (4,377)    (13,112)        3,759     (13,730)      (3,161)           --         (16,891)
                                        -------    --------        -----     --------      -------      -------         --------

NET LOSS                              $(28,786)   $(37,439)      $29,313    $(36,912)    $(42,377)      $36,912        $(42,377)
                                      =========   =========      =======    =========    =========      =======        =========









                 Condensed Consolidating Statement of Operations
                        Three Months Ended June 30, 1998
                                   (Unaudited)
                                 (In Thousands)




                                                                           Consolidated   American                   Consolidated
                                    Subsidiary  Acquisition                Acquisition     Mobile                   American Mobile
                                    Guarantors    Company    Eliminations    Company       Parent   Eliminations        Parent
                                    ----------    -------    ------------    -------       ------   ------------        ------

REVENUES
                                                                                                  
 Services                              $18,623         $--       ($1,953)    $16,670         $300         ($300)        $16,670
 Sales of equipment                      5,740          --            --       5,740           --            --           5,740
                                         -----       -----        ------       -----         ----          ----           -----
 Total Revenues                         24,363          --        (1,953)     22,410          300          (300)         22,410

COSTS AND EXPENSES
 Cost of service and operations         16,378          --          (153)     16,225           --            --          16,225
 Cost of equipment sold                  5,415          --            --       5,415           --            --           5,415
 Sales and advertising                   5,386          --            --       5,386           18            --           5,404
 General and administrative              7,578          29        (1,800)      5,807          266          (300)          5,773
 Depreciation and amortization          14,984          --          (527)     14,457           --            --          14,457
                                        ------      ------          -----     ------       ------         -----          ------
 Operating Loss                        (25,378)        (29)          527     (24,880)          16            --         (24,864)

INTEREST AND OTHER INCOME                   65       5,269        (3,843)      1,491          116            --           1,607

EQUITY IN LOSS OF
 SUBSIDIARIES                               --     (30,407)       30,407          --       (4,026)           --          (4,026)

INTEREST EXPENSE                        (5,094)    (10,983)        3,285     (12,792)      (2,914)           --         (15,706)
                                        -------    --------      --------    --------      -------       -------        --------

NET LOSS                              ($30,407)   ($36,150)      $30,376    ($36,181)     ($6,808)          $--        ($42,989)
                                      =========   =========      ========   =========     ========        ======        =========









                 Condensed Consolidating Statement of Operations
                         Six Months Ended June 30, 1999
                                   (Unaudited)
                                 (In Thousands)





                                                                           Consolidated   American                   Consolidated
                                    Subsidiary  Acquisition                Acquisition     Mobile                   American Mobile
                                    Guarantors    Company    Eliminations    Company       Parent   Eliminations        Parent
                                    ----------    -------    ------------    -------       ------   ------------        ------
REVENUES
                                                                                                  
 Services                              $32,786         $--           $--     $32,786         $600         $(600)        $32,786
 Sales of equipment                     10,317          --            --      10,317           --             --         10,317
                                        ------       -----         -----      ------        -----          -----         ------
 Total Revenues                         43,103          --            --      43,103          600          (600)         43,103

COSTS AND EXPENSES
 Cost of service and operations         34,386          --            --      34,386           --             --         34,386
 Cost of equipment sold                 11,122          --            --      11,122           --             --         11,122
 Sales and advertising                  10,369          --            --      10,369          101             --         10,470
 General and administrative              9,039         691            --       9,730          347          (600)          9,477
 Depreciation and amortization          28,457          --        (1,053)     27,404           --            ---         27,404
                                        ------      ------        -------     ------       ------         ------         ------
 Operating Loss                        (50,270)       (691)        1,053     (49,908)         152             --        (49,756)

INTEREST AND OTHER INCOME                  172       9,812        (7,645)      2,339        1,293            ---          3,632

UNREALIZED LOSS ON NOTE
 RECEIVABLE FROM XM RADIO                   --          --            --          --       (9,919)           --          (9,919)

UNREALIZED GAIN ON NOTE PAYABLE
 TO RELATED PARTY                           --          --            --          --       10,036            --          10,036

EQUITY IN LOSS OF
   SUBSIDIARIES                             --     (58,604)       58,604          --      (80,801)         74,109        (6,692)

INTEREST EXPENSE                        (8,506)    (25,679)        7,645     (26,540)      (6,281)             --       (32,821)
                                        -------    --------        -----     --------      -------          -----       --------

NET LOSS                              $(58,604)   $(75,162)     $ 59,657    $(74,109)    $(85,520)        $74,109      $(85,520)
                                       ========    ========     ========     ========     ========         =======      ========









                 Condensed Consolidating Statement of Operations
                     For the Six Months ended June 30, 1998
                                   (Unaudited)
                                 (In Thousands)






                                                                           Consolidated   American                   Consolidated
                                    Subsidiary  Acquisition                Acquisition     Mobile                   American Mobile
                                    Guarantors    Company    Eliminations    Company       Parent   Eliminations        Parent
                                    ----------    -------    ------------    -------       ------   ------------        ------

REVENUES
                                                                                                  
 Services                              $25,041         $--       $(1,953)    $23,088         $600         $(600)        $23,088
 Sales of equipment                      9,344          --            --       9,344           --            --           9,344
                                         -----       -----       -------       -----        -----         -----           -----
 Total Revenues                         34,385          --        (1,953)     32,432          600          (600)         32,432

COSTS AND EXPENSES
 Cost of service and operations         24,106          --          (153)     23,953           --            --          23,953
 Cost of equipment sold                  9,296          --            --       9,296           --            --           9,296
 Sales and advertising                   8,379          --            --       8,379           51            (4)          8,426
 General and administrative             11,237          29        (1,800)      9,466          533          (595)          9,404
 Depreciation and amortization          25,673          --          (527)     25,146         (525)           (1)         24,620
                                        ------      ------          -----     ------         -----        ------         ------
 Operating Loss                        (44,306)        (29)          527     (43,808)         541            --         (43,267)

INTEREST AND OTHER INCOME                  206       5,269        (3,843)      1,632        7,304        (7,188)          1,748

EQUITY IN LOSS OF
SUBSIDIARIES                                --     (63,020)       63,020          --      (75,326)       68,794          (6,532)


INTEREST EXPENSE                       (18,920)    (10,983)        3,285     (26,618)      (2,914)        7,188         (22,344)
                                       --------    --------        -----     --------      -------        -----         --------
NET LOSS                              $(63,020)   ($68,763)      $62,989    $(68,794)    ($70,395)      $68,794        ($70,395)
                                      =========   =========      =======    =========    =========      =======         ========






                 Condensed Consolidating Statements of Cash Flow
                         Six Months Ended June 30, 1999
                                   (Unaudited)
                                 (In thousands)




                                                                                                                      Consolidated
                                                                              Consolidated   American                   American
                                       Subsidiary  Acquisition                Acquisition     Mobile                     Mobile
                                       Guarantors    Company    Eliminations    Company       Parent   Eliminations      Parent
                                       ----------    -------    ------------    -------       ------   ------------      ------

CASH FLOWS FROM OPERATING ACTIVITIES:
                                                                                                     
