UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

/x/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
              Act of 1934 for the period ended March 31, 2004, or


/ / Transition report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

                         Commission file number 0-13865

                         SKYTERRA COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                           23-2368845
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                            Identification Number)


             19 West 44th Street, Suite 507
                New York, New York                              10036
         (Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code: (212) 730-7540

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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes /x/   No / /

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

                                 Yes / /   No /x/

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

As of May 13, 2004, 6,067,476 shares of the registrant's voting common stock
and 8,990,212 shares of the registrant's non-voting common stock were
outstanding.

<PAGE>


<TABLE>
<CAPTION>

                         SKYTERRA COMMUNICATIONS, INC.
                          CONSOLIDATED BALANCE SHEETS
                        (In thousands except share data)

                                                                                           March 31,          December 31,
                                                                                             2004                 2003
                                                                                        ----------------    ----------------
                                                                                          (Unaudited)
                                        Assets
Current assets:
<S>                                                                                             <C>                  <C>
   Cash and cash equivalents                                                                    $10,296              $9,897
   Short-term investments                                                                        15,901              18,795
                                                                                        ----------------    ----------------
     Total cash, cash equivalents and short-term investments                                     26,197              28,692
   Accounts receivable, net                                                                         305                 237
   Note receivable from Verestar, Inc.                                                            2,500               2,500
   Prepaid expenses and other current assets                                                      1,948               1,048
                                                                                        ----------------    ----------------
     Total current assets                                                                        30,950              32,477

Property and equipment, net                                                                          49                  57
Notes receivable from the Mobile Satellite Venture, L.P.                                         64,189              62,638
Note receivable from Motient Corporation, net                                                        --                  --
Investments in affiliates                                                                         2,952               2,769
Other assets                                                                                        154                 158
                                                                                        ----------------    ----------------
       Total assets                                                                             $98,294             $98,099
                                                                                        ================    ================

                          Liabilities and Stockholders' Deficit
Current liabilities:
   Accounts payable                                                                              $2,244              $1,958
   Accrued liabilities                                                                            3,341               3,950
   Deferred revenue                                                                                  72                 158
                                                                                        ----------------    ----------------
     Total current liabilities                                                                    5,657               6,066
                                                                                        ----------------    ----------------
Series A Convertible Preferred Stock, $.01 par value, net of unamortized
  discount of $35,880 and $36,979, respectively                                                  82,643              80,182
                                                                                        ----------------    ----------------
Minority interest                                                                                12,767              12,467
                                                                                        ----------------    ----------------
Stockholders' deficit:
   Preferred stock, $.01 par value. Authorized 10,000,000 shares; issued
     1,185,230 shares as Series A Convertible Preferred Stock at March 31, 2004
     and 1,171,612 shares at December 31, 2003                                                       --                  --
   Common stock, $.01 par value. Authorized 200,000,000 shares; issued and
     outstanding 6,078,591 shares at March 31, 2004 and 6,075,727 shares at
     December 31, 2003                                                                               61                  61
   Non-voting common stock, $.01 par value. Authorized 100,000,000 shares; issued
     and outstanding 8,990,212 shares at each of March 31, 2004 and December 31, 2003                90                  90
   Additional paid-in capital                                                                   546,511             546,243
   Accumulated deficit                                                                         (549,264)           (546,839)
   Treasury stock, at cost, 6,622 shares                                                           (171)               (171)
                                                                                        ----------------    ----------------
       Total stockholders' deficit                                                               (2,773)               (616)
                                                                                        ----------------    ----------------
       Total liabilities and stockholders' deficit                                              $98,294             $98,099
                                                                                        ================    ================


     See accompanying notes to unaudited consolidated financial statements.
</TABLE>

<PAGE>


                         SKYTERRA COMMUNICATIONS, INC.
                UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                        (In thousands except share data)
<TABLE>
<CAPTION>

                                                                                     Three Months Ended March 31,
                                                                                    --------------------------------
                                                                                         2004              2003
                                                                                    -------------    ---------------
<S>                                                                                         <C>                 <C>
Revenues                                                                                    $817                $--
Cost of revenues                                                                             748                 --
                                                                                    -------------    ---------------
   Gross profit                                                                               69                 --
Expenses:
   Selling, general and administrative                                                     1,764              1,852
   Depreciation and amortization                                                              15                  7
                                                                                    -------------    ---------------
     Total expenses                                                                        1,779              1,859
                                                                                    -------------    ---------------
Loss from operations                                                                      (1,710)            (1,859)
Interest income, net                                                                       2,161              1,509
Loss on investments in affiliates                                                           (151)               (99)
Other income (expense), net                                                                   36                 (5)
Minority interest                                                                           (300)              (269)
                                                                                    -------------    ---------------
Income (Loss) before discontinued operations                                                  36               (723)
Gain from wind-down of discontinued operations                                                --                454
                                                                                    -------------    ---------------
Net income (loss)                                                                             36               (269)
   Cumulative dividends and accretion of convertible preferred stock to
     liquidation value                                                                    (2,461)            (2,399)
                                                                                    -------------    ---------------
Net loss attributable to common stockholders                                             $(2,425)           $(2,668)
                                                                                    =============    ===============
Basic and diluted (loss) earnings per share:
  Continuing operations                                                                   $(0.16)            $(0.20)
  Discontinued operations                                                                     --               0.03
                                                                                    -------------    ---------------
     Net loss per share                                                                   $(0.16)            $(0.17)
                                                                                    =============    ===============
Basic weighted average common shares outstanding                                      15,063,807         15,979,281
                                                                                    =============    ===============


     See accompanying notes to unaudited consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                         SKYTERRA COMMUNICATIONS, INC.
                UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                                                      Three Months Ended March 31,
                                                                                     --------------------------------
                                                                                         2004              2003
                                                                                     -------------     --------------
Cash flows from operating activities:
<S>                                                                                          <C>              <C>
   Net income (loss)                                                                         $36              $(269)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Gain from discontinued operations                                                        --               (454)
     Depreciation and amortization                                                            15                  7
     Loss on investments in affiliates                                                       151                 99
     Non-cash compensation expense                                                           263                  7
     Non-cash charge for issuance of warrant by consolidated subsidiary                       --                 13
     Changes in assets and liabilities:
       Accounts receivable, net                                                              (68)                --
       Prepaid expenses, interest receivable and other assets                             (2,151)              (898)
       Accounts payable, accrued and other liabilities                                      (306)                59
       Deferred revenue                                                                      (86)                --
                                                                                     -------------     --------------
           Net cash used in continuing operations                                         (2,146)            (1,436)
           Net cash used in discontinued operations                                          (18)              (392)
                                                                                     -------------     --------------
           Net cash used in operating activities                                          (2,164)            (1,828)
Cash flows from investing activities:
   Sales of short-term investments                                                         5,100              1,509
   Purchases of short-term investments                                                    (2,206)                --
   Cash paid for investments in affiliates                                                  (334)                (8)
   Purchases of property and equipment, net                                                   (3)                --
                                                                                     -------------     --------------
           Net cash provided by investing activities                                       2,557              1,501
Cash flows from financing activities:
   Proceeds from issuance of common stock in connection with the exercise
     of options                                                                                 6                --
   Proceeds from contributions to a consolidated subsidiary                                    --                48
                                                                                     -------------     --------------
           Net cash provided by financing activities                                            6                48
                                                                                     -------------     --------------
Net increase (decrease) in cash and cash equivalents                                          399              (279)
Cash and cash equivalents, beginning of period                                              9,897            37,484
                                                                                     -------------     --------------
Cash and cash equivalents, end of period                                                  $10,296           $37,205
                                                                                     =============     ==============


     See accompanying notes to unaudited consolidated financial statements.
</TABLE>

<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATMENTS

(1)  Description of the Business

     SkyTerra Communications, Inc. (the "Company") operates its business
through a group of complementary companies in the telecommunications industry,
including the Mobile Satellite Venture, L.P. joint venture ("MSV Joint
Venture"), Electronic System Products, Inc. ("ESP"), IQStat, Inc. (now doing
business as Navigauge, Inc., "Navigauge"), and Miraxis, LLC ("Miraxis").
Consistent with this strategy, in April 2004, the Company acquired a majority
interest in AfriHUB LLC ("AfriHUB"). Through exclusive partnerships with
certain Nigerian based universities, AfriHUB intends to provide satellite based
broadband Internet access, domestic and international calling services, and a
combination of instructor led and distance based technical training.

     Through its 80% owned MSV Investors, LLC subsidiary ("MSV Investors
Subsidiary"), the Company is an active participant in the MSV Joint Venture, a
joint venture that also includes TMI Communications, Inc., Motient Corporation
("Motient"), and certain other investors (collectively, the "Other MSV
Investors"). The MSV Joint Venture is currently a provider of mobile digital
voice and data communications services via satellite in North America. The
Company has designated three members of the 12-member board of directors of the
MSV Joint Venture's corporate general partner.

     On February 10, 2003, the Federal Communications Commission (the "FCC")
released an order relating to an application submitted by the MSV Joint Venture
and certain of its competitors that could greatly expand the scope of the MSV
Joint Venture's business by permitting the incorporation of ancillary
terrestrial base stations (which we refer to as an "ancillary terrestrial
component" or "ATC") into its mobile satellite network. A similar application
is pending before Industry Canada, the FCC's counterpart in Canada. With the
FCC's issuance of the ATC order, the MSV Joint Venture has entered a new stage
of development which requires significant future funding requirements and/or a
need for one or more strategic partners.

     In the ATC order, the FCC established certain requirements with which a
mobile satellite service provider must comply in order to operate an ATC. In
November 2003, the MSV Joint Venture filed an application demonstrating its
compliance with the requirements. The FCC has put the application out for
public comment, and all objections and responses, if any, should be filed with
the FCC during the second quarter of 2004.

     The Company is headquartered in New York, New York.

(2) Basis of Presentation

     The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting only of those of a normal recurring nature, necessary
for a fair presentation of the Company's financial position, results of
operations and cash flows at the dates and for the periods indicated. While the
Company believes that disclosures presented are adequate to make the
information not misleading, these unaudited consolidated financial statements
should be read in conjunction with the audited financial statements and related
notes for the year ended December 31, 2003 which are contained in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The results of the three months ended March 31, 2004 are not necessarily
indicative of the results to be expected for the full year. Certain prior year
amounts in the consolidated financial statements have been reclassified to
conform to the current year's presentation.

(3)  Interest in the MSV Joint Venture

     On November 26, 2001, through its MSV Investors Subsidiary, the Company
purchased an interest in the MSV Joint Venture in the form of a convertible
note with a principal amount of $50.0 million. Immediately prior to the
purchase of the convertible note, the Company contributed $40.0 million to the
MSV Investors Subsidiary and a group of unaffiliated third parties collectively
contributed $10.0 million. The note bears interest at a rate of 10% per year,
has a maturity date of November 26, 2006, and is convertible at any time at the
option of the MSV Investors Subsidiary into equity interests in the MSV Joint
Venture.

     On August 13, 2002, the MSV Joint Venture completed a rights offering
allowing its investors to purchase their pro rata share of an aggregate $3.0
million of newly issued convertible notes with terms similar to the convertible
note already held by the MSV Investors Subsidiary. The MSV Investors Subsidiary
exercised its basic and over subscription rights and purchased approximately
$1.1 million of the convertible notes. The group of unaffiliated third parties
collectively contributed $0.2 million to the MSV Investors Subsidiary in
connection with the MSV Joint Venture rights offering.

     Pursuant to the joint venture agreement among the partners of the MSV
Joint Venture (the "MSV Joint Venture Agreement"), in the event that the MSV
Joint Venture had received final regulatory approval from the FCC, as that
phrase is defined in the MSV Joint Venture Agreement, by March 31, 2003 for its
ATC applications, the Other MSV Investors would have been obligated to invest
an additional $50.0 million in the MSV Joint Venture. As the final regulatory
approval from the FCC, as defined in the MSV Joint Venture Agreement, was not
received by March 31, 2003, the additional investment was not required.
However, the Other MSV Investors retained the option to invest the $50.0
million on the same terms and conditions until June 30, 2003. Prior to its
expiration, the option was extended until August 2003. On August 8, 2003, the
MSV Joint Venture Agreement was amended and certain of the Other MSV Investors
agreed to invest $3.7 million in the MSV Joint Venture and retain the option to
invest an additional $17.6 million under certain terms and conditions. On April
2, 2004, those certain Other MSV Investors exercised the option in full.

     Under the amended MSV Joint Venture Agreement, the convertible notes held
by the MSV Investors Subsidiary will automatically convert into equity
interests in the MSV Joint Venture upon the repayment of (i) the outstanding
principal and accrued interest on certain outstanding debt of the MSV Joint
Venture and (ii) the accrued interest on all outstanding convertible notes of
the MSV Joint Venture, including the convertible notes held by the MSV
Investors Subsidiary. Such principal and accrued interest totaled approximately
$39.1 million following the April 2, 2004 exercise of the option held by the
certain Other MSV Investors and will need to increase thereafter by an amount
equal to the additional interest accrued on the certain outstanding debt and
convertible notes. Any additional equity investments used to repay these
obligations must be made at a valuation of the MSV Joint Venture equal to or
greater than the valuation at the time the MSV Investors Subsidiary purchased
the notes. Currently, the MSV Investors Subsidiary owns, upon conversion,
approximately 27.4% of the equity interests in the MSV Joint Venture.

     The $10.2 million received from unaffiliated persons as an investment into
the MSV Investors Subsidiary, as well as their share of the equity in earnings
of the MSV Investors Subsidiary, is reflected in the accompanying consolidated
financial statements as minority interest.

(4)  Business Transactions

     (a) Verestar Transactions

     In August 2003, the Company signed a securities purchase agreement to
acquire, through a newly formed subsidiary, approximately 66.7% (on a
fully-diluted basis) of Verestar. Concurrent with the signing of the securities
purchase agreement, the Company purchased a 10% senior secured note with a
principal balance of $2.5 million and a due date of August 2007. The Company
terminated the securities purchase agreement on December 22, 2003.
Subsequently, Verestar filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code.

     In March 2004, the Company executed an asset purchase agreement to
acquire, through a newly formed subsidiary, substantially all of the assets and
business of Verestar pursuant to Section 363 of the Bankruptcy Code. The
transaction was subject to a number of contingencies, including an auction on
March 30, 2004 at which Verestar considered higher and better offers. At the
auction, a bid was accepted from a strategic buyer at a price higher than the
Company was willing to offer.

     In April 2004, Verestar paid the Company approximately $2.9 million
representing the $2.5 million outstanding principal amount of the senior
secured note and approximately $0.4 million representing certain other amounts
owed to the Company and/or one of its subsidiaries.

     In connection with the termination of the August 2003 securities purchase
agreement on December 22, 2003, the Company believes that it is entitled to a
$3.5 million break up fee and potentially certain other damages from Verestar's
parent company. Verestar's parent company has not agreed that all such amounts
are due, and the Company is currently in discussions to resolve the issue (see
Note 9).

     (b) Interest in Miraxis

     In May 2002, the Company acquired Series B Preferred Shares and a warrant
from Miraxis for approximately $0.4 million, representing an ownership of
approximately 30%. Miraxis is a development stage, privately held
telecommunications company that has access to a Ka-band license with which it
intends to provide satellite based multi-channel, broadband data and video
services in North America. The Company has the right to appoint two of the five
directors of the manager of Miraxis. Additionally, the Company entered into a
management support agreement with Miraxis under which the Company's current
Chief Executive Officer and President provided certain services to Miraxis
through February 2003 in exchange for additional Series B Preferred Shares and
warrants being issued to the Company. In addition, in December 2002, the
Company acquired Series C Preferred Shares and warrants from Miraxis for
approximately $0.1 million.

     In February 2003, the Company entered into a consulting agreement with
Miraxis pursuant to which Miraxis personnel provided services to the Company
through May 2003. In addition, Miraxis extended the management support
agreement whereby the Company's current Chief Executive Officer and President
continued to provide certain services to Miraxis through May 2003. In
connection with these agreements, the Company paid Miraxis approximately
$40,000 but also received additional Series C Preferred Shares and warrants.

     In April 2003, the Company acquired additional Series C Preferred Shares
and warrants for approximately $40,000. Between June 2003 and September 2003,
the Company purchased promissory notes from Miraxis with an aggregate principal
amount of approximately $0.1 million. In November 2003, the promissory notes
were converted to Series D Preferred Shares. In 2004 through the date hereof,
the Company purchased additional promissory notes with an aggregate principal
balance of approximately $0.1 million. Currently, the Company holds
approximately 40% of the ownership interests of Miraxis. The Company's
President and Chief Executive Officer currently holds an approximate 1%
interest in Miraxis.

     Miraxis License Holdings, LLC ("MLH"), an entity unaffiliated with
Miraxis, other than as described herein, holds the rights to certain orbital
slots that Miraxis has acquired access to in order to implement its business
plan. Miraxis issued 10% of its outstanding common equity on a fully diluted
basis to MLH as partial consideration for access to those slots. In addition,
Miraxis expects to pay certain royalties to MLH for use of the slots should it
ever launch satellites. Prior to becoming affiliated with the Company, its
Chief Executive Officer and President acquired a 2% interest in MLH. In
addition, prior to the Company acquiring an interest in Miraxis, an affiliate
of the Company's preferred stockholders acquired an approximate 70% interest in
MLH.

     In accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 46R, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" ("FIN No. 46R"), beginning January 1, 2004, the
operating results and financial position of Miraxis have been included in the
consolidated financial statements. Prior to January 1, 2004, this investment
was included in "Investments in Affiliates" on the accompanying consolidated
balance sheets and was accounted for under the equity method with the Company's
share of Miraxis' loss being recorded in "Loss on Investments in Affiliates" on
the accompanying consolidated statements of operations. The consolidation of
Miraxis did not have a material impact on the Company's operating results or
financial position.

     (c) Interest in Navigauge

     In April 2003, the Company acquired Series B Preferred Shares from IQStat,
now doing business as Navigauge, for approximately $0.3 million, representing
an ownership interest of approximately 5%. Navigauge is a privately held media
and marketing research firm that collects data on in-car radio usage and
driving habits of consumers and markets the aggregate date to radio
broadcasters, advertisers and advertising agencies in the United States.

     In connection with the acquisition of ESP in August 2003, the Company
obtained indirect ownership of Series A Preferred Shares representing an
additional 16% ownership interest in Navigauge. In December 2003, the Company
acquired additional Series B Preferred Shares and warrants for approximately
$0.1 million. In 2004 through the date hereof, the Company acquired additional
Series B Preferred Shares and warrants from Navigauge for approximately $0.5
million. Furthermore, in April 2004 and May 2004, the Company purchased
short-term promissory notes from Navigauge with an aggregate principal amount
of approximately $0.3 million. Currently, the Company owns approximately 25% of
the outstanding equity of Navigauge.

     This investment is included in "Investments in Affiliates" on the
accompanying consolidated balance sheets and is being accounted for under the
equity method with the Company's share of Navigauge's loss being recorded in
"Loss on Investments in Affiliates" on the accompanying consolidated statements
of operations.

(5)  Note Receivable from Motient

     On May 1, 2002, to mitigate the risk, uncertainties and expenses
associated with Motient's plan of reorganization, the Company cancelled the
outstanding amounts due under the original promissory notes issued by Motient
and accepted a new note in the principal amount of $19.0 million (the "New
Motient Note") that was issued by a new, wholly-owned subsidiary of Motient
that owns 100% of Motient's interests in the MSV Joint Venture ("MSV Holdings
Inc."). The New Motient Note is due on May 1, 2005 and bears interest at a rate
of 9% per annum. Although the New Motient Note is unsecured, there are material
restrictions placed on MSV Holdings Inc.'s assets, and MSV Holdings Inc. is
prohibited from incurring or guarantying any debt in excess of $21.0 million
(including the New Motient Note). Additionally, there are events of default
(e.g., a bankruptcy filing by Motient) that would accelerate the due date of
the New Motient Note. In April 2004, Motient paid approximately $0.5 million of
interest accrued on the New Motient Note. This amount has been reflected in the
accompanying consolidated statement of operations as interest income and in the
accompanying consolidated balance sheets in prepaid expenses and other current
assets. As a result of the uncertainty with respect to the ultimate collection
on the remaining amounts due on the New Motient Note, a reserve continues to be
maintained for the entire principal amount of the note and unpaid interest
accrued thereon (see Note 9).

(6)  Stock Option Plans

     The Company accounts for its stock option plan in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which allows
entities to continue to apply the provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25"), as clarified by FASB
Interpretation No. 44, "Accounting For Certain Transactions Involving Stock
Compensation," and provides pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method, as defined in SFAS No. 123, had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure required by SFAS No. 123.

     APB Opinion No. 25 does not require the recognition of compensation
expense for stock options granted to employees at fair market value. However,
any modification to previously granted awards generally results in compensation
expense or contra-expense recognition using the cumulative expense method,
calculated based on quoted prices of the Company's common stock and vesting
schedules of underlying awards. As a result of the re-pricing of certain stock
options, for the three months ended March 31, 2004 and 2003, the Company
recognized compensation expense of approximately $0.3 million and $7,000,
respectively.

     The following table provides a reconciliation of net loss to pro forma net
loss as if the fair value method had been applied to all awards:

<TABLE>
<CAPTION>

                                                                               Three Months Ended March 31,
                                                                              --------------------------------
                                                                                   2004              2003
                                                                              ---------------    -------------
<S>                                                                                      <C>           <C>
Net income (loss), as reported                                                           $36           $(269)
Add:  Stock-based compensation expense, as reported                                      263               7
Deduct:  Total stock-based compensation expense determined under fair value
   based method for all awards                                                           (65)           (159)
                                                                              ---------------    -------------
Pro forma net income (loss)                                                             $234           $(421)
                                                                              ===============    =============

Basic and diluted net loss attributable to common stockholders per share
   As reported                                                                        $(0.16)         $(0.17)
   Pro forma                                                                          $(0.15)         $(0.18)
</TABLE>

     For the three months ended March 31, 2004, the Company issued options to
purchase 145,000 shares of common stock at a weighted average fair value of
$1.77 using the Black-Scholes option pricing model. No stock options were
issued during the three months ended March 31, 2003.

(7)  Discontinued Operations

     From 1998 through the third quarter of 2001, the Company's principal
business was conducted through Rare Medium, Inc., which developed Internet
e-commerce strategies, business processes, marketing communications, branding
strategies and interactive content using Internet-based technologies and
solutions. As a result of the weakening of general economic conditions that
caused many companies to reduce spending on Internet-focused business solutions
and in light of their performance and prospects, a decision to discontinue Rare
Medium, Inc.'s operations, along with those of its LiveMarket, Inc. subsidiary
("LiveMarket"), was made at the end of the third quarter of 2001. As of March
31, 2004, cash of approximately $32,000 (excluding the $0.3 million of cash
collateralizing a letter of credit) was the remaining asset of Rare Medium,
Inc. and LiveMarket. The liabilities of these subsidiaries totaled
approximately $2.3 million, consisting of accounts payable and accrued
expenses. Included in the total liabilities of these subsidiaries is $1.0
million related to a lease obligation which is guaranteed by the Company. The
total maximum potential liability of this guarantee is $3.4 million, subject to
certain defenses by the Company. Rare Medium, Inc. holds $0.3 million of cash
in a certificate of deposit which is maintained as collateral for a letter of
credit supporting the lease obligation. For the three months ended March 31,
2004 and 2003, the Company recognized a gain of nil and approximately $0.5
million, respectively, as a result of the settlement of Rare Medium, Inc.
liabilities at amounts less than their recorded amounts.

(8)  Related Party Transactions

     During the three months ended March 31, 2004, ESP recognized revenues
totaling approximately $0.4 million for certain services provided to Navigauge
and the MSV Joint Venture.

(9) Contingencies

    Motient Note Receivable

     On May 1, 2002, to mitigate the risk, uncertainties and expenses
associated with Motient's plan of reorganization, the Company cancelled the
outstanding amounts due under the original promissory notes issued by Motient
and accepted a new note in the principal amount of $19.0 million (the "New
Motient Note") that was issued by a new, wholly-owned subsidiary of Motient
that owns 100% of Motient's interests in the MSV Joint Venture ("MSV Holdings
Inc."). The New Motient Note is due on May 1, 2005 and bears interest at a rate
of 9% per annum. Although the New Motient Note is unsecured, there are material
restrictions placed on MSV Holdings Inc.'s assets, and MSV Holdings Inc. is
prohibited from incurring or guarantying any debt in excess of $21.0 million
(including the New Motient Note). Additionally, there are events of default
(e.g., a bankruptcy filing by Motient) that would accelerate the due date of
the New Motient Note. In April 2004, Motient paid approximately $0.5 million of
interest accrued on the New Motient Note. This amount has been reflected in the
accompanying consolidated statement of operations as interest income and in the
accompanying consolidated balance sheets in prepaid expenses and other current
assets. As a result of the uncertainty with respect to the ultimate collection
on the remaining amounts due on the New Motient Note, a reserve continues to be
maintained for the entire principal amount of the note and unpaid interest
accrued thereon. If the Company recovers any amount on the principal of the New
Motient Note, adjustments to the reserve would be reflected as other income in
the accompanying consolidated statements of operations.

   Verestar Transactions

     On August 29, 2003, we signed a securities purchase agreement to acquire,
through a newly formed subsidiary, approximately 66.7% (on a fully-diluted
basis) of Verestar. Concurrent with the signing of the securities purchase
agreement, we purchased a 10% senior secured note with a principal balance of
$2.5 million and a due date of August 2007. We terminated the securities
purchase agreement on December 22, 2003. Subsequently, Verestar filed for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. In
connection with the Verestar bankruptcy, we entered into a stipulation with
Verestar under which the parties agreed to, among other things, the validity
and enforcement of the obligation under the senior secured note and the
Company's security interest in Verestar's assets. The bankruptcy court approved
the stipulation on February 9, 2004. On March 26, 2004, the Company entered a
consent order with the Creditors' Committee pursuant to which the Creditors'
Committee stipulated to the allowance of the $2.5 million secured claim on the
senior secured note. On April 30, 2004, Verestar repaid the $2.5 million
principal amount of the senior secured note. The Company also stipulated to
extend until June 16, 2004, the time in which the Creditors' Committee could
object to certain additional claims of the Company under the note.

     In connection with our termination of the securities purchase agreement on
December 22, 2003, the Company believes that it is entitled to a $3.5 million
break up fee and potentially certain other damages from Verestar's parent
company. Verestar's parent company has not agreed that all such amounts are
due, and the Company is currently in discussions to resolve the issue. There
can be no assurance that the Company will be successful in collecting all or
part of the amount claimed. As such, we have not reflected this contingency in
our consolidated financial statements. However, if the Company is successful in
collecting any amount on this claim, a gain would be reflected in the
accompanying consolidated statements of operations.

   MSV Joint Venture Convertible Notes Receivable

     As of March 31, 2004, the carrying value of the convertible notes from the
MSV Joint Venture approximates fair value based on recent funding transactions.
The MSV Joint Venture plans, subject to the receipt of certain FCC
authorizations and Industry Canada approvals and raising adequate capital
and/or entering into agreements with one or more strategic partners, to
develop, build and operate a next-generation satellite system complemented by
ATC. If the FCC authorization for the MSV Joint Venture to operate an ATC is
not received, the MSV Joint Venture's business will be limited, and the value
of the Company's interest in the MSV Joint Venture may be significantly
impaired.

   Litigation

     On November 19, 2001, five of the Company's shareholders filed a complaint
against the Company, certain of its subsidiaries and certain of the current and
former officers and directors in the United States District Court for the
Southern District of New York, Dovitz v. Rare Medium Group, Inc. et al., No. 01
Civ. 10196. Plaintiffs became owners of restricted Company stock when they sold
the company that they owned to the Company. Plaintiffs assert the following
four claims against defendants: (1) common-law fraud; (2) violation of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder; (3) violation of the Michigan Securities Act; and (4) breach of
fiduciary duty. These claims arise out of alleged representations by defendants
to induce plaintiffs to enter into the transaction. The complaint seeks
compensatory damages of approximately $5.6 million, exemplary and/or punitive
damages in the same amount, as well as attorney fees. On January 25, 2002, the
Company filed a motion to dismiss the complaint in its entirety. On June 3,
2002, the Court dismissed the matter without prejudice. On or about July 17,
2002, the plaintiffs filed an amended complaint asserting similar causes of
action to those asserted in the original complaint. On September 12, 2002, the
Company filed a motion to dismiss on behalf of itself and its current and
former officers and directors. On March 7, 2003, the Court denied the motion to
dismiss, and discovery commenced. The Company expects to file and complete
briefing on a motion for summary judgment in the third quarter of 2004. The
Company intends to continue to dispute this matter vigorously.

     The Company and certain of its subsidiaries (along with the Engelhard
Corporation) are parties to an arbitration relating to certain agreements that
existed between or among the claimant and ICC Technologies, Inc., the Company's
former name, and the Engelhard/ICC ("E/ICC") joint venture arising from the
desiccant air conditioning business that the Company and its subsidiaries sold
in 1998. The claimant has sought $8.5 million for (1) its alleged out of pocket
losses in investing in certain of E/ICC's technology; (2) unjust enrichment
resulting from the reorganization of E/ICC in 1998; and (3) lost profits
arising from the fact that it was allegedly forced to leave the air
conditioning business when the E/ICC joint venture was dissolved. The Company
intends to vigorously dispute this action.

     On July 26, 2002, plaintiffs James D. Loeffelbein, Terrie L. Pham and
certain related parties filed suit against the lead plaintiff's counsel in the
class action lawsuit, the Company, certain of its current and former officers,
its former investor relations firm and a former employee of plaintiff
Loeffelbein in the District Court of Johnson County, Kansas, Loeffelbein v.
Milberg Weiss Bershad Hynes & Lerach, LLP, et al., 02 CV 04867. The plaintiffs
assert claims for fraud, negligence and breach of fiduciary duty against all of
the Company and certain of its current and former officers in connection with
allegedly false statements purportedly made to the plaintiffs. The plaintiffs
have sought unspecified damages from the defendants. On September 11, 2002, the
matter was removed to the United States District Court for the District of
Kansas (the "Federal District Court"). On October 11, 2002, the plaintiffs
sought to have the matter remanded to state court. On May 7, 2003, the Federal
District Court denied the plaintiffs request to remand the matter as it related
to the Company, the Company defendants and an additional defendant. On June 9,
2003, the Company and Company defendants filed a motion to dismiss. On August
4, 2003, the plaintiffs responded. On October 21, 2003, the Federal District
Court dismissed the action, holding that it lacked personal jurisdiction over
the Company and the Company defendants and, accordingly, found it unnecessary
to rule upon the Company's other bases for dismissal. On February 26, 2004, the
court denied a motion by the plaintiffs to reconsider the dismissal. On March
26, 2004, the plaintiffs filed a notice of appeal. The Company intends to
vigorously oppose this appeal.

     In August 2003, a former employee of the Company's discontinued services
subsidiary, filed a putative class action against Rare Medium, Inc. and the
Company, and certain other former subsidiaries that were merged into Rare
Medium, Inc., in Los Angeles County Superior Court captioned Joe Robuck,
individually and on behalf of all similarly situated individuals v. Rare Medium
Group, Inc., Rare Medium L.A., Inc., Rare Medium, Inc., and Rare Medium Dallas,
Inc., Los Angeles County Superior Court Case No. BC300310. The plaintiff filed
the action as a putative class action and putative representative action
asserting that: (i) certain payments were purportedly due and went unpaid for
overtime for employees with five job titles; (ii) certain related violations of
California's overtime statute were committed when these employees were not paid
such allegedly due and unpaid overtime at the time of their termination; and
(iii) certain related alleged violations of California's unfair competition
statute were committed. Plaintiff seeks to recover for himself and all of the
putative class, alleged unpaid overtime, waiting time penalties (which can be
up to 30 days' pay for each person not paid all wages due at the time of
termination), interest, attorneys' fees, costs and disgorgement of profits
garnered as a result of the alleged failure to pay overtime. Plaintiff has
served discovery requests and all of the defendants have submitted objections
and do not intend to provide substantive responses until the Court determines
whether Plaintiff must arbitrate his individual claims. The Company intends to
vigorously dispute this action.

     Though it intends to continue to vigorously contest each of the
aforementioned cases, the Company is unable to predict their respective
outcomes, or reasonably estimate a range of possible losses, if any, given the
current status of these cases. Additionally, from time to time, the Company is
subject to litigation in the normal course of business. The Company is of the
opinion that, based on information presently available, the resolution of any
such additional legal matters will not have a material adverse effect on the
Company's financial position or results of its operations.

(10)  Subsequent Events

     On April 19, 2004, the Company signed an agreement to acquire 80% of the
outstanding membership interests of AfriHUB for an aggregate purchase price of
$1.5 million. Through exclusive partnerships with certain Nigerian based
universities, AfriHUB intends to provide satellite based broadband Internet
access, domestic and international calling services, and a combination of
instructor led and distance based technical training. The Company's investment
is payable in three tranches based upon progress made by AfriHUB against its
business plan. As of the date hereof, the Company has purchased $0.5 million of
membership interests from AfriHUB. Our ownership interest is subject to
dilution if AfriHUB meets certain operating and financial metrics.

     On April 30, 2004, Verestar paid the Company approximately $2.9 million
representing the $2.5 million outstanding principal amount of the senior
secured note and approximately $0.4 million representing certain other amounts
owed to the Company and/or one of its subsidiaries.

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

     This report contains 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 that involve risks and uncertainties, including statements
regarding our capital needs, business strategy, expectations and intentions. We
urge you to consider that statements that use the terms "believe," "do not
believe," "anticipate," "expect," "plan," "estimate," "intend" and similar
expressions are intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and because
our business is subject to numerous risks, uncertainties and risk factors, our
actual results could differ materially from those anticipated in the
forward-looking statements, including those set forth below under this "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this report. Actual results will most likely
differ from those reflected in these statements, and the differences could be
substantial. We disclaim any obligation to publicly update these statements, or
disclose any difference between our actual results and those reflected in these
statements. The information constitutes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.

Overview

     We operate our business through a group of complementary companies in the
telecommunications industry, including the MSV Joint Venture, ESP, IQStat (now
doing business as Navigauge) and Miraxis. Consistent with this strategy, in
April 2004, we acquired a majority interest in AfriHUB LLC ("AfriHUB"). AfriHUB
intends to provide satellite based broadband Internet access and domestic and
international calling services to the African continent with a particular focus
on the Nigerian market.

     On April 19, 2004, we signed an agreement to acquire 80% of the
outstanding membership interests of AfriHUB for an aggregate purchase price of
$1.5 million. Our ownership interest is subject to dilution if AfriHUB meets
certain operating and financial metrics. Through exclusive partnerships with
certain Nigerian based universities, AfriHUB intends to provide satellite based
broadband Internet access, domestic and international calling services, and a
combination of instructor led and distance based technical training. The first
two campus facilities are expected to be operational by the third quarter of
2004.

     On August 29, 2003, we signed a securities purchase agreement to acquire,
through a newly formed subsidiary, approximately 66.7% (on a fully-diluted
basis) of Verestar. Concurrent with the signing of the securities purchase
agreement, we purchased a 10% senior secured note with a principal balance of
$2.5 million and a due date of August 2007. We terminated the securities
purchase agreement on December 22, 2003. Subsequently, Verestar filed for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.

     On March 8, 2004, we executed an asset purchase agreement to acquire,
through a newly formed subsidiary, substantially all of the assets and business
of Verestar pursuant to Section 363 of the Bankruptcy Code. The transaction was
subject to a number of contingencies, including an auction on March 30, 2004 at
which Verestar considered higher and better offers. At the auction, a bid was
accepted from a strategic buyer at a price higher than we were willing to
offer.

     We continue to evaluate a number of other business opportunities and are
currently engaged in a number of separate and unrelated preliminary discussions
concerning possible joint ventures and other transactions. We are in the early
stages of such discussions and have not entered into any definitive agreements
with respect to any material transaction, other than what has been described in
this Form 10-Q. Prior to consummating any transaction, we will have to, among
other things, initiate and satisfactorily complete a due diligence
investigation, negotiate the financial and other terms (including price) and
conditions of such transaction, obtain appropriate board of directors',
regulatory and other necessary consents and approvals and secure financing, to
the extent deemed necessary.

     As a result of the decision to discontinue the operations of Rare Medium,
Inc. and its subsidiary LiveMarket, the results of operations of these
businesses have been accounted for as discontinued operations. Accordingly, our
discussion in the section entitled "Results of Operations" focuses on our
continuing operations and includes our results and those of our MSV Investors
Subsidiary, ESP and Miraxis. As we acquired a controlling interest in AfriHUB
in April 2004, we will include the operating results of AfriHUB in our
consolidated statements of operations beginning in the second quarter of 2004.

Results of Operations for the Three Months Ended March 31, 2004 Compared to
the Three Months Ended March 31, 2003

   Revenues

     Revenues are derived from fees generated for product development,
consulting and engineering services performed by ESP, including reimbursable
travel and other out-of-pocket expenses, and the sales of its electronic
database of parts commonly used in printed circuit design. Revenues from
contracts for services that ESP provides its clients are recognized on a
time-and-materials or on a percentage-of-completion basis. Revenues from
time-and-materials service contracts are recognized as the services are
provided. For service contracts where revenue is recognized under the
percentage-of-completion basis, revenues recognized in excess of billings would
be recorded as work in progress on the accompanying balance sheet. Billings in
excess of revenues recognized are recorded as deferred revenue. Losses on
contracts are recognized during the period in which the loss first becomes
probable and reasonably estimable. Contract losses are determined to be the
amount by which the estimated costs of the contract exceed the estimated total
revenues that will be generated by the contract.

     Revenues for the three months ended March 31, 2004 increased to $0.8
million from nil for the three months ended March 31, 2003, an increase of $0.8
million. This increase was due to the acquisition of ESP on August 25, 2003. In
future periods, we expect to report an increase in revenues as AfriHUB expects
to begin offering its services on two university campuses in Nigeria by the
third quarter of 2004.

   Cost of Revenues

     Cost of revenues includes the salaries and related employee benefits for
ESP employees that provide billable product development, consulting and
engineering services, as well as the cost of reimbursable expenses. Cost of
revenues for the three months ended March 31, 2004 increased to $0.7 million
from nil for the three months ended March 31, 2003, an increase of $0.7
million. This increase was due to the acquisition of ESP on August 25, 2003. In
future periods, we expect to report an increase in cost of revenues as AfriHUB
expects to begin offering its services on two university campuses in Nigeria by
the third quarter of 2004.

   Selling, General and Administrative Expense

     Selling, general and administrative expense includes facilities costs,
finance, legal and other corporate costs, as well as the salaries and related
employee benefits for those employees that support such functions. Selling,
general and administrative expense for the three months ended March 31, 2004
decreased to $1.8 million from $1.9 million for the three months ended March
31, 2003, a decrease of $0.1 million. This decrease was primarily related to
the approximately $0.6 million charge recognized in the three months ended
March 31, 2003 relating to bonuses for certain executive officers for services
provided during the year ended December 31, 2002 and the severance and benefits
for the Company's former Controller and former Treasurer, partially offset by
the $0.3 million of expenses incurred by ESP in the three months ended March
31, 2004. Furthermore, we recognized approximately $0.3 million and $7,000 of
non-cash compensation expense in the three months ended March 31, 2004 and
2003, respectively, relating to the re-pricing of certain stock options in 2001
and 2002. As these costs relate to our current operations, including ESP and
AfriHUB, we expect our selling, general and administrative expense, excluding
any non-cash compensation expense arising from fluctuations in the price of our
common stock in association with the repricing of certain stock options in 2001
and 2002, to increase in future periods as AfriHUB continues to build its
business.

   Depreciation and Amortization Expense

     Depreciation and amortization expense consists of the depreciation of
property and equipment and the amortization of the financing costs associated
with the issuance of our Series A convertible preferred stock. Depreciation and
amortization expense for the three months ended March 31, 2004 increased to
approximately $15,000 from approximately $7,000 for the three months ended
March 31, 2003, an increase of approximately $8,000. This increase is primarily
the result of the depreciation of ESP's property and equipment after the August
2003 acquisition. We expect depreciation and amortization expense to increase
in future periods as AfriHUB builds the network infrastructure necessary for it
to launch its service.

   Interest Income, Net

     Interest income, net for the three months ended March 31, 2004 is mainly
comprised of the interest earned on our cash, cash equivalents, and short-term
investments and on our notes receivable from the MSV Joint Venture, Verestar
and Motient. As a result of the uncertainty with respect to the ultimate
collection of amounts due under the New Motient Note, interest income is
recognized as payments are received.

   Loss on Investment in Affiliates

     For the three months ended March 31, 2004, we recorded a loss on
investments in affiliates of approximately $0.2 million relating to our
proportionate share of Navigauge's operating loss. For the three months ended
March 31, 2003, we recorded a loss on investments in affiliates of
approximately $0.1 million for our proportionate share of Miraxis' operating
loss. We will continue to monitor the carrying value of our remaining
investments in affiliates.

   Minority Interest

     For each of the three months ended March 31, 2004 and 2003, we recorded
minority interest of approximately $0.3 million relating to the equity in
earnings, primarily the interest income earned on the convertible notes from
the MSV Joint Venture, which is attributable to the group of unaffiliated third
parties who invested approximately $10.2 million in our MSV Investors
Subsidiary.

   Gain from Discontinued Operations

     At the end of the third quarter of 2001, a decision to discontinue the
operations of Rare Medium, Inc. and its LiveMarket subsidiary was made in light
of their performance and prospects. For the three months ended March 31, 2004
and 2003, we recognized a gain of nil and $0.5 million, respectively, as a
result of the settlement of Rare Medium, Inc. liabilities at amounts less than
their recorded amounts.

   Net Loss Attributable to Common Stockholders

     For the three months ended March 31, 2004, we recorded a net loss
attributable to common stockholders of approximately $2.4 million. The loss was
due primarily to the $2.5 million of non-cash deemed dividends and accretion
related to the issuance of our Series A convertible preferred stock. Dividends
were accrued related to the pay-in-kind dividends payable quarterly on Series A
convertible preferred stock and to the accretion of the carrying amount of the
Series A convertible preferred stock up to its $100 per share face redemption
amount over 13 years.

Liquidity and Capital Resources

     We had $26.2 million in cash, cash equivalents and short-term investments
as of March 31, 2004. Cash used in operating activities from continuing
operations was $2.2 million for the three months ended March 31, 2004 and
resulted primarily from cash used for general corporate overhead including
payroll and professional fees. We expect cash used in continuing operations to
increase in future periods as AfriHUB launches its service. Cash used by
discontinued operations was $18,000 for the three months ended March 31, 2004
and resulted from cash used for settlement of vendor liabilities and legal and
advisory fees.

     For the three months ended March 31, 2004, cash used in investing
activities, excluding purchases and sales of short-term investments, consisted
primarily of the $0.3 million used to purchase investments in Navigauge. Other
than our agreements with ESP and AfriHUB as described below, we do not have any
future funding commitments with respect to any of our investments. However, we
expect that the MSV Joint Venture, Miraxis, and Navigauge will require
additional funding from time to time, and we may choose to provide additional
funding, subject to our liquidity and capital resources at the time.

   Motient Promissory Note

     On May 1, 2002, to mitigate the risk, uncertainties and expenses
associated with Motient's plan of reorganization, we cancelled the outstanding
amounts due under the original promissory notes issued by Motient and accepted
a new note in the principal amount of $19.0 million that was issued by MSV
Holding, Inc., a new, wholly-owned subsidiary of Motient that owns 100% of
Motient's interests in the MSV Joint Venture. The New Motient Note is due on
May 1, 2005 and bears interest at a rate of 9% per annum. Although the New
Motient Note is unsecured, there are material restrictions placed on the use of
MSV Holdings Inc.'s assets, and MSV Holdings Inc. is prohibited from incurring
or guarantying any debt in excess of $21.0 million (including the New Motient
Note). Additionally, there are events of default (e.g., a bankruptcy filing by
Motient) that would accelerate the due date of the New Motient Note. In April
2004, Motient paid approximately $0.5 million of interest accrued on the New
Motient Note. This amount has been reflected in the accompanying consolidated
statement of operations as interest income and in the accompanying consolidated
balance sheets as prepaid expenses and other current assets. As a result of the
uncertainty with respect to the ultimate collection on the remaining amounts
due on the New Motient Note, a reserve continues to be maintained for the
entire principal amount of the note and unpaid interest accrued thereon. If the
Company recovers any amount on the principal of the New Motient Note,
adjustments to the reserve would be reflected as other income in the
accompanying consolidated statements of operations.

   MSV Joint Venture Convertible Notes Receivable

     Through our 80% owned MSV Investors Subsidiary, we are an active
participant in the MSV Joint Venture, a joint venture that also includes TMI
Communications, Inc., Motient and the Other MSV Investors. The MSV Joint
Venture is currently a provider of mobile digital voice and data communications
services via satellite in North America. On November 26, 2001, through our MSV
Investors Subsidiary, we purchased a $50.0 million interest in the MSV Joint
Venture in the form of a convertible note. Immediately prior to the purchase of
the convertible note, we contributed $40.0 million to the MSV Investors
Subsidiary and a group of unaffiliated third parties collectively contributed
$10.0 million. The note bears interest at a rate of 10% per year, has a
maturity date of November 26, 2006, and is convertible at any time at the
option of our MSV Investors Subsidiary into equity interests in the MSV Joint
Venture.

     On August 13, 2002, the MSV Joint Venture completed a rights offering
allowing its investors to purchase their pro rata share of an aggregate $3.0
million of newly issued convertible notes with terms similar to the convertible
note already held by our MSV Investors Subsidiary. The MSV Investors Subsidiary
exercised its basic and over subscription rights and purchased approximately
$1.1 million of the convertible notes. The group of unaffiliated third parties
collectively contributed $0.2 million to the MSV Investors Subsidiary in
connection with the MSV Joint Venture rights offering.

     Pursuant to the MSV Joint Venture Agreement, in the event that the MSV
Joint Venture had received final regulatory approval from the FCC, as that
phrase is defined in the MSV Joint Venture Agreement, by March 31, 2003 for its
ATC applications, the Other MSV Investors would have been obligated to invest
an additional $50.0 million in the MSV Joint Venture. As the final regulatory
approval from the FCC, as defined in the MSV Joint Venture Agreement, was not
received by March 31, 2003, the additional investment was not required.
However, the Other MSV Investors retained the option to invest the $50.0
million on the same terms and conditions until June 30, 2003. Prior to its
expiration, the option was extended until August 2003. On August 8, 2003, the
MSV Joint Venture Agreement was amended and certain of the Other MSV Investors
agreed to invest $3.7 million in the MSV Joint Venture and retained the option
to invest an additional $17.6 million under certain terms and conditions. On
April 2, 2004, those certain Other MSV Investors exercised the option in full.

     Under the amended MSV Joint Venture Agreement, the convertible notes held
by our MSV Investors Subsidiary will automatically convert into equity
interests in the MSV Joint Venture upon the repayment of (i) the outstanding
principal and accrued interest on certain outstanding debt of the MSV Joint
Venture and (ii) the accrued interest on all outstanding convertible notes of
the MSV Joint Venture, including the convertible notes held by the MSV
Investors Subsidiary. Such principal and accrued interest totaled approximately
$39.1 million following the April 2, 2004 exercise of the option held by the
certain Other MSV Investors and will need to increase thereafter by an amount
equal to the additional interest accrued on the certain outstanding debt and
convertible notes. Any additional equity investments used to repay these
obligations must be made at a valuation of the MSV Joint Venture equal to or
greater than the valuation at the time the MSV Investors Subsidiary purchased
the notes. Currently, the MSV Investors Subsidiary owns, upon conversion,
approximately 27.4% of the equity interests in the MSV Joint Venture.

     The fair value of the convertible notes approximates book value based on
the equity value of the MSV Joint Venture's recent funding transactions
assuming conversion of such note.

   Verestar Transactions

     On August 29, 2003, we signed a securities purchase agreement to acquire,
through a newly formed subsidiary, approximately 66.7% (on a fully-diluted
basis) of Verestar. Concurrent with the signing of the securities purchase
agreement, we purchased a 10% senior secured note with a principal balance of
$2.5 million and a due date of August 2007. We terminated the securities
purchase agreement on December 22, 2003. Subsequently, Verestar filed for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. In
connection with the Verestar bankruptcy, we entered into a stipulation with
Verestar under which the parties agreed to, among other things, the validity
and enforcement of the obligation under the senior secured note and the
Company's security interest in Verestar's assets. The bankruptcy court approved
the stipulation on February 9, 2004. On March 26, 2004, we entered a consent
order with the Creditors' Committee pursuant to which the Creditors' Committee
stipulated to the allowance of the $2.5 million secured claim on our senior
secured note. The Company also stipulated to extend until June 16, 2004, the
time in which the Creditors' Committee could object to certain additional
claims of the Company under the note. On April 30, 2004, Verestar repaid the
$2.5 million principal amount of the senior secured note, along with an
additional approximately $0.4 million representing certain other amounts owed
to the Company and/or one of its subsidiaries.

     On March 8, 2004, we executed an agreement to acquire, through a newly
formed subsidiary, substantially all of the assets and business of Verestar
pursuant to Section 363 of the Bankruptcy Code. The transaction was subject to
a number of contingencies, including an auction on March 30, 2004 at which
Verestar considered higher and better offers. At the auction, a bid was
accepted from a strategic buyer at a price higher than we were willing to
offer. The Company continues to pursue certain amounts owed under that
agreement.

     In connection with our termination of the August 29, 2003 securities
purchase agreement on December 22, 2003, we believe that we are entitled to a
$3.5 million break up fee and potentially certain other damages from Verestar's
parent company. Verestar's parent company has not agreed that all such amounts
are due, and we are currently in discussions to resolve the issue. There can be
no assurance that we will be successful in collecting all or part of the amount
claimed. As such, we have not reflected this contingency in our consolidated
financial statements. However, if we are successful in collecting any amount on
this claim, a gain would be reflected in our consolidated statements of
operations.

   ESP Senior Secured Promissory Notes

     On August 25, 2003, for nominal consideration, we acquired all of the
outstanding common stock of ESP, a product development and engineering services
firm that creates products for and provides consulting and engineering services
to the telecommunications, broadband, satellite communications, and wireless
industries. Subsequent to the stock purchase, we agreed to purchase up to $0.8
million of senior secured promissory notes from ESP and up to an additional
$0.6 million of senior secured promissory notes if ESP meets certain financial
performance metrics. As of March 31, 2004, we purchased approximately $1.2
million in aggregate principal of these senior secured notes.

   AfriHUB Commitment

     On April 19, 2004, we signed an agreement to acquire 80% of the
outstanding membership interests of AfriHUB for an aggregate purchase price of
of $1.5 million. Through exclusive partnerships with certain Nigerian based
universities, AfriHUB intends to provide satellite based broadband Internet
access, domestic and international calling services, and a combination of
instructor led and distance based technical training. Our investment is payable
in three tranches based upon progress made by AfriHUB against its business
plan. As of the date hereof, we have purchased $0.5 million of membership
interests from AfriHUB. If AfriHUB meets the remaining funding milestones, we
would purchase the remaining $1.0 million of membership interests by the end of
the second quarter of 2004. Our ownership interest is subject to dilution if
AfriHUB meets certain operating and financial metrics.

Recently Issued Accounting Standards

     In December 2003, the FASB issued Interpretation No. 46R, "Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN No.
46R"). FIN No. 46R provides clarification on the consolidation of certain
entities that do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other
parties or in which equity investors do not have certain characteristics of a
controlling financial interest ("variable interest entities" or "VIEs"). FIN
No. 46R requires that VIEs be consolidated by the entity considered to be the
primary beneficiary of the VIE and is effective immediately for VIEs created
after January 31, 2003 and in the first fiscal year or interim period beginning
after December 15, 2003 for any VIEs created prior to January 31, 2003. In
accordance with FIN No. 46R, we have included the operating results and
financial position of Miraxis in our consolidated financial statements. The
consolidation of Miraxis did not have a material impact on our operating
results or financial position.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     As of March 31, 2004, we had $26.2 million of cash, cash equivalents and
short-term cash investments. These cash, cash equivalents and short-term cash
investments are subject to market risk due to changes in interest rates. In
accordance with our investment policy, we diversify our investments among
United States Treasury securities and other high credit quality debt
instruments that we believe to be low risk. We are averse to principal loss and
seek to preserve our invested funds by limiting default risk and market risk.

Item 4.  Controls and Procedures

   Disclosure Controls and Procedures

     Our management, with the participation of our chief executive officer and
principal accounting officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the period covered by this report. Based on such
evaluation, our chief executive officer and principal accounting officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by us in the reports
that we file or submit under the Exchange Act.

   Internal Control Over Financial Reporting

     There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.


                                    PART II
                               OTHER INFORMATION

Item 1.  Legal Proceedings

     On November 19, 2001, five of the Company's shareholders filed a complaint
against the Company, certain of its subsidiaries and certain of the current and
former officers and directors in the United States District Court for the
Southern District of New York, Dovitz v. Rare Medium Group, Inc. et al., No. 01
Civ. 10196. Plaintiffs became owners of restricted Company stock when they sold
the company that they owned to the Company. Plaintiffs assert the following
four claims against defendants: (1) common-law fraud; (2) violation of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder; (3) violation of the Michigan Securities Act; and (4) breach of
fiduciary duty. These claims arise out of alleged representations by defendants
to induce plaintiffs to enter into the transaction. The complaint seeks
compensatory damages of approximately $5.6 million, exemplary and/or punitive
damages in the same amount, as well as attorney fees. On January 25, 2002, the
Company filed a motion to dismiss the complaint in its entirety. On June 3,
2002, the Court dismissed the matter without prejudice. On or about July 17,
2002, the plaintiffs filed an amended complaint asserting similar causes of
action to those asserted in the original complaint. On September 12, 2002, the
Company filed a motion to dismiss on behalf of itself and its current and
former officers and directors. On March 7, 2003, the Court denied the motion to
dismiss, and discovery commenced. The Company expects to file and complete
briefing on a motion for summary judgment in the third quarter of 2004. The
Company intends to continue to dispute this matter vigorously.

     The Company and certain of its subsidiaries (along with the Engelhard
Corporation) are parties to an arbitration relating to certain agreements that
existed between or among the claimant and ICC Technologies, Inc., the Company's
former name, and the Engelhard/ICC ("E/ICC") joint venture arising from the
desiccant air conditioning business that the Company and its subsidiaries sold
in 1998. The claimant has sought $8.5 million for (1) its alleged out of pocket
losses in investing in certain of E/ICC's technology; (2) unjust enrichment
resulting from the reorganization of E/ICC in 1998; and (3) lost profits
arising from the fact that it was allegedly forced to leave the air
conditioning business when the E/ICC joint venture was dissolved. The Company
intends to vigorously dispute this action.

     On July 26, 2002, plaintiffs James D. Loeffelbein, Terrie L. Pham and
certain related parties filed suit against the lead plaintiff's counsel in the
class action lawsuit, the Company, certain of its current and former officers,
its former investor relations firm and a former employee of plaintiff
Loeffelbein in the District Court of Johnson County, Kansas, Loeffelbein v.
Milberg Weiss Bershad Hynes & Lerach, LLP, et al., 02 CV 04867. The plaintiffs
assert claims for fraud, negligence and breach of fiduciary duty against all of
the Company and certain of its current and former officers in connection with
allegedly false statements purportedly made to the plaintiffs. The plaintiffs
have sought unspecified damages from the defendants. On September 11, 2002, the
matter was removed to the United States District Court for the District of
Kansas (the "Federal District Court"). On October 11, 2002, the plaintiffs
sought to have the matter remanded to state court. On May 7, 2003, the Federal
District Court denied the plaintiffs request to remand the matter as it related
to the Company, the Company defendants and an additional defendant. On June 9,
2003, the Company and Company defendants filed a motion to dismiss. On August
4, 2003, the plaintiffs responded. On October 21, 2003, the Federal District
Court dismissed the action, holding that it lacked personal jurisdiction over
the Company and the Company defendants and, accordingly, found it unnecessary
to rule upon the Company's other bases for dismissal. On February 26, 2004, the
court denied a motion by the plaintiffs to reconsider the dismissal. On March
26, 2004, the plaintiffs filed a notice of appeal. The Company intends to
vigorously oppose this appeal.

     In August 2003, a former employee of the Company's discontinued services
subsidiary, filed a putative class action against Rare Medium, Inc. and the
Company, and certain other former subsidiaries that were merged into Rare
Medium, Inc., in Los Angeles County Superior Court captioned Joe Robuck,
individually and on behalf of all similarly situated individuals v. Rare Medium
Group, Inc., Rare Medium L.A., Inc., Rare Medium, Inc., and Rare Medium Dallas,
Inc., Los Angeles County Superior Court Case No. BC300310. The plaintiff filed
the action as a putative class action and putative representative action
asserting that: (i) certain payments were purportedly due and went unpaid for
overtime for employees with five job titles; (ii) certain related violations of
California's overtime statute were committed when these employees were not paid
such allegedly due and unpaid overtime at the time of their termination; and
(iii) certain related alleged violations of California's unfair competition
statute were committed. Plaintiff seeks to recover for himself and all of the
putative class, alleged unpaid overtime, waiting time penalties (which can be
up to 30 days' pay for each person not paid all wages due at the time of
termination), interest, attorneys' fees, costs and disgorgement of profits
garnered as a result of the alleged failure to pay overtime. Plaintiff has
served discovery requests and all of the defendants have submitted objections
and do not intend to provide substantive responses until the Court determines
whether Plaintiff must arbitrate his individual claims. The Company intends to
vigorously dispute this action.

Item 2.  Changes in Securities

   (a)   Not applicable
   (b)   Not applicable
   (c)   Not applicable
   (d)   Not applicable

Item 3.  Defaults Upon Senior Securities

     Not applicable

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

     None

Item 5.  Other Information

     None

Item 6.  Exhibits and Reports on Form 8-K

(a) The following sets forth those exhibits filed pursuant to Item 601 of
Regulation S-K:

Exhibit
 Number                            Description
-------                            -----------
  31.1      -  Certification of Jeffrey A. Leddy, Chief Executive Officer and
               President of SkyTerra Communications, Inc., required by Rule
               13a-14(a) of the Securities Exchange Act of 1934, as adopted
               pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.2      -  Certification of Craig J. Kaufmann, Controller and Treasurer of
               SkyTerra Communications, Inc., required by Rule 13a-14(a) of the
               Securities Exchange Act of 1934, as adopted pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

  32.1      -  Certification of Jeffrey A. Leddy, Chief Executive Officer a nd
               President of SkyTerra Communications, Inc., Pursuant to 18 U.S.C
               Section 1350, as adopted pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.

  32.2      -  Certification of Craig J. Kaufmann, Controller and Treasurer of
               SkyTerra Communications, Inc., Pursuant to 18 U.S.C Section
               1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
               Act of 2002.

(b)      The following sets forth the Company's reports on Form 8-K that have
         been filed during the quarter for which this report is filed:

         On March 9, 2004, the Company filed a report on Form 8-K announcing
         the execution of a purchase agreement (subject to certain
         contingencies) to acquire substantially all of the assets and business
         of Verestar, Inc.


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


Date:  May 17, 2004                    By: /s/ JEFFREY A. LEDDY
                                           ------------------------------------
                                           Jeffrey A. Leddy
                                           Chief Executive Officer and President
                                           (Principal Executive Officer and
                                           Principal Financial Officer)

Date:  May 17, 2004                    By: /s/ CRAIG J. KAUFMANN
                                           ------------------------------------
                                           Craig J. Kaufmann
                                           Controller and Treasurer
                                           (Principal Accounting Officer)