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 June 30, 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 August 13, 2004, 6,075,976 shares of the registrant's voting common stock
and 8,990,212 shares of the registrant's non-voting common stock were
outstanding.


<PAGE>



                                     INDEX

                                                                           Page
                                                                           ----

Part I.  FINANCIAL INFORMATION
Item 1.  Consolidated Financial Statements
     Consolidated Balance Sheets as of June 30, 2004
       (Unaudited) and December 31, 2003                                      2
     Unaudited Consolidated Statements of Operations - Three months
       and six months ended June 30, 2004 and 2003                            3
     Unaudited Consolidated Statements of Cash Flows -
       Six months ended June 30, 2004 and 2003                                4
     Notes to Unaudited Consolidated Financial Statements                     5
Item 2.  Management's Discussion and Analysis of Financial
     Condition and Results of Operations                                     14
Item 3.  Quantitative and Qualitative Disclosures About Market Risk          21
Item 4.  Controls and Procedures                                             21
Part II.  OTHER INFORMATION
Item 1.  Legal Proceedings                                                   22
Item 2.  Changes in Securities                                               23
Item 3.  Defaults Upon Senior Securities                                     23
Item 4.  Submission of Matters to a Vote of Security Holders                 23
Item 5.  Other Information                                                   23
Item 6.  Exhibits and Reports on Form 8-K                                    23
SIGNATURES                                                                   24





                                       1

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                         June 30,          December 31,
                                                                                           2004                2003
                                                                                      ----------------    ---------------
                                                                                        (Unaudited)
                                       Assets
Current assets:
<S>                                                                                            <C>                <C>
   Cash and cash equivalents                                                                   $9,408             $9,897
   Short-term investments                                                                      17,587             18,795
                                                                                      ----------------    ---------------
     Total cash, cash equivalents and short-term investments                                   26,995             28,692
   Accounts receivable, net                                                                       143                237
   Note receivable and accrued interest from Motient Corporation, net                          22,516                 --
   Note receivable from Verestar, Inc.                                                             --              2,500
   Prepaid expenses and other current assets                                                    2,481              1,048
                                                                                      ----------------    ---------------
     Total current assets                                                                      52,135             32,477

Property and equipment, net                                                                       207                 57
Notes receivable and accrued interest from Mobile Satellite Venture, L.P.                      65,788             62,638
Investments in affiliates                                                                       3,456              2,769
Other assets                                                                                      685                158
                                                                                      ----------------    ---------------
       Total assets                                                                          $122,271            $98,099
                                                                                      ================    ===============

                    Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
   Accounts payable                                                                            $1,680             $1,958
   Accrued liabilities                                                                          3,071              3,950
   Deferred revenue                                                                                68                158
                                                                                      ----------------    ---------------
     Total current liabilities                                                                  4,819              6,066
                                                                                      ----------------    ---------------
Series A Convertible Preferred Stock, $.01 par value, net of unamortized
  discount of $34,785 and $36,979, respectively                                                85,116             80,182
                                                                                      ----------------    ---------------
Minority interest                                                                              13,308             12,467
                                                                                      ----------------    ---------------
Stockholders' equity (deficit):
   Preferred stock, $.01 par value. Authorized 10,000,000 shares; issued
     1,199,007 shares as Series A Convertible Preferred Stock at June 30, 2004
     and 1,171,612 shares at December 31, 2003                                                     --                 --
   Common stock, $.01 par value.  Authorized 200,000,000 shares; issued and
     outstanding 6,073,476 shares at June 30, 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 June 30, 2004 and December 31, 2003               90                 90
   Additional paid-in capital                                                                 547,313            546,243
   Accumulated deficit                                                                       (528,436)          (546,839)
   Treasury stock, at cost, nil shares at June 30, 2004 and 6,622 shares at
     December 31, 2003                                                                             --               (171)
                                                                                      ----------------    ---------------
       Total stockholders' equity (deficit)                                                    19,028               (616)
                                                                                      ----------------    ---------------
       Total liabilities and stockholders' equity (deficit)                                  $122,271            $98,099
                                                                                      ================    ===============
</TABLE>


     See accompanying notes to unaudited consolidated financial statements.


                                       2

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

                                                          Three Months Ended June 30,       Six Months Ended June 30,
                                                         ------------------------------    -----------------------------
                                                             2004             2003             2004            2003
                                                         --------------    ------------    -------------   -------------
<S>                                                             <C>              <C>              <C>             <C>
Revenues                                                         $543              $--           $1,360             $--
Cost of revenues                                                  589               --            1,337              --
                                                         --------------    ------------    -------------   -------------
  Gross (loss) profit                                             (46)              --               23              --
Expenses:
   Selling, general and administrative                          2,384            1,469            4,148           3,321
   Depreciation and amortization                                   35                6               50              13
                                                         --------------    ------------    -------------   -------------
     Total expenses                                             2,419            1,475            4,198           3,334
                                                         --------------    ------------    -------------   -------------
Loss from operations                                           (2,465)          (1,475)          (4,175)         (3,334)
Interest income, net                                            5,429            1,555            7,590           3,064
Loss on investments in affiliates                                (372)            (100)            (523)           (199)
Other income (expense), net                                    20,868               --           20,904              (5)
Minority interest                                                (159)            (278)            (459)           (547)
                                                         --------------    ------------    -------------   -------------
Income (loss) from continuing operations                       23,301             (298)          23,337          (1,021)
Gain from wind-down of discontinued operations                     --              109               --             563
                                                         --------------    ------------    -------------   -------------
Net income (loss)                                              23,301             (189)          23,337            (458)
   Cumulative dividends and accretion of convertible
     preferred stock to liquidation value                      (2,473)          (2,414)          (4,934)         (4,813)
                                                         --------------    ------------    -------------   -------------
Net income (loss) attributable to common stockholders         $20,828          $(2,603)         $18,403         $(5,271)
                                                         ==============    ============    =============   =============
Basic earnings (loss) per common share:
  Continuing operations                                          $1.38         $ (0.18)           $1.22         $ (0.38)
  Discontinued operations                                           --            0.01               --            0.04
                                                         --------------    ------------    -------------   -------------
     Net earnings (loss) per common share                        $1.38         $ (0.17)           $1.22         $ (0.34)
                                                         ==============    ============    =============   =============
Diluted earnings (loss) per common share:
  Continuing operations                                          $1.33         $ (0.18)           $1.18          $(0.38)
  Discontinued operations                                           --            0.01               --            0.04
                                                         --------------    ------------    -------------   -------------
     Net earnings (loss) per common share                        $1.33         $ (0.17)           $1.18          $(0.34)
                                                         ==============    ============    =============   =============
Weighted average common shares outstanding:
  Basic                                                     15,059,698      15,301,999       15,061,753      15,638,769
                                                         ==============    ============    =============   =============
  Diluted                                                   15,707,635      15,301,999       15,643,938      15,638,769
                                                         ==============    ============    =============   =============
</TABLE>

          See accompanying notes to unaudited consolidated financial statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>

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

                                                                                        Six Months Ended June 30,
                                                                                     --------------------------------
                                                                                         2004              2003
                                                                                     --------------    --------------
Cash flows from operating activities:
<S>                                                                                       <C>                 <C>
   Net income (loss)                                                                      $23,337             $(458)
   Adjustments to reconcile net income (loss) to net cash used in operating
   activities:
     Gain from adjustment to reserve for note receivable and accrued interest
       from Motient Corporation                                                           (22,516)                --
     Gain from discontinued operations                                                         --               (563)
     Depreciation and amortization                                                             50                 13
     Loss on investments in affiliates                                                        523                199
     Minority interest                                                                        459                547
     Non-cash compensation expense                                                            996                122
     Non-cash charge for issuance of warrants by consolidated subsidiaries                    338                 28
     Changes in assets and liabilities (excluding effects of acquisitions):
       Accounts receivable, net                                                                94                 --
       Prepaid expenses, interest receivable and other assets                              (4,563)            (1,870)
       Accounts payable and accrued liabilities                                            (1,322)              (495)
       Deferred revenue                                                                       (90)                 --
                                                                                     --------------    --------------
           Net cash used in continuing operations                                          (2,694)            (2,477)
           Net cash used in discontinued operations                                           (30)              (299)
                                                                                     --------------    --------------
           Net cash used in operating activities                                           (2,724)            (2,776)
Cash flows from investing activities:
   Sales of short-term investments                                                         10,023              2,000
   Purchases of short-term investments                                                     (8,815)            (6,499)
   Proceeds from the repayment of note receivable from Verestar                             2,500                 --
   Cash paid for investments in affiliates                                                 (1,210)              (356)
   Purchases of property and equipment                                                       (170)                (3)
   Cash paid for acquisitions, net of cash acquired and acquisition costs                    (105)                 --
                                                                                     --------------    --------------
           Net cash provided by (used in) investing activities                              2,223             (4,858)
Cash flows from financing activities:
   Proceeds from issuance of common stock in connection with the exercise
     of options                                                                                12                 --
   Cash paid in connection with tender offer                                                   --             (1,204)
   Proceeds from contributions to a consolidated subsidiary                                    --                 48
                                                                                     --------------    --------------
           Net cash provided by (used in) financing activities                                 12             (1,156)
                                                                                     --------------    --------------
Net decrease in cash and cash equivalents                                                    (489)            (8,790)
Cash and cash equivalents, beginning of period                                              9,897             37,484
                                                                                     --------------    --------------
Cash and cash equivalents, end of period                                                   $9,408            $28,694
                                                                                     ==============    ==============
</TABLE>


          See accompanying notes to unaudited consolidated financial statements.

                                       4

<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(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"), currently a provider of mobile digital voice and data communications
services via satellite in North America; Electronic System Products, Inc.
("ESP"), a product development and engineering services firm that creates
products for and provides consulting and related services to customers in the
telecommunications, broadband, satellite communications, and wireless
industries; AfriHUB, LLC ("AfriHUB"), an early stage company that intends to
provide the Nigerian market with instructor led and distance based technical
training and satellite based broadband Internet access and domestic and
international calling services; Navigauge, Inc. (formerly known as IQStat,
Inc., "Navigauge"), a media and marketing research firm that collects data on
in-car radio usage and driving habits of consumers and markets the aggregate
data to radio broadcasters, advertisers and advertising agencies in the United
States; and Miraxis, LLC ("Miraxis"), a telecommunications company that has
access to a Ka-band license with which it is striving to provide satellite
based multi-channel, broadband data and video services in North America.

     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
was approved by Industry Canada, the FCC's counterpart in Canada, on May 22,
2004. With these ATC orders, 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 put the application out for public
comment and received one response that was substantially similar to earlier
objections raised by the same party.

     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 and six months ended June 30, 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. The results of AfriHUB have been
included in the consolidated financial statements beginning on April 19, 2004,
the date of acquisition.

(3)  Interest in the MSV Joint Venture

     On November 26, 2001, through its 80% owned MSV Investors, LLC subsidiary
("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.


                                       5
<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(3)  Interest in the MSV Joint Venture - (Continued)

     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 certain other investors in the MSV Joint Venture (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
$41.5 million as of June 30, 2004 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 would own, upon conversion,
approximately 27.4% of the equity interests in the MSV Joint Venture.

     On May 7, 2004, in connection with services being provided which support
the regulatory effort of the MSV Joint Venture, an unaffiliated consultant was
issued an option to purchase a less than one percent ownership interest in the
MSV Investors Subsidiary. The option is immediately exercisable and will expire
on the earlier of the dissolution of the MSV Investors Subsidiary or December
31, 2010. During the three months ended June 30, 2004, the Company recognized
expense of approximately $0.3 million related to the issuance of the option,
which is the approximate fair value of the option using the Black-Scholes option
valuation model. To provide additional incentive to the consultant, the MSV
Investors Subsidiary agreed to pay the consultant a one-time fee of $0.4 million
upon a liquidity event, as defined in the agreement. The Company would recognize
an expense related to this fee when a liquidity event becomes probable.

     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

     On August 29, 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, Inc. ("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.

                                       6
<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(4)  Business Transactions - (Continued)

     On March 8, 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 connection with the Verestar bankruptcy, the Company entered into a
stipulation with Verestar pursuant to 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. 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 as a break-up fee in connection with the termination
of the March 2004 asset purchase agreement.

     On July 9, 2004, the Company settled its dispute with Verestar's parent
company regarding the break-up fee in connection with the termination of the
August 2003 securities purchase agreement. As consideration for the settlement,
Verestar's parent company paid the Company $1.5 million. This amount has been
reflected in the accompanying consolidated statement of operations as other
income in the three and six months ended June 30, 2004 and in the accompanying
consolidated balance sheets in prepaid expenses and other current assets as of
June 30, 2004.

     On July 29, 2004, the Company entered into a stipulated settlement with
Verestar and its Creditor Committee pursuant to which Verestar agreed to pay
the Company approximately $0.4 million representing certain amounts owed,
including unpaid accrued interest, in connection with the senior secured note.
On August 13, 2004, the Bankruptcy Court approved the stipulated settlement.
This settlement amount has been reflected in the accompanying consolidated
statement of operations as interest income in the three and six months ended
June 30, 2004 and in the accompanying consolidated balance sheets in prepaid
expenses and other current assets as of June 30, 2004.

     (b) Interest in AfriHUB

     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
up to $1.5 million. Through exclusive partnerships with certain Nigerian based
universities, AfriHUB intends to provide instructor led and distance based
technical training and satellite based broadband Internet access and domestic
and international calling services. The Company's investment is payable in
three tranches based upon progress made by AfriHUB against its business plan.
As of June 30, 2004, the Company had paid $1.3 million for the membership
interests of AfriHUB. The Company would be required to fund the remaining $0.2
million for the membership interests if AfriHUB meets the final trigger event,
as defined in the investment agreement, by November 1, 2004. In addition, if
AfriHUB meets certain operating and financial milestones, certain employees
will be issued warrants to purchase ownership interests of AfriHUB, which will
dilute the Company's ownership interest to approximately 65%.

     In connection with the allocation of the purchase price to the fair value
of the identifiable net assets acquired, the Company ascribed approximately
$0.6 million to a significant contract. This intangible asset is included in
other assets on the accompanying consolidated balance sheets and will be
amortized over the approximate five-year minimum life of the contract.

     (c) Interest in Miraxis

     On May 28, 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
is striving 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, on December 20, 2002, the
Company acquired Series C Preferred Shares and warrants from Miraxis for
approximately $0.1 million.

                                       7
<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(4)  Business Transactions - (Continued)

     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. From January 2004 through June
2004, 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 for which Miraxis has acquired access to one slot 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 that slot. In
addition, Miraxis expects to pay certain royalties to MLH for use of the slot
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.

     (d) Interest in Navigauge

     On April 21, 2003, the Company acquired Series B Preferred Shares from
Navigauge, formerly known as IQStat, 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 data 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. From January 2004 through April 2004, the Company acquired
additional Series B Preferred Shares and warrants from Navigauge for
approximately $0.5 million. Furthermore, from April 2004 through June 2004, the
Company purchased short-term promissory notes from Navigauge with an aggregate
principal amount of approximately $0.4 million.

     On June 14, 2004, Navigauge completed a recapitalization in which all
outstanding Series A Preferred Shares and Series B Preferred Shares were
converted to new Series A Preferred Shares with substantially similar rights as
the old Series B Preferred Shares. Following the exchange, the Company
converted the short-term promissory notes into new Series A Preferred Shares
and purchased additional Series A Preferred Shares for approximately $0.4
million. The Company also obtained direct ownership of the old Series A
Preferred shares held by ESP in exchange for the forgiveness of an aggregate of
approximately $0.8 million of senior secured promissory notes. Currently, the
Company owns approximately 39% of the outstanding equity of Navigauge on an
undiluted basis.

     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.

                                       8

<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(5)  Note Receivable from Motient Corporation

     On May 1, 2002, to mitigate the risk, uncertainties and expenses
associated with Motient Corporation's ("Motient") 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 was due on May 1, 2005 and
bore interest at a rate of 9% per annum. On April 7, 2004, as a result of a
payment received by Motient pursuant to a promissory note from the MSV Joint
Venture, Motient paid approximately $0.5 million of interest accrued on the New
Motient Note. This amount was reflected in the accompanying consolidated
statement of operations as interest income in the three months ended March 31,
2004. As a result of the uncertainty with respect to the ultimate collection on
the remaining amounts due on the New Motient Note, a reserve was maintained for
the entire principal amount of the note and unpaid interest accrued thereon.
Following several successful financings by Motient, on July 15, 2004, Motient
paid approximately $22.6 million representing all outstanding principal and
accrued interest due on the New Motient Note as of that date. Accordingly, the
reserve was adjusted in the three months ended June 30, 2004 resulting in the
recognition of $19.0 million in other income and $3.5 million in interest
income. The remaining $0.1 million represents interested earned during July
2004 and will be recognized in the consolidated statement of operations in the
three months ended September 30, 2004.

(6)  Earnings (Loss) Per Common Share

     Basic earnings (loss) per common share is computed by dividing net income
(loss) attributable to the common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings (loss) per common
share reflects the potential dilution from the exercise or conversion of
securities into common stock. The potential dilutive effect of outstanding
stock options and warrants is calculated using the "treasury stock" method, and
the potential dilutive effect of the convertible preferred stock is calculated
using the "if-converted" method.

     The following table provides a reconciliation of the shares used in
calculating earnings (loss) per common share:

<TABLE>
<CAPTION>
                                                       Three Months Ended June 30,       Six Months Ended June 30,
                                                      -----------------------------    -----------------------------
                                                          2004            2003             2004            2003
                                                      -------------    ------------    -------------    ------------
<S>                                                     <C>             <C>              <C>             <C>
Weighted average common shares outstanding -
   basic                                                15,059,698      15,301,999       15,061,753      15,638,769
Common shares issuable upon exercise of stock
   options                                                 647,937              --          582,185              --
                                                      -------------    ------------    -------------    ------------
Weighted average common shares outstanding -
   diluted                                              15,707,635      15,301,999       15,643,938      15,638,769
                                                      =============    ============    =============    ============
</TABLE>

     During all periods presented, the Company had certain stock options and
warrants outstanding, which could potentially dilute basic earnings (loss) per
common share in the future, but were excluded in the computation of diluted
earnings (loss) per common share in such periods, as their effect would have
been antidilutive. For each of the three and six months ended June 30, 2004,
stock options and warrants exercisable for 1,734,650 shares of common stock
were excluded from the computation of diluted earnings per common share, as
they were antidilutive. For each of the three and six months ended June 30,
2003, stock options and warrants exercisable for 2,271,721 shares of common
stock were excluded from the computation of diluted loss per common share, as
they were antidilutive.

     During each of the three and six months ended June 30, 2004, 1,750,374
shares of common stock issuable upon the conversion of the preferred stock were
excluded from the computation of diluted earnings per common share, as they
were antidilutive. During each of the three and six months ended June 30, 2003,
1,671,302 shares of common stock issuable upon the conversion of the preferred
stock were excluded from the computation of diluted loss per common share, as
they were antidilutive.

                                       9

<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(7)  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 in 2001 and 2002, for the three and six months ended June 30, 2004, the
Company recognized compensation expense of approximately $0.7 million and $1.0
million, respectively. As a result of the re-pricing of those certain stock
options, for each of the three and six months ended June 30, 2003, the Company
recognized compensation expense of approximately $0.1 million.

     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 (in thousands):

<TABLE>
<CAPTION>
                                                          Three Months Ended June 30,       Six Months Ended June 30,
                                                          -----------------------------    -----------------------------
                                                              2004             2003             2004            2003
                                                          -------------    ------------    -------------   -------------
<S>                                                            <C>              <C>            <C>              <C>
Net income (loss), as reported                                 $23,301          $(189)         $23,337          $(458)
Add:  Stock-based compensation expense, as reported                733            115              996            122
Deduct:  Total stock-based compensation expense
   determined under fair value based method for all
   awards                                                         (72)            (87)            (137)          (246)
                                                          -------------    ------------    -------------   -------------
Pro forma net income (loss)                                    $23,962          $(161)         $24,196          $(582)
                                                          =============    ============    =============   =============

Basic earnings (loss) per common share:
   As reported                                                   $1.38         $(0.17)           $1.22         $(0.34)
   Pro forma                                                     $1.43         $(0.17)           $1.28         $(0.34)

Diluted earnings (loss) per common share:
   As reported                                                   $1.33         $(0.17)           $1.18         $(0.34)
   Pro forma                                                     $1.37         $(0.17)           $1.23         $(0.34)
</TABLE>

     For the three months ended June 30, 2004, the Company issued options to
purchase 35,000 shares of common stock at a weighted average fair value of
$3.63 using the Black-Scholes option pricing model. For the six months ended
June 30, 2004, the Company issued options to purchase 180,000 shares of common
stock at a weighted average fair value of $2.13 using the Black-Scholes option
pricing model. For each of the three and six months ended June 30, 2003, the
Company issued options to purchase 195,000 shares of common stock at a weighted
average fair value of $0.74 using the Black-Scholes option pricing model.

(8)  Segment Information

     The Company's consolidated operations have been classified into three
reportable segments: ESP, AfriHUB and Parent and other. ESP is 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. Through exclusive
partnerships with certain Nigerian based universities, AfriHUB intends to
provide instructor led and distance based technical training and satellite
based broadband Internet access and domestic and international calling
services. Parent and other includes the Company, other consolidated entities
other than ESP and AfriHUB, and eliminations.

                                      10

<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(8)  Segment Information - (Continued)

     The segment information is reported along the same lines that our chief
operating decision maker reviews the operating results in assessing performance
and allocating resources. For the three and six months ended June 30, 2004, all
reported revenues were attributable to ESP. For the six months ended June 30,
2004, four customers individually accounted for more than 10% of the revenues
and, combined, accounted for approximately $0.9 million of revenues and
approximately $0.1 million of accounts receivable as of June 30, 2004. The
Company did not report any consolidated revenues for the three and six months
ended June 30, 2003.

     The following tables presents certain other financial information on the
Company's reportable segments (in thousands):

<TABLE>
<CAPTION>
                                                   Three Months Ended June 30,          Six Months Ended June 30,
                                                  -------------------------------    --------------------------------
                                                      2004             2003               2004              2003
                                                  -------------    --------------    --------------    --------------
<S>                                                    <C>               <C>               <C>               <C>
Loss from operations:
  ESP                                                   $(315)              $--            $(574)              $--
  AfriHUB                                                (462)               --             (462)               --
  Parent and other                                     (1,688)           (1,475)          (3,139)           (3,334)
                                                  -------------    --------------    --------------    --------------
                                                       (2,465)           (1,475)          (4,175)           (3,334)
Interest income, net                                    5,429             1,555            7,590             3,064
Loss on investments in affiliates                        (372)             (100)            (523)             (199)
Other income (expense), net                            20,868                --           20,904                (5)
Minority interest                                        (159)             (278)            (459)             (547)
                                                  -------------    --------------    --------------    --------------
Income (loss) from continuing operations               23,301              (298)          23,337            (1,021)
Gain from wind-down of discontinued operations             --               109               --               563
                                                  -------------    --------------    --------------    --------------
Net income (loss)                                     $23,301             $(189)         $23,337             $(458)
                                                  =============    ==============    ==============    ==============

                                                                             June 30,        December 31,
                                                                               2004               2003
                                                                          --------------    ---------------
Total assets:
  ESP                                                                              $221               $555
  AfriHUB                                                                         1,235                 --
  Parent and other                                                              120,815             97,544
                                                                          --------------    ---------------
                                                                               $122,271            $98,099
                                                                          ==============    ===============
</TABLE>

 (9) 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 June
30, 2004, cash of approximately $20,000 (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 and six months ended June
30, 2003, the Company recognized a gain of approximately $0.1 million and $0.6
million, respectively, as a result of the settlement of Rare Medium, Inc.
liabilities at amounts less than their recorded amounts.

(10)   Related Party Transactions

     During the three and six months ended June 30, 2004, ESP recognized
revenues totaling approximately $0.1 million and $0.4 million, respectively,
for certain services provided to Navigauge and the MSV Joint Venture.

                                      11

<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(11)   Contingencies

   MSV Joint Venture Convertible Notes Receivable

     As of June 30, 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 filed a motion for summary
judgment on July 30, 2004 and expects briefing on the motion to be completed 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 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 June 9, 2003, the
Company and Company defendants filed a motion to dismiss. 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 March 26, 2004, the plaintiffs filed a notice of appeal. As a
result of a court ordered mediation conducted as part of the appeals process,
the Company and the plaintiffs have agreed to settle the matter for an amount
to be paid in full by the Company's insurer. The Company expects the agreement,
which is subject to definitive documentation, to be completed in the third
quarter of 2004.

                                      12
<PAGE>

                         SKYTERRA COMMUNICATIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(11)   Contingencies - (Continued)

     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. Discovery has
commenced. 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.

(12)   Subsequent Events

     On July 9, 2004, the Company settled its dispute with Verestar's parent
company regarding the break-up fee in connection with the termination of the
August 2003 securities purchase agreement. As consideration for the settlement,
Verestar's parent company paid the Company $1.5 million. This amount has been
reflected in the accompanying consolidated statement of operations as other
income in the three and six months ended June 30, 2004 and in the accompanying
consolidated balance sheets in prepaid expenses and other current assets as of
June 30, 2004.

     On July 15, 2004, Motient paid approximately $22.6 million representing
all outstanding principal and accrued interest due on the New Motient Note as
of that date.

     On July 29, 2004, the Company entered into a stipulated settlement with
Verestar and its Creditor Committee pursuant to which Verestar agreed to pay
the Company approximately $0.4 million representing certain amounts owed,
including unpaid accrued interest, in connection with the senior secured note.
On August 13, 2004, the Bankruptcy Court approved the stipulated settlement.
This settlement amount has been reflected in the accompanying consolidated
statement of operations as interest income in the three and six months ended
June 30, 2004 and in the accompanying consolidated balance sheets in prepaid
expenses and other current assets as of June 30, 2004.

                                      13
<PAGE>


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," "strive," "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, AfriHUB,
Navigauge (formerly known as IQStat) and Miraxis.

     On April 19, 2004, we signed an agreement to acquire 80% of the
outstanding membership interests of AfriHUB for an aggregate purchase price of
up to $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 instructor
led and distance based technical training and satellite based broadband
Internet access and domestic and international calling services. The first two
campus facilities are expected to be operational during the third quarter of
2004.

     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 made at the end of the third quarter of 2001
to discontinue the operations of Rare Medium, Inc. and its LiveMarket
subsidiary, 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, AfriHUB
(from the date of acquisition) and Miraxis.

Results of Operations for the Three Months Ended June 30, 2004 Compared to the
Three Months Ended June 30, 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. ESP provides
services to its clients pursuant to both time-and-materials and fixed price
contracts. Revenues from time-and-materials service contracts are recognized as
the services are provided. For fixed price contracts, revenue is recognized
under the percentage-of-completion basis, and accordingly 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.

                                      14
<PAGE>

     Revenues for the three months ended June 30, 2004 increased to $0.5
million from nil for the three months ended June 30, 2003. This increase was
due to the acquisition of ESP on August 25, 2003. In future periods, we also
expect to report revenues of AfriHUB as it expects to begin offering its
services on two university campuses in Nigeria during 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 June 30, 2004 increased to $0.6 million
from nil for the three months ended June 30, 2003. 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 during 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 June 30, 2004
increased to $2.4 million from $1.5 million for the three months ended June 30,
2003, an increase of $0.9 million. This increase relates primarily to the
recognition of non-cash expense of approximately $1.0 million in the three
months ended June 30, 2004 relating to the repricing of certain options in 2002
and 2001 and the issuance of an option to purchase a less than one percent
ownership interest in our MSV Investors Subsidiary to an unaffiliated
consultant. For the three months ended June 30, 2003, we recognized $0.1
million of non-cash expense relating to the option repricing. Also included in
the increase are approximately $0.3 million and $0.4 million of expenses
incurred by ESP and AfriHUB, respectively, in the six months ended June 30,
2004, partially offset by a $0.3 million insurance claim reimbursement related
to an insured litigation matter. As our selling, general and administrative
expense relates to our current operations, including ESP and AfriHUB, we expect
these costs, 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 hire employees and build its business.

   Interest Income, Net

     Interest income, net is comprised of the interest earned on the notes
receivable from the MSV Joint Venture, Verestar and Motient and on our cash,
cash equivalents, and short-term investments. Interest income, net for the
three months ended June 30, 2004 increased to $5.4 million from $1.6 million
for the three months ended June 30, 2003, an increase of $3.8 million. This
increase relates primarily to the adjustment of the reserve for the unpaid
interest on the New Motient Note in the three months ended June 30, 2004. The
reserve was adjusted because Motient paid approximately $22.6 million
representing the entire outstanding principal and remaining interest due under
the New Motient Note in July 2004. As there was no longer any uncertainty with
respect to the ultimate collection on the principal or interest due under the
New Motient Note, we recognized approximately $3.5 million in interest income
in the three months ended June 30, 2004, representing interest earned from the
May 2002 issuance of the note through June 30, 2004. Also contributing to the
increase in interest income, net is the recognition of $0.2 million of interest
in the three months ended June 30, 2004 related to the senior secured note from
Verestar.

   Loss on Investment in Affiliates

     For the three months ended June 30, 2004, we recorded a loss on
investments in affiliates of approximately $0.4 million relating to our
proportionate share of Navigauge's operating loss. For the three months ended
June 30, 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.

   Other Income, Net

     For the three months ended June 30, 2004, we recorded other income, net of
approximately $20.9 million relating primarily to one-time items, including the
$19.0 million adjustment to the reserve for the New Motient Note, the $1.5
million settlement with Verestar's parent company in connection with the
termination of the August 2003 securities purchase agreement, and the
approximately $0.4 million representing a break-up fee in connection with the
termination of the March 2004 Verestar asset purchase agreement.

                                      15
<PAGE>

    Minority Interest

     For the three months ended June 30, 2004, we recorded minority interest of
approximately $0.2 million relating to the $0.3 million of 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 own approximately 20% of our MSV Investors Subsidiary, partially offset by
the $0.1 million of equity in loss attributable to the other shareholders in
AfriHUB. For the three months ended June 30, 2003, we recorded minority
interest of approximately $0.3 million relating to the equity in earnings
attributable to the group of unaffiliated third parties who invested 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 June 30, 2004
and 2003, we recognized a gain of nil and $0.1 million, respectively, as a
result of the settlement of Rare Medium, Inc. liabilities at amounts less than
their recorded amounts.

   Net Income (Loss) Attributable to Common Stockholders

     For the three months ended June 30, 2004, we recorded net income
attributable to common stockholders of approximately $20.8 million. For the
three months ended June 30, 2003, we recorded a net loss attributable to common
stockholders of approximately $2.6 million. Included in net income (loss)
attributable to common stockholders for the three months ended June 30, 2004
and 2003 was $2.5 million and $2.4 million, respectively, of non-cash 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.

Results of Operations for the Six Months Ended June 30, 2004 Compared to the
Six Months Ended June 30, 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. ESP provides
services to its clients pursuant to both time-and-materials and fixed price
contracts. Revenues from time-and-materials service contracts are recognized as
the services are provided. For fixed price contracts, revenue is recognized
under the percentage-of-completion basis, and accordingly 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 six months ended June 30, 2004 increased to $1.4 million
from nil for the six months ended June 30, 2003. This increase was due to the
acquisition of ESP on August 25, 2003. In future periods, we expect to also
report revenues of AfriHUB as it expects to begin offering its services on two
university campuses in Nigeria during 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 six months ended June 30, 2004 increased to $1.3 million from
nil for the six months ended June 30, 2003. 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 during the third quarter of
2004.

                                      16
<PAGE>


   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 six months ended June 30, 2004
increased to $4.1 million from $3.3 million for the six months ended June 30,
2003, an increase of $0.8 million. This increase relates primarily to the
recognition of non-cash expense of approximately $1.3 million in the six months
ended June 30, 2004 relating to the repricing of certain options in 2002 and
2001 and the issuance of an option to purchase a less than one percent
ownership interest in our MSV Investors Subsidiary to an unaffiliated
consultant. For the six months ended June 30, 2003, we recognized $0.2 million
of non-cash expense relating to the option repricing. Also included in the
increase are approximately $0.6 million and $0.4 million of expenses incurred
by ESP and AfriHUB, respectively, in the six months ended June 30, 2004,
partially offset by the approximately $0.7 million charge recognized in the six
months ended June 30, 2003 relating to bonuses for certain executive officers
for services provided during the year ended December 31, 2002 and the severance
and benefits for our former Controller and former Treasurer. As our selling,
general and administrative expense relates to our current operations, including
ESP and AfriHUB, we expect these costs, 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 hire employees and build its
business.

   Interest Income, Net

     Interest income, net is comprised of the interest earned on the notes
receivable from the MSV Joint Venture, Verestar and Motient and on our cash,
cash equivalents, and short-term investments. Interest income, net for the six
months ended June 30, 2004 increased to $7.6 million from $3.1 million for the
six months ended June 30, 2003, an increase of $4.5 million. This increase
relates primarily to the adjustment of the reserve for the unpaid interest on
the New Motient Note in the six months ended June 30, 2004. The reserve was
adjusted because Motient paid approximately $0.5 million of outstanding
interest in April 2004 and approximately $22.6 million representing the entire
outstanding principal and remaining interest due under the New Motient Note in
July 2004. As there was no longer any uncertainty with respect to the ultimate
collection on the principal or interest due under the New Motient Note, we
recognized approximately $4.0 million in interest income in the six months
ended June 30, 2004, representing all interest earned from the May 2002
issuance of the note through June 30, 2004. Also contributing to the increase
in interest income, net is the recognition of $0.3 million of interest in the
six months ended June 30, 2004 related to the senior secured note from
Verestar.

   Loss on Investment in Affiliates

     For the six months ended June 30, 2004, we recorded a loss on investments
in affiliates of approximately $0.5 million relating to our proportionate share
of Navigauge's operating loss. For the six months ended June 30, 2003, we
recorded a loss on investments in affiliates of approximately $0.2 million for
our proportionate share of Miraxis' operating loss. We will continue to monitor
the carrying value of our remaining investments in affiliates.

   Other Income, Net

     For the six months ended June 30, 2004, we recorded other income, net of
approximately $20.9 million relating primarily to one-time items, including the
$19.0 million adjustment to the reserve for the New Motient Note, the $1.5
million settlement with Verestar's parent company in connection with the
termination of the August 2003 securities purchase agreement, and the
approximately $0.4 million representing a break-up fee in connection with the
termination of the March 2004 Verestar asset purchase agreement.

   Minority Interest

     For the six months ended June 30, 2004, we recorded minority interest of
approximately $0.5 million relating to the $0.6 million of 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 own approximately 20% of our MSV Investors Subsidiary, partially offset by
the $0.1 million of equity in loss attributable to the other shareholders in
AfriHUB. For the six months ended June 30, 2003, we recorded minority interest
of approximately $0.5 million relating to the equity in earnings attributable
to the group of unaffiliated third parties who invested in our MSV Investors
Subsidiary.

                                      17
<PAGE>


   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 six months ended June 30, 2004 and
2003, we recognized a gain of nil and $0.6 million, respectively, as a result
of the settlement of Rare Medium, Inc. liabilities at amounts less than their
recorded amounts.

   Net Income (Loss) Attributable to Common Stockholders

     For the six months ended June 30, 2004, we recorded net income
attributable to common stockholders of approximately $18.4 million. For the six
months ended June 30, 2003, we recorded a net loss attributable to common
stockholders of approximately $5.3 million. Included in net income (loss)
attributable to common stockholders for the six months ended June 30, 2004 and
2003 was $4.9 million and $4.8 million, respectively, 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 approximately $27.0 million in cash, cash equivalents and
short-term investments as of June 30, 2004. Cash used in operating activities
from continuing operations was $2.7 million for the six months ended June 30,
2004 and resulted primarily from cash used for general corporate overhead
including payroll and professional fees. Cash used by discontinued operations
was approximately $30,000 for the six months ended June 30, 2004 and resulted
from cash used for settlement of vendor liabilities and legal and advisory
fees. We expect to generate positive cash flows from operating activities in
the third quarter of 2004 as we collected the outstanding principal and
interest due under the New Motient Note and certain amounts owed related to the
Verestar transactions. These cash receipts are discussed in further detail
below.

     For the six months ended June 30, 2004, cash provided by investing
activities, excluding purchases and sales of short-term investments, was $1.0
million and consisted primarily of the $2.5 million proceeds from the repayment
of the senior secured promissory note from Verestar, partially offset by
approximately $1.2 million used to purchase investments in Navigauge. Other
than our agreement with 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, AfriHUB, 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. On April
7, 2004, as a result of a payment received by Motient pursuant to a promissory
note from the MSV Joint Venture, Motient paid approximately $0.5 million of
interest accrued on the New Motient Note. This amount was reflected in the
accompanying consolidated statement of operations as interest income in the
three months ended March 31, 2004. As a result of the uncertainty with respect
to the ultimate collection on the remaining amounts due on the New Motient
Note, a reserve was maintained for the entire principal amount of the note and
unpaid interest accrued thereon. Following several successful financings by
Motient, on July 15, 2004, Motient paid approximately $22.6 million
representing all outstanding principal and accrued interest due on the New
Motient Note as of that date. Accordingly, the reserve was adjusted in the
three months ended June 30, 2004 resulting in the recognition of $19.0 million
in other income and $3.5 million in interest income. The remaining $0.1 million
represents interested earned during July 2004 and will be recognized in the
consolidated statement of operations in the three months ended September 30,
2004.

                                      18
<PAGE>


   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
$41.5 million as of June 30, 2004 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 would own, upon conversion,
approximately 27.4% of the equity interests in the MSV Joint Venture.

     On May 7, 2004, in connection with services being provided which support
the regulatory effort of the MSV Joint Venture, an unaffiliated consultant was
issued an option to purchase a less than one percent ownership interest in the
MSV Investors Subsidiary. The option is immediately exercisable and will expire
on the earlier of the dissolution of the MSV Investors Subsidiary or December
31, 2010. During the three months ended June 30, 2004, we recognized expense of
approximately $0.3 million related to the issuance of the option, which is the
approximate fair value of the option using the Black-Scholes option valuation
model. To provide additional incentive to the consultant, the MSV Investors
Subsidiary agreed to pay the consultant a one-time fee of $0.4 million upon a
liquidity event, as defined in the agreement. We would recognize an expense
related to this fee when a liquidity event becomes probable.

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

                                      19
<PAGE>


   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.

     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.

     In connection with the Verestar bankruptcy, we entered into a stipulation
with Verestar pursuant to which the parties agreed to, among other things, the
validity and enforcement of the obligation under the senior secured note and
our security interest in Verestar's assets. 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 a break-up fee in connection
with the termination of the March 2004 asset purchase agreement.

     On July 9, 2004, we settled our dispute with Verestar's parent company
regarding the break-up fee in connection with the termination of the August
2003 securities purchase agreement. As consideration for the settlement,
Verestar's parent company paid us $1.5 million. This amount has been reflected
in the accompanying consolidated statement of operations as other income in the
three and six months ended June 30, 2004 and in the accompanying consolidated
balance sheets in prepaid expenses and other current assets as of June 30,
2004.

     On July 29, 2004, we entered into a stipulated settlement with Verestar
and its Creditor Committee pursuant to which Verestar agreed to pay us
approximately $0.4 million representing certain amounts owed, including unpaid
accrued interest, in connection with the senior secured note. On August 13,
2004, the Bankruptcy Court approved the stipulated settlement. This settlement
amount has been reflected in the accompanying consolidated statement of
operations as interest income in the three and six months ended June 30, 2004
and in the accompanying consolidated balance sheets in prepaid expenses and
other current assets as of June 30, 2004.

   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 purchased an aggregate of
approximately $1.4 million of senior secured promissory notes from ESP. On June
9, 2004, we forgave approximately $0.8 million of outstanding principal and
accrued interest of the promissory notes in exchange for the Series A Preferred
Shares of Navigauge held by ESP. As of June 30, 2004, principal and accrued
interest of these senior secured notes totaled approximately $0.6 million.

   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
up to $1.5 million. Through exclusive partnerships with certain Nigerian based
universities, AfriHUB intends to provide instructor led and distance based
technical training and satellite based broadband Internet access and domestic
and international calling services. Our investment is payable in three tranches
based upon progress made by AfriHUB against its business plan. As of the date
hereof, we have paid $1.3 million for the membership interests of AfriHUB. We
would be required to fund the remaining $0.2 million for the membership
interests if AfriHUB meets the final trigger event, as defined in the
investment agreement, by November 1, 2004. In addition, if AfriHUB meets
certain operating and financial milestones, certain employees will be issued
warrants to purchase ownership interests of AfriHUB, which will dilute our
ownership interest to approximately 65%.


                                      20
<PAGE>


   Series A Convertible Preferred Stock Dividend

     In accordance with the terms of our preferred stock, the holders will be
entitled to receive quarterly cash dividends commencing on July 1, 2004. The
first such payment of approximately $1.4 million is due on September 30, 2004.
The aggregate annual dividend payment will be approximately $5.6 million
through the mandatory redemption on June 30, 2012 or such earlier time as the
terms of the preferred stock are renegotiated.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     As of June 30, 2004, we had $27.0 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.

                                      21

<PAGE>


                                    PART II

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 filed a motion for summary
judgment on July 30, 2004 and expects briefing on the motion to be completed 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 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 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 June 9, 2003, the
Company and Company defendants filed a