Net loss                                 ($58,604)   ($75,162)      $59,657    ($74,109)    ($85,520)      $74,109        ($85,520)
Adjustments to reconcile net loss to
  net cash (used in) provided by
  operating activities:
  Amortization of Guarantee Warrants
    and debt related costs                     --       3,616            --       3,616        5,580            --           9,196
  Depreciation and amortization            27,404          --                    27,404           --            --          27,404
  Accrued interest on Senior Notes             --      10,259            --      10,259           --            --          10,259
  Equity in loss in XM Radio                   --          --            --          --        6,692            --           6,692
  Unrealized gain on note payable to
    related party                              --          --            --          --      (10,036)           --         (10,036)
  Unrealized loss on note receivable
    from XM Radio                              --          --            --          --        9,919           --            9,919
  Changes in assets & liabilities
    Inventory                                 168          --            --         168           --            --             168
    Prepaid in-orbit insurance              2,898          --            --       2,898           --            --           2,898
    Trade accounts receivable              (4,685)         --            --      (4,685)          --            --          (4,685)
    Other current assets                   (1,859)         20            --      (1,839)        (638)           --          (2,477)
    Accounts payable and                    7,802         ---            --       7,802        1,135            --           8,937
      accrued expenses
    Deferred trade payables                (3,644)         --            --      (3,644)          --            --          (3,644)
    Deferred Items-- net                       20         --            --          20         (486)           --            (466)
                                             -----     -------           --        -----        -----           --            -----
  Net cash (used in) provided by          (30,500)    (61,267)       59,657     (32,110)     (73,354)       74,109         (31,355)
      operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property & equipment        (5,631)         --            --      (5,631)          --            --          (5,631)
  Purchase of XM Radio note receivable         --          --            --          --      (21,419)           --         (21,419)
  Purchase of long-term, restricted        (1,008)     (1,217)           --      (2,225)      (1,556)           --          (3,781)
      investments
                                           -------    -------            --      -------      -------           --         -------
  Net cash used in investing activities    (6,639)     (1,217)           --      (7,856)     (22,975)           --         (30,831)


CASH FLOWS FROM FINANCING ACTIVITIES:
  Common Stock                                 --          --            --          --        2,913            --           2,913
  Funding from parent/subsidiary           39,146      22,484       (59,657)      1,973       72,136       (74,109)             --
  Principal payments under
     capital leases                        (2,781)         --            --      (2,781)          --            --          (2,781)
  Principal payments under
     Vendor Financing                        (197)         --            --        (197)          --            --            (197)
  Proceeds from bank financing                 --      40,000            --      40,000           --            --          40,000
  Proceeds from note payable to
     related party                             --          --            --          --       21,500            --          21,500
  Debt issuance costs                          --          --            --          --         (220)           --            (220)
                                           ------      ------        ------      ------      --------       -------           -----
  Net cash provided by (used in)
     financing activities                  36,168      62,484       (59,657)     38,995       96,329       (74,109)         61,215

Net increase in cash and cash equivalents    (971)         --            --        (971)          --            --            (971)
CASH & CASH EQUIVALENTS, beginning of
  period                                    2,285          --            --       2,285           --            --           2,285
                                            -----       -----        -------      -----       ------       -------           -----
CASH & CASH EQUIVALENTS, end of
  period                                   $1,314         $--           $--      $1,314          $--        $   --          $1,314
                                           ======         ===           ===      ======       =======       =======         ======









                 Condensed Consolidating Statements of Cash Flow
                         Six Months Ended June 30, 1998
                                   (Unaudited)
                                 (In Thousands)






                                                                                                                      Consolidated
                                                                              Consolidated   American                   American
                                       Subsidiary  Acquisition                Acquisition     Mobile                     Mobile
                                       Guarantors    Company    Eliminations    Company       Parent   Eliminations      Parent
                                       ----------    -------    ------------    -------       ------   ------------      ------

CASH FLOWS FROM OPERATING ACTIVITIES:
                                                                                                     
Net Loss                                 ($63,020)   ($68,763)      $62,989    ($68,794)    ($70,395)      $68,794        ($70,395)
Adjustments to reconcile net loss to
  net cash used in operating
  activities:
  Amortization of guarantee warrants,
    debt discount and issuance costs        2,524       2,794            --       5,318        2,050            --           7,368
  Depreciation and amortization            25,274          --          (527)     24,747         (525)           (2)         24,220
  Equity in loss in XM Radio                   --          --            --          --        6,532            --           6,532

  Accrued interest on Senior Notes            ---      10,259           ---      10,259          ---           ---          10,259
  Changes in assets & liabilities
    Inventory                               1,889          --            --       1,889           --            --           1,889
    Prepaid in-orbit insurance              2,571          --            --       2,571           --            --           2,571
    Accounts receivable-- trade             1,941          --            --       1,941           --            --           1,941
    Other current assets                   (3,422)      3,374            --         (48)         115            --              67
    Accounts payable and accrued  expenses (9,172)        113            --      (9,059)          44            --          (9,015)
    Deferred trade payables                (7,680)         --            --      (7,680)          --            --          (7,680)
    Deferred Items-- net                     (124)         --            --        (124)          --            --            (124)
                                             -----     ------        ------      -------     -------       -------          ------
  Net cash used in operations             (49,219)    (52,223)       62,462     (38,980)     (62,179)       68,792         (32,367)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property & equipment          (5,558)         --            --      (5,558)          --            --          (5,558)
Cash paid for acquisition of ARDIS             --     (51,440)           --     (51,440)          --            --         (51,440)
Purchase of long-term, restricted
     investments                               --    (113,747)           --    (113,747)     (28,152)           --        (141,899)
                                         ---------   ---------       ------    ---------     --------      -------        ---------
  Net cash used in investing activities    (5,558)   (165,187)           --    (170,745)     (28,152)           --        (198,897)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of Common Stock       --          --            --          --          236            --             236
  Funding from parent                     165,782    (124,623)      (62,462)    (21,303)      90,095       (68,792)             --
  Principal payments under capital leases  (1,234)         --            --      (1,234)          --            --          (1,234)
  Proceeds from bank financing              2,000      22,000            --      24,000           --            --          24,000
  Repayment of bank financing            (100,000)         --            --    (100,000)          --            --        (100,000)
  Payments on long-term debt               (4,933)        ---           ---      (4,933)         ---           ---          (4,933)
  Debt issuance costs                          --     (14,967)           --     (14,967)          --            --         (14,967)
  Proceeds from Notes and stock purchase       --     335,000            --     335,000          ---            --         335,000
     warrants                              -------    -------        ------     -------       ------         ------        -------

  Net cash provided by financing
     activities                            61,615     217,410       (62,462)    216,563       90,331       (68,792)        238,102
Net increase in cash and cash
     equivalents                            6,838          --            --       6,838           --            --           6,838
CASH & CASH EQUIVALENTS, beginning of
  period                                    2,106          --            --       2,106           --            --           2,106
                                            -----      ------        ------       -----       ------        ------           -----
CASH & CASH EQUIVALENTS, end of
  period                                   $8,944         $--           $--      $8,944          $--           $--          $8,944
                                           ======         ===           ===      ======          ===           ===          ======







8. Subsequent Events
- --------------------

XM Acquisition
- --------------

     On  July 7,  1999,  the  Company  acquired  WorldSpace's  debt  and  equity
interests  in XM Radio,  other than a $75  million  loan from  WorldSpace  to XM
Radio, in exchange for  approximately 8.6 million shares of the Company's common
stock, of which the issuance of approximately  2.1 million is subject to Company
stockholder approval, for which a special shareholder meeting has been scheduled
for September 7, 1999.  Additionally,  XM Radio issued an aggregate $250 million
of Series A subordinated convertible notes to several new investors and used $75
million of the  proceeds it received  from the  issuance of these notes to repay
the outstanding loan owed to WorldSpace. As a result of these transactions,  the
Company  owns all of the  issued  and  outstanding  stock of XM Radio.  Assuming
subsequent  conversion of all  outstanding  convertible  notes of XM Radio,  the
Company would own  approximately  37% of the equity of XM Radio,  and would have
approximately 62% of the voting power in XM Radio.

    On a pro forma basis,  assuming this  transaction  had been  consummated  on
January 1, 1999, the following results would have been reflected:


                            Six Months
                              Ended
                          June 30, 1999
                          -------------
Revenues                     $43,103
Net Loss                      95,998
Loss per                      (2.35)
share

    As a result of these  transactions,  the Company  controls XM Radio and will
consolidate XM Radio on a prospective basis. Additionally, pursuant to generally
accepted accounting  principles,  the Company's 1998 and June 30, 1998 financial
statements have been restated to record American  Mobile's share of losses which
had previously been suspended  pursuant to the equity method of accounting.  The
effect of this restatement was to increase the Company's previously reported net
loss for the three  months and six months  ended June 30,  1998 from  $38,963 to
$42,989, and from $64,205 to $70,395, respectively. The loss per share increases
from $1.23 to $1.36 for the three  months  ended June 30, 1998 and from $2.25 to
$2.47 for the six months ended June 30, 1998.

    On  July  23,  1999,  XM  Radio  filed a  registration  statement  with  the
Securities and Exchange Commission for an initial public offering of its shares.
If  consummated,  the  issuance  of these  shares  would  reduce  the  Company's
ownership interests in XM Radio below the 37% noted above.

Financing
- ---------

     On August 3, 1999, the Company raised  approximately  $116 million,  net of
underwriting  discount and offering expenses,  through the issuance of 7,000,000
shares of its Common  Stock.  Half of the net  proceeds  were used to pay down a
portion of the Term Loan  Facility,  with the remaining  balance used to repay a
portion of the outstanding  balance under the Revolving Credit  Facility,  until
such time as the funds are needed for general working capital purposes.







                          PART I-FINANCIAL INFORMATION
                          ----------------------------

     Item 2.  Management's  Discussion  and Analysis of Financial  Condition and
              Results of Operations
              ------------------------------------------------------------------
    This  Quarterly  Report on Form 10-Q includes  "forward-looking  statements"
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the Securities  Exchange Act of 1934.  Such  statements are identified by the
use of  forward-looking  words  or  phrases,  including,  but  not  limited  to,
"believe,"  "intend" "will be positioned,"  "will," "may," "project,"  "expect,"
"expected,"  "estimate,"  "anticipate" and "anticipated." These  forward-looking
statements are based on the Company's current expectations. All statements other
than statements of historical facts included in this Quarterly Report, including
those regarding the Company's financial position,  business strategy,  projected
costs and financing  needs,  and plans and  objectives of management  for future
operations, are forward-looking  statements.  Although the Company believes that
the expectations  reflected in such  forward-looking  statements are reasonable,
there  can be no  assurance  that  such  expectations  will  prove to have  been
correct. Because forward-looking statements involve risks and uncertainties, the
Company's  actual  results  could  differ  materially.   These   forward-looking
statements  represent the  Company's  judgment as of the date hereof and readers
are cautioned not to place undue reliance on these  forward-looking  statements.
Important  factors that could cause actual results to differ materially from the
Company's expectations  ("Cautionary  Statements") are disclosed under "Overview
and Factors  Affecting the Company's  Results," and elsewhere in this  Quarterly
Report,  including,  without limitation, in conjunction with the forward-looking
statements  included in this Quarterly Report.  All subsequent  written and oral
forward-looking  statements  attributable  to the  Company or persons  acting on
behalf  of  the  Company  are  expressly  qualified  in  their  entirety  by the
Cautionary  Statements.  Readers also should  carefully  review the risk factors
described in other  reports and  documents  the Company  files from time to time
with the  Securities  and Exchange  Commission,  including  its Form 10-K Annual
Report  filed on March 30, 1999 and Form 10-Q  Quarterly  Reports to be filed by
the  Company  subsequent  to this Form 10-Q  Quarterly  Report  and any  Current
Reports on Form 8-K and registration statements filed by the Company.


    General
    -------

    The following  discussion and analysis provides information which management
believes  is  relevant  to an  assessment  and  understanding  of the  financial
condition and  consolidated  results of operations of American Mobile  Satellite
Corporation  (with its subsidiaries,  "American  Mobile" or the "Company").  The
discussion  should  be read  in  conjunction  with  the  consolidated  financial
statements and notes thereto.

    American  Mobile was formed in 1988 to  develop,  construct,  and  operate a
mobile satellite services system.  With the launch of its satellite in 1995, the
Company  began to offer a full  range of mobile  voice  and data  communications
services via satellite to customers in North America. In March 1998, the Company
acquired ARDIS Company ("ARDIS") from Motorola,  Inc. for $100 million. With the
acquisition  of ARDIS,  the Company  acquired the nation's  largest,  most fully
deployed  terrestrial  wireless  data  network,  and now offers a broad range of
wireless  communications  services using an integrated network consisting of the
ARDIS   terrestrial   network   (the  "ARDIS   Network")   and  a  satellite  in
geosynchronous  orbit (the  "Satellite  Network,"  and,  together with the ARDIS
Network, the "Network").





     The Company and its consolidated  subsidiaries are parties to the following
financings  and  refinancings:  (1) $335  million of Senior  Notes due 2008 (the
"Senior  Notes");  (2) the $200 million  Revolving Credit Facility and Term Loan
Facility,  of which a portion has been permanently  reduced  (collectively,  the
"New Bank  Financings");  and (3) a $10 million vendor  financing  facility with
Motorola. See "Liquidity and Capital Resources."

     XM Radio is one of two  entities  awarded a license  by the FCC to  provide
satellite-based  Digital  Audio Radio  Service  ("DARS")  throughout  the United
States.  XM Radio is  currently  engaged in efforts to construct  its  satellite
system and negotiate  contracts with third party vendors and other partners.  On
July 7, 1999, the Company acquired WorldSpace,  Inc.'s debt and equity interests
in XM Radio,  other than a $75 million  loan from to XM Radio,  in exchange  for
approximately  8.6 million  shares of the Company's  common stock.  Concurrently
with this transaction,  XM Radio issued $250 million of subordinated convertible
notes to several new strategic and financial investors, including General Motors
Corporation,  Clear Channel  Investments,  DIRECTV,  Telcom  Ventures,  Columbia
Capital and Madison Dearborn Partners. XM Radio used $75 million of the proceeds
from these  notes to repay the  outstanding  loan  payable to  WorldSpace.  As a
result of these transactions, the Company owns all of the issued and outstanding
stock of XM Radio,  subject to the  possibility  of its interest  being  diluted
through the conversion of the  subordinated  convertible  notes discussed above.
Assuming  conversion of these notes, the Company's  interest would be reduced to
approximately  37% of the economic  interest and approximately 62% of the voting
interest.  Upon the  occurrence of certain  other  events,  including an initial
public  offering of XM Radio  stock  yielding  gross  proceeds in excess of $100
million and above a prescribed  per share value and upon receipt of FCC approval
for a change of control,  the Company's  voting interest would be reduced to the
level of its economic  interest at that time. On July 23, 1999, XM Radio filed a
registration  statement  with  the SEC for an  initial  public  offering  of its
shares.  Such an issuance,  if  consummated,  would further reduce the Company's
economic and voting  interest in XM Radio,  and all proceeds  from such issuance
would be used solely to fund XM Radio and would not be available  for use by the
Company.

     As a result of the July 7, 1999 transactions,  the Company was required, in
accordance  with  generally  accepted  accounting  principles,  to  restate  its
financial  statements  for the year ended  December  31,  1998,  and the quarter
ending  March 31, 1999,  to reflect its share of XM Radio's  losses based on the
Company's voting equity interest in XM Radio during those periods. This resulted
in the Company  recording  additional net losses of approximately  $12.6 million
for the year ended  December  31, 1998,  and $3.5 million for the quarter  ended
March 31, 1999. As of July 7, 1999,  the Company will be required to consolidate
XM Radio's  accounts and  operating  results  until such time,  if ever,  as the
Company no longer controls XM Radio.

    In light of the significance of the acquisition of ARDIS in 1998, management
believes the period to period comparison of the Company's  financial results are
not  necessarily  meaningful  and should not be relied upon as an  indication of
future operating performance.

    Overview and Factors Affecting the Company's Results
    ----------------------------------------------------

     The Company has incurred  significant  operating  losses and negative  cash
flows in each year since it  commenced  operations,  due  primarily  to start-up
costs,  the  costs  of  developing  and  building  its  network  and the cost of
developing,  selling and providing  its products and services.  The Company has,
and will continue to have, substantial indebtedness.




    The Company's  future  operating  results  could be adversely  affected by a
number of uncertainties and factors, including:

     o    the launch of new  products  or the entry  into new  market  segments,
          which  may  require  the  Company  to  continue  to incur  significant
          operating losses,

     o    the  Company's  ability to gain market  acceptance of new products and
          services,  including its new eLink(sm)  wireless email service,

     o    the Company's  ability to respond and react to changes in its business
          and the industry as a result of having substantial indebtedness,

     o    the Company's  ability to fund its anticipated  capital  expenditures,
          operating  losses and debt  service  requirements  and its  ability to
          secure additional financing as may be necessary,

     o    the Company's ability to modify its organization, strategy and product
          mix to maximize the market opportunities in light of changes therein,

     o    the ability of the Company to manage growth effectively,

     o    competition  from  existing  companies  that  provide  services  using
          existing   communications   technologies   and  the   possibility   of
          competition from companies using new technology in the future,

     o    the ability of the Company to  maintain,  on  commercially  reasonable
          terms or at all, certain technologies licensed from third parties,

     o    the loss of one or more of the Company's key customers,

     o    the timely roll-out of certain key customer  initiatives and products,
          including the Company's UPS contract,

     o    the timely availability of an adequate supply of subscriber  equipment
          at competitive price points,

     o    regulation by the FCC,

     o    technical  anomalies  that may occur within the  Network,  which could
          impact, among other things, customer performance and satisfaction,  or
          the  operation  of the  Satellite  Network  and  the  cost,  scope  or
          availability of in-orbit insurance, and

     o    the Company's ability to attract and retain key personnel.


    Also, XM Radio's business  involves  significant  risks, and these risks may
impair the value of the Company's investment in XM Radio.

    As of June 30, 1999, there were approximately 123,000 units on the Network.







    Results of Operations
    ---------------------

    Quarter ended and six month period ended June 30, 1999 and 1998

    Service revenues, which includes both the Company's voice and data services,
approximated $16.6 million and $32.8 million for the three months and six months
ended June 30, 1999,  respectively,  compared to $16.7 million and $23.1 million
during the same periods in 1998.




 
 Summary of Revenue                          Three Months Ended June 30,
    (in millions)                                     1999                    1998                Change             % Change
                                                      ----                    ----                ------             --------
                                                                                                            
    Voice Service                                     $3.2                    $3.5                ($0.3)               (9%)
    Data Service                                      12.3                    12.3                   --                --
    Capacity Resellers & Other                         1.1                     0.9                  0.2                22
    Equipment Sales                                    6.3                     5.7                  0.6                11







    Summary of Revenue                          Six Months Ended June 30,
    (in millions)                                     1999                    1998                Change             % Change
                                                      ----                    ----                ------             --------
                                                                                                           
    Voice Service                                     $6.2                    $6.7                ($0.5)               (7)%
    Data Service                                      24.4                    14.5                  9.9                 68
    Capacity Resellers & Other                         2.2                     1.6                  0.6                 38
    Equipment Sales                                   10.3                     9.3                  1.0                 11


     The decrease in service  revenue from voice services was primarily a result
of reduced  per-minute  rates  following the sale of the assets of the Company's
maritime  division,  in October 1998, to a reseller,  partially  offset by a 25%
increase in voice  customers in the first six months of 1999 over the comparable
period in 1998. While the Company's  service revenue increased $9.9 million from
the first six months of 1998 to the first six months of 1999,  this increase was
due  principally  to six months of revenue  from ARDIS in 1999  totalling  $19.0
million,  versus  three  months of  revenue  from ARDIS in 1998  totalling  $9.9
million.  Overall average revenue per user ("ARPU") declined year over year, and
is expected to continue to do so, due to changes in products and the  subscriber
mix.  Service  revenue from capacity  resellers,  who handle both voice and data
services, increased primarily as a result of increased contract commitments from
current customers.

    Revenue  from the sale of  subscriber  equipment  increased  as a result  of
increased sales of certain data products,  offset by decreased  revenue from the
sale of voice  equipment  as a result  of  lowered  equipment  prices in 1999 as
compared to 1998.











                                                                 Three Months
         Summary of Expenses                                    Ended June 30,
         (in millions)                                    1999                  1998                  Change           % Change
                                                          ----                  ----                  ------           --------

                                                                                                               
         Cost of Service & Operations                    $16.5                $16.2                   $0.3                 2%
         Cost of Equipment Sales                           6.6                  5.4                    1.2                22
         Sales & Advertising                               5.7                  5.4                    0.3                 6
         General & Administrative                          4.7                  5.8                   (1.1)              (19)
         Depreciation & Amortization                      13.6                 14.5                   (0.9)               (6)







                                                                  Six Months
         Summary of Expenses                                    Ended June 30,
         (in millions)                                    1999                  1998                  Change           % Change
                                                          ----                  ----                  ------           --------

                                                                                                               
         Cost of Service & Operations                    $34.4                 $24.0                 $10.4                 43%
         Cost of Equipment Sales                          11.1                   9.3                   1.8                 19
         Sales & Advertising                              10.5                   8.4                   2.1                 25
         General & Administrative                          9.5                   9.4                   0.1                  1
         Depreciation & Amortization                      27.4                  24.6                   2.8                 11



         As of January 1999, as a result of the completion of the integration of
the ARDIS acquisition and the achievement of certain related cost synergies, the
Company ceased to report separate company  information for ARDIS.  Consequently,
ARDIS costs are no longer  distinguished  from those of the remaining  business,
and,  therefore  the  discussion of the three and six months ended June 30, 1999
reflects the costs of the consolidated entity.

         Cost of service and  operations for the three and six months ended June
30,  1999,  which  includes  costs to support  subscribers  and to  operate  the
network,  was $16.5 million and $34.4 million,  respectively,  compared to $16.2





and $24.0  million  during the same periods in 1998.  As a  percentage  of total
revenues,  cost of service and operations was 72% for both the second quarter of
1999 and 1998,  and 80% and 74% for the six month period ended June 30, 1999 and
1998, respectively. The increase in cost of service and operations was primarily
attributable  to (i)  additional  headcount,  primarily as a result of the ARDIS
acquisition,  (ii) increased  communication  charges  associated  with increased
service usage and costs to support the ARDIS terrestrial  network,  (iii) system
and base station maintenance to support the ARDIS terrestrial network, (iv) site
rental costs associated with the terrestrial  network,  and (v) incremental Year
2000 costs.  As a  percentage  of revenue,  cost of service and  operations  has
increased  as  a  result  of  the  variable  costs  incurred  within  the  ARDIS
terrestrial network, such as site rent and telecommunications costs.

         The cost of  equipment  sold  increased  $1.2  million or 22% from $5.4
million  for the  second  quarter  of 1999,  and $1.8  million  or 20% from $9.3
million  for the six  month  period  ended  June 30,  1999.  This  increase  was
primarily  attributable  to the  increase  in the volume of sales of the various
data products and warranty costs thereon.

         Sales and advertising  expenses were $5.7 million and $10.5 million for
the three and six months  ended June 30,  1999,  respectively,  compared to $5.4
million and $8.4 million during the same periods in 1998.  Sales and advertising
expenses as a percentage  of revenue were 25% and 24% in the second  quarter and
first half of 1999,  respectively,  as  compared  to 24% and 26% during the same
periods in 1998.  The 25% increase in sales and  advertising  expenses  from the
first  six  months  of 1998 to the  first  six  months  of  1999  was  primarily
attributable  to  (i)  increased   headcount  costs  resulting  from  the  ARDIS
acquisition and (ii) costs  associated with the launch of a new service offering
("eLink(sm)").

         General and administrative  expenses were $4.7 million and $9.5 million
for the three and six months ended June 30, 1999, respectively, compared to $5.8
million  and  $9.4  million  during  the  same  periods  in  1998.  General  and
administrative  expenses  as a  percentage  of  revenue  were 21% and 22% in the
second quarter and first half of 1999, respectively,  as compared to 26% and 29%
during the same  periods  in 1998.  The $1.1  million  decrease  in general  and
administrative  expenses  quarter  over  quarter  for 1999  compared to 1998 was
primarily attributable to (i) reduced headcount costs related to integrating the
ARDIS  organization  into the Company and the resulting  elimination  of certain
positions, (ii) one-time costs incurred in the second quarter of 1998 associated
with the ARDIS  integration,  and (iii) a decrease in expenses  associated  with
outside legal and regulatory counsel.

         Depreciation  and  amortization  expenses  were $13.6 million and $27.4
million for the three and six months ended June 30, 1999, respectively, compared
to $14.5 million and $24.6 million during the same periods in 1998. Depreciation
and  amortization  expenses as a  percentage  of revenue were 60% and 64% in the
second quarter and first half of 1999, respectively,  as compared to 65% and 76%
during the same periods in 1998. The $2.8 million  increase in depreciation  and
amortization  expense  for the six months  ended June 30,  1999,  was  primarily
attributable  to the ARDIS assets  acquired and the  amortization of intangibles
acquired in the ARDIS acquisition.

         Interest  and other  income was $2.0  million and $3.7  million for the
second  quarter and first half of 1999,  respectively,  compared to $1.6 million
and $1.7 million  during the same periods in 1998.  The increase was primarily a
result of (i) interest earned on certain required  escrows  established with the
proceeds from the Senior Notes in March 1998 and (ii) interest  earned on the XM






Note Receivable (as defined below) issued in January 1999. The Company  incurred
$32.8  million of interest  expense in the first six months of 1999  compared to
$22.3 million in the same period of 1998, reflecting (i) interest expense on the
Senior  Notes at 12.25%,  offset by lower debt  balances on the  Company's  bank
loans  (comprising the Term Loan Facility and the Revolving Credit Facility) and
(ii) the amortization of debt discount, prepaid interest and debt offering costs
in the amount of $9.2 million in the first six months of 1999,  compared to $7.4
million in the first six months of 1998. It is  anticipated  that interest costs
will continue to be  significant as a result of the Senior Notes and as a result
of the  borrowings  under the New Bank  Financings.  See  "Liquidity and Capital
Resources".

         Net  capital  expenditures  for the  first  half of 1999  and  1998 for
property and equipment were $5.6 million.  Expenditures  consisted  primarily of
assets necessary to continue the build outs of the Company's Network.

         Liquidity and Capital Resources
         -------------------------------

         Adequate  liquidity  and  capital  are  critical  to the ability of the
Company  to  continue  as a going  concern  and to fund  subscriber  acquisition
programs necessary to achieve positive cash flow and profitable operations.  The
Company expects to continue to make significant capital outlays to fund interest
expense,  capital  expenditures  and working  capital  prior to the time that it
begins to  generate  positive  cash  flow from  operations.  These  outlays  are
expected to continue for the foreseeable future thereafter.

         On  March  31,  1998,  AMSC  Acquisition   Company,  Inc. ("Acquisition
Company"),  a  wholly-owned  subsidiary  of the Company,  issued $335 million of
units consisting of 12 1/4% Senior Notes due 2008 (the "Senior Notes"),  and one
warrant to  purchase  3.75749  shares of Common  Stock of the  Company  for each
$1,000 principal  amount of Notes (the  "Warrants"),  and also  restructured its
existing bank  financing (the "New Bank  Financing").  The New Bank Financing of
$200 million consists of a $100 million unsecured  five-year  reducing Revolving
Credit Facility  maturing March 31, 2003 and a $100 million  five-year Term Loan
Facility  with up to three  additional  one-year  extensions  subject  to lender
approval.  As of June 30,  1999,  the Company had $28.0  million  available  for
borrowing under the Revolving Credit Facility. Additionally, Motorola has agreed
to provide the Company with up to $10 million of vendor  financing  (the "Vendor
Financing Commitment"),  which is available to finance up to 75% of the purchase
price of additional  base stations  needed to meet buildout  requirements  under
certain  customer  contracts.  As of June 30, 1999, $4.8 million was outstanding
under this facility.

         In connection with the New Bank Financing,  each of Hughes  Electronics
Corporation,  Singapore Telecommunications Ltd. and Baron Capital Partners, L.P.
(collectively,  the "Bank Facility  Guarantors") extended separate guarantees of
the obligations of each of the Acquisition Company and the Company to the Banks,
which on a several basis  aggregated to $200 million.  In their  agreement  with
each  of the  Acquisition  Company  and the  Company  (the  "Guarantee  Issuance
Agreement"),  the Bank  Facility  Guarantors  agreed  to make  their  guarantees
available  for the New Bank  Financing.  In exchange  for the  additional  risks
undertaken  by the Bank  Facility  Guarantors  in  connection  with the New Bank
Financing,  the  Company  agreed to  compensate  the Bank  Facility  Guarantors,
principally in the form of 1 million  additional  warrants and re-pricing of 5.5
million warrants  previously issued (together,  the "Guarantee  Warrants").  The
Guarantee  Warrants were issued with an exercise price of $12.51 and were valued






at approximately  $17.7 million. On March 29, 1999, the Bank Facility Guarantors
agreed to  eliminate  certain  covenants  contained  in the  Guarantee  Issuance
Agreement relating to earnings before interest,  depreciation,  amortization and
taxes  ("EBITDA")  and service  revenue.  In exchange  for this  elimination  of
covenants,  the Company agreed to re-price their Guarantee  Warrants,  effective
April  1,  1999,  from  $12.51  to  $7.50.   The  value  of  the  repricing  was
approximately  $1.5 million.  As of June 30, 1999,  the Company had  outstanding
borrowings  of $100 million of the Term Loan  Facility at 5.5%,  and $72 million
under the Revolving Credit Facility at rates ranging from 5.6875% to 5.8125%.

         Further,  in connection  with the  Guarantee  Issuance  Agreement,  the
Company has agreed to reimburse the Bank  Facility  Guarantors in the event that
the  Guarantors  are  required  to make  payment  under  the New Bank  Financing
guarantees,  and, in connection with this reimbursement  commitment has provided
the Bank  Facility  Guarantors a junior  security  interest  with respect to the
assets  of the  Company,  principally  its  stockholdings  in XM  Radio  and the
Acquisition Company.

         In connection with the New Bank Financing,  the Company entered into an
interest rate swap  agreement,  with an implied  annual rate of 6.51%.  The swap
agreement  reduces  the  impact  of  interest  rate  increases  on the Term Loan
Facility.  The Company paid a fee of  approximately  $17.9  million for the swap
agreement. Under the swap agreement, the Company will receive an amount equal to
LIBOR plus 50 basis points,  paid directly to the banks on a quarterly basis, on
a notional amount of $100 million until the termination  date of March 31, 2001.
The  Company has  reflected  as an asset the  unamortized  fee paid for the swap
agreement in the accompanying financial statements.  The Company is exposed to a
credit loss in the event of non performance  by the counter party under the swap
agreement.  The Company  does not  believe  there is a  significant  risk of non
performance  as the counter  party to the swap  agreement  is a major  financial
institution.

     On August 3, 1999,  the Company  raised $116 million,  net of  underwriting
discounts and expenses, through the issuance of 7.0 million shares of its common
stock in a public  offering.  Of the net  proceeds,  $58 million was used to pay
down a portion of the Term Loan Facility, and is not available for re-borrowing.
The  remainder  of the net  proceeds  were  used to pay  down a  portion  of the
Revolving  Credit  Facility,  which will be available for re-borrowing as needed
for general working capital purposes. As a result of the partial pay down of the
Term Facility,  the Company will record an extraordinary  loss on extinguishment
of debt of  approximately  $12.1  million in the third  quarter  of 1999,  which
reflects the  write-off,  on a pro-rata  basis,  of Guarantee  Warrants and fees
associated  with the placement of the New Bank  Financing.  Additionally,  it is
anticipated that a portion of the interest rate swap agreement, discussed above,
will be  released  to the  Company,  resulting  in  additional  cash flow to the
Company.

     As a result of the automatic  application of certain adjustment  provisions
following  the issuance of the 7.0 million  shares,  the  exercise  price of the
Guarantee  Warrants was reduced to $7.3571 per share and the Guarantee  Warrants
became exercisable for an additional 126,246 shares. Additionally,  the exercise
price of the warrants associated with the Senior Notes was reduced to $12.28 per
share and the  aggregate  number of shares  issuable  upon the  exercise of such
warrants was increased by 24,291 shares.  The additional  Guarantee Warrants and
repricing were valued at $2.4 million,  and the additional Senior Notes warrants
and repricing were valued at $440,000 and will be recorded as an additional debt
discount in the third quarter.






     Cash  used in  operating  activities  was $31.4  million  for the first six
months of 1999 compared to $32.4 million for the comparable  period in 1998. The
decrease in cash used in operating activities was primarily  attributable to (i)
approximately  $3.7 million of increased  operating losses before  depreciation,
primarily as a result of  additional  net  expenses  incurred as a result of the
ARDIS acquisition and Year 2000 compliance programs, offset by (ii) increases in
net working capital  resulting  primarily from increased data service  equipment
revenues and timing of accounts payable.  Cash used in investing  activities was
$30.8 for the first six months of 1999  compared to $198.9  million for the same
period in 1998,  representing  the  acquisition  of ARDIS in March 1998, and the
funding of certain  escrows  required in  connection  with the  Acquisition  and
issuance of Senior Notes, offset by the issuance in January 1999 of the XM Radio
Note  Receivable (as defined below).  Cash provided by financing  activities was
$61.2  million in the first six  months of 1999 as  compared  to $228.1  million
during the same period in 1998  reflecting  the  issuance of the Senior Notes in
March 1998,  offset by the  repayment of other  long-term  debt in the first six
months  of 1998,  and the  proceeds  from  the  issuance  of the  Baron XM Radio
Convertible  Note (as defined  below) and draws under the New Bank  Financing in
the first  quarter  of 1999.  Proceeds  from the sale of Common  Stock were $2.9
million and  $236,000  for the first six months of 1999 and 1998,  respectively.
This $2.7  million  increase was  primarily  related to the exercise of employee
options.  Payments on  long-term  debt and capital  leases were $3.0 million and
$16.2  million  for the first six  months  of 1999 and  1998,  respectively.  In
addition,  the Company incurred $220,000 of debt issuance costs in the first six
months of 1999,  as compared  to $15.0  million in the first six months of 1998,
which  resulted from the placement of the Senior Notes and amendments to the New
Bank  Financing.  As of June 30, 1999,  the Company had $1.3 million of cash and
cash equivalents, working capital of $17.7 million, $12.5 million of securities,
and $41.0 million of current investments restricted for the payment of interest.

         The Company has arranged the financing of certain trade  payables,  and
as of June 30, 1999, $1.5 million of deferred trade payables were outstanding at
rates ranging from 6.10% to12.0% and are generally payable by the end of 1999.

     The Company's current operating assumptions and projections,  which reflect
management's  best  estimate  of  subscriber  and revenue  growth and  operating
expenses,  indicate that anticipated  capital  expenditures,  operating  losses,
working capital and debt service  requirements  through 1999 and beyond,  can be
met by cash flows from operations,  the net proceeds from the issuance of common
stock in August  1999,  the net  proceeds  from the sale of the Senior Notes and
Warrants,  together  with the  borrowings  under the New Bank  Financing and the
Vendor  Financing  Commitment;  however,  the  Company's  ability  to  meet  its
projections is subject to numerous  uncertainties  and there can be no assurance
that the Company's  current  projections  regarding the timing of its ability to
achieve positive operating cash flow will be accurate, and if the Company's cash
requirements  are more  than  projected,  the  Company  may  require  additional
financing  in  amounts  which may be  material.  The type,  timing  and terms of
financing  selected by the Company will be  dependent  upon the  Company's  cash
needs, the availability of other financing sources and the prevailing conditions
in the financial  markets.  There can be no assurance that any such sources will
be available to the Company at any given time or available on favorable terms.


         XM Radio
         --------

         The Company has an investment in XM Radio, which is one of two entities
awarded a license  by the FCC to provide  satellite-based  Digital  Audio  Radio
Service ("DARS")  throughout the United States. XM Radio is currently engaged in
efforts to  construct  its  satellite  system.  The  Company is not  required to
provide any additional funding to XM Radio.




     On January 15,  1999,  the Company  issued to Baron Asset Fund  ("Baron") a
$21.5 million note  convertible into shares of XM Radio common stock (the "Baron
XM Radio Convertible Note"). The Company subsequently loaned approximately $21.4
million to XM Radio in exchange for XM Radio common stock and a note convertible
into XM Radio  shares  (the "XM  Radio  Note  Receivable").  The  Baron XM Radio
Convertible  Note ranks  subordinate to all other debt securities of the Company
and is fully collateralized by approximately  one-half of the shares received by
the Company as a result of this  transaction.  The XM Radio Note Receivable is a
non-recourse note collateralized by the additional XM Radio shares that would be
received  by the  Company  upon  conversion  of the  note.  The  XM  Radio  Note
Receivable  earns  interest  at LIBOR plus 5% and is due on December  31,  2004,
unless  extended,  in certain  circumstances  if XM Radio issues high yield debt
securities, and the Baron XM Radio Convertible Note accrues interest at the rate
of 6% annually, with all payments deferred until maturity, December 31, 2004, or
extinguished upon conversion. The Company has the option to satisfy the Baron XM
Radio  Convertible  Note by  tendering  the shares into which it would have been
convertible  in  lieu  of  any  cash  payments.  The  Company's  June  30,  1999
consolidated  condensed balance sheet reflects management's estimate of the fair
value of the XM Radio  Note  Receivable  and  Baron XM Radio  Convertible  Note.
Changes  in the fair value of the XM Radio  Note  Receivable  and Baron XM Radio
Convertible  Note are reflected in the  accompanying  statement of operations as
unrealized  losses  on note  receivable  from XM  Radio  ($9.9  million  for the
six-months  ended June 30, 1999) and unrealized  gain on note payable to related
party ($10.0 million for the six-months ended June 30, 1999),  respectively.  In
the  future,  the  Company  expects  to  continue  to  record  in its  financial
statements the Baron XM Radio Convertible Note at its estimated fair value.


         Commitments
         -----------

     At June 30, 1999,  the Company had  remaining  contractual  commitments  to
purchase both mobile data terminal  inventory and mobile telephone  inventory in
the maximum amount of $1.6 million  during the remainder of 1999.  Additionally,
the  Company had  remaining  contractual  commitments  for the  development  and
production of certain next  generation  data  terminals of  approximately  $26.3
million,  subject to final pricing negotiations,  over a three-year period, with
delivery  starting  in the second  half of 1999.  The  Company  has the right to
terminate  the research  and  development  and  inventory  commitment  by paying
cancellation fees of between $1 million and $2.3 million,  depending on when the
termination  option is exercised  during the term of the  contract.  The Company
also has the  right  to  terminate  the  inventory  commitment  by  incurring  a
cancellation penalty representing a percentage of the unfulfilled portion of the
contract.  The Company has also  contracted for the purchase of $26.2 million of
next generation  wireless data terminals to be delivered  beginning in the third
quarter of 1999. The contract contains a 50% cancellation penalty.

         All wholly owned  subsidiaries  of the Company are subject to financing
agreements  that  limit the  amount  of cash  dividends  and  loans  that can be
advanced to the Company. At June 30, 1999, all of these subsidiaries' net assets
were restricted under these agreements.  These  restrictions will have an impact
on the Company's ability to pay dividends.







         Regulation
         -----------

         The ownership and operations of the Company's communication systems are
subject to significant regulation by the FCC, which acts under authority granted
by the  Communications Act of 1934, as amended (the  "Communications  Act"), and
related federal laws. A number of the Company's  licenses are subject to renewal
by the FCC and, with respect to the Company's satellite operations,  are subject
to international  frequency coordination.  In addition,  current FCC regulations
generally  limit the  ownership  and  control  of  American  Mobile by  non-U.S.
citizens  or  entities  to 25%.  There can be no  assurances  that the rules and
regulations  of the FCC will  continue to support the  Company's  operations  as
presently  conducted and contemplated to be conducted in the future, or that all
existing licenses will be renewed and requisite frequencies coordinated.

         Year 2000 Readiness
         -------------------

         American Mobile has developed and is implementing a Year 2000 Readiness
Program ("Year 2000 Readiness Program") to address Year 2000 issues.  "Year 2000
Ready," or "Year  2000  Readiness,"  means that  customers  will  experience  no
material  difference in performance and functionality of the Company's  networks
prior to, during or after the year 2000.

         The Company's Year 2000 Readiness Program uses the phased approach that
is common in its industry.  The Awareness,  Inventory and Assessment phases have
been  completed,  and American  Mobile is at various  stages of the  Renovation,
Validation/Test and  Implementation/Rollout  phases, depending on the particular
system involved.

         The Inventory and Assessment Phases  concentrated on the Company's core
business  systems:  those  systems,  both  hardware and software,  whose failure
could have a material impact on its financial condition and operations.  Vendors
providing critical products and services to American Mobile are also included in
this definition of core business systems. Although the core business systems are
the top priority in the Company's Year 2000 Readiness  Program,  American Mobile
assessed all of its software and hardware for Year 2000 Readiness.

         American  Mobile's  plans  for  the  Renovation,   Validation/Test  and
Implementation/Rollout  Phases  call for it to be Year 2000  Ready by the end of
the third  quarter of 1999. In addition,  the Company is currently  scheduled to
complete  renovations,  implementation  and  rollout  of  its  internal  systems
(including its voice customer  billing  software,  CMIS),  in the fourth quarter
1999;  these internal  software  systems do not affect the Company's  ability to
pass customer traffic and therefore will not affect Year 2000 Readiness.

         The  complex  of  hardware  and  software  that the  Company  maintains
consists of commercial off-the-shelf (COTS) software, as well as custom software
developed  specifically  for  American  Mobile's  networks.  In  certain  cases,
American Mobile's Year 2000 Readiness  Program involves  upgrading COTS software
that is  unsupported  by the  vendor or whose Year 2000  Readiness  could not be
determined. Upgrading such COTS software, as planned, provides greater certainty
regarding  the Year 2000  Readiness  of such  products  and ensures  that vendor
support will be available.

         The total cost of American  Mobile's  Year 2000  Readiness  Program was
approximately  $2.4 million in 1998.  Expenditures  for the Year 2000  Readiness
Program in 1999 are  estimated to be up to $6.6  million,  of which $3.3 million
was incurred as of June 30, 1999. Some of these costs, including the purchase of
software upgrades and consulting services,  are expensed as incurred while other
costs, such as hardware purchases, are being treated as capital expenditures.







         The  estimated  cost and date on which  American  Mobile  believes  its
network will be Year 2000 Ready are management's best estimates.  However, there
is no guarantee  that the Company will achieve these results and actual  results
could  differ  materially  from those  anticipated.  Some of  American  Mobile's
critical  business systems depend  significantly on software  programs and third
party services that are not within the Company's control.  Failure to solve Year
2000 errors within American  Mobile's  critical business systems could result in
possible service outages, miscalculations or disruption of operations that could
have a material impact on the Company's business. Because of the Company's heavy
dependence  on  software,  some  Year  2000  problems  may not be  found  or the
remediation  efforts may introduce new bugs that are not identified  before they
impact operations. This applies to both COTS software and custom software.

         If American  Mobile's  customers fail to become Year 2000 ready on time
with  their own  hardware  and  software  systems,  their  applications  may not
function even if American Mobile's systems are Year 2000 Ready. This will result
in reduced  traffic and  revenues.  Also,  suppliers  of goods and  services may
suffer  Year  2000-related  failures  from which the Company  cannot  adequately
protect its business.

         While management believes that the Company will be able to achieve Year
2000   Readiness  in  a  timely   manner,   the  schedule  for   completing  the
implementation  of several core  business  systems  extends to the third quarter
1999 and there is a possibility  that  American  Mobile may not become Year 2000
Ready on time or within budget.  Contingency  planning,  as discussed  below, is
currently underway to minimize the risk of business interruptions caused by Year
2000 problems within the core business systems.

         American  Mobile has  contingency  plans in place to  minimize  service
interruptions that can mitigate, although not eliminate, interruptions caused by
problems  resulting from Year 2000 issues.  For example,  the Company has backup
power supplies and  generators in place for certain  portions of its networks in
the event of electrical power outages.  In addition,  for some services American
Mobile has contracted with more than one service provider.  These plans, systems
and services are being  incorporated  into the Company's  Year 2000  contingency
planning.  To the extent that it is  commercially  reasonable to do so, American
Mobile will include other  redundant or  alternative  sources of services in its
Year 2000 contingency planning efforts.

         Accounting Standards
         --------------------

         In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments  and Hedging  Activities,"  which  requires the  recognition  of all
derivatives  as either  assets or  liabilities  measured at fair value.  In June
1999, FASB issued Statement N. 147, which defers the effective date of Statement
No. 133 until fiscal  quarters  beginning  after June 15, 2000. The Company does
not believe that the adoption of this statement  will have a material  impact on
its financial position and results.

         In March 1999,  FASB issued an Exposure Draft on an  Interpretation  of
Accounting Principles Board Opinion No. 25 - Accounting for Certain Transactions
involving Stock Compensation.  This proposed  Interpretation  would make it more
likely that  expense  would be required to be  recognized  in the case of, among
other things,  stock (including stock options) issued to non-employee members of
an entity's  board of  directors.  The Company has  assessed  the impact of this
proposed   Interpretation   and  does  not   believe   that   adoption  of  this
Interpretation  would  have a  material  impact on its  financial  position  and
results.









                           PART II - OTHER INFORMATION
                           ---------------------------

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

         (a) At the annual meeting of the  stockholders  of AMSC held on May 26,
1999, the matters described under (b) and (c) below were voted upon.

         (b)  The  following   nominees,   constituting  all  of  the  Company's
directors, were elected to the Company's board of directors:


                                                    Individual
                                     Votes For    Votes Withheld    Withheld
                                     ---------    --------------    --------

                                                             
         Douglas I. Brandon          27,241,534       101,040         128,645
         Pradeep P. Kaul             27,145,614       196,960         224,565
         Billy J. Parrott            27,340,005         2,569          30,174
         Gary M. Parsons             27,342,521            53          27,658
         Walter V. Purnell, Jr.      27,342,163           411          28,016
         Andrew A. Quartner          27,195,838       146,736         174,341
         Jack A. Shaw                27,342,574             0          27,605
         Roderick M. Sherwood, III   27,342,574             0          27,605
         Michael T. Smith            27,143,809       198,765         226,370


          (c)(1)  The  vote  on  the  ratification  of  Arthur  Andersen  LLP as
independent  accountants  for the Company for 1999 was  27,343,228  for,  10,848
against, 16,103 abstaining.

              (2) The vote on the approval of amendments to the Company's  Stock
Option Plan for  Non-Employee  Directors was 26,985,117  for,  324,971  against,
60,091 abstaining.



         Item 6. Exhibits and Reports on Form 8-K
         ----------------------------------------

(a)      Exhibits
           3.2   -  Amended and  Restated  Bylaws of American  Mobile  Satellite
                    Corporation (as amended and restated effective May 26, 1999)
                    (incorporated  by reference to Exhibit 3.2 to the  Company's
                    registration   statement  on  Form  S-3,  Registration   No.
                    333-81459).

          10.9a  -  1999  Stock  Option  Plan  for  Non-Employee  Directors  (as
                    amended  and  restated   effective   May  26,  1999)  (filed
                    herewith).

          11.1   -  Computations of Earnings Per Common Share (filed herewith)

          27.0   -  Financial Data Schedule (filed herewith)






(b)      Current Reports on Form 8-K

         On June 9, 1999,  the  Company  filed a Current  Report on Form 8-K, in
         response to Item 5- Other Events,  reporting  that the Company  entered
         into an Exchange Agreement with WorldSpace, Inc. and XM Satellite Radio
         Holdings Inc.

         On July 9, 1999,  the  Company  filed a Current  Report on Form 8-K, in
         response  to Item 2-  Acquisition  or  Disposition  of Assets  and Item
         7-Financial  Statements and Exhibits,  reporting the acquisition by the
         Company of interests in XM Satellite  Radio  Holdings Inc. then held by
         XM  Ventures,  a trust  established  by  WorldSpace,  Inc. The Form 8-K
         included the following financial information:

                  (a)      unaudited pro forma Company  balance sheet data as of
                           March 31,  1999 and pro forma  Company  statement  of
                           operations  data for the quarter ended March 31, 1999
                           and the year ended December 31, 1998;

                  (b)      audited  financial  statements of the Company for the
                           years ended  December  31, 1996,  1997 and 1998,  and
                           unaudited interim financial statements of the Company
                           for the quarters ended March 31, 1998 and 1999; and

                  (c)      audited  financial  statements of XM Satellite  Radio
                           Holdings  Inc. for the years ended  December 31, 1997
                           and 1998 and the period from  December 15, 1992 (date
                           of  inception)  to December 31, 1998,  and  unaudited
                           interim  financial  statements of XM Satellite  Radio
                           Holdings  Inc. for the quarters  ended March 31, 1998
                           and 1999 and the period  from  December  15,  1992 to
                           March 31, 1999.

         On July 26, 1999,  the Company  filed a Current  Report on Form 8-K, in
         response  to  Item  5-  Other  Events,  reporting  that  the  Company's
         subsidiary,  XM Satellite  Radio  Holdings  Inc.,  filed a registration
         statement on Form S-1 with the Securities and Exchange Commission,  and
         reporting the Company's second quarter results.














                                   SIGNATURES



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


                               AMERICAN MOBILE SATELLITE CORPORATION
                               (Registrant)





Date:   August 16, 1999        /s/Walter V. Purnell, Jr.
                               -------------------------------------------
                               Walter V. Purnell, Jr.
                               President and Chief Executive Officer


                               /s/W. Bartlett Snell
                               -------------------------------------------
                               W. Bartlett Snell
                               Senior Vice President and Chief Financial Officer
                                (principal financial and accounting officer)











                                  EXHIBIT INDEX



Number       Description

3.2      -          Amended and  Restated  Bylaws of American  Mobile  Satellite
                    Corporation (as amended and restated effective May 26, 1999)
                    (incorporated  by reference to Exhibit 3.2 to the  Company's
                    registration   statement  on  Form  S-3,   Registration  No.
                    333-81459).

10.9a    -          1999  Stock  Option  Plan  for  Non-Employee  Directors  (as
                    amended  and  restated   effective   May  26,  1999)  (filed
                    herewith).

11.1     -          Computations of Earnings Per Common Share (filed herewith)

27.0     -          Financial Data Schedule (filed herewith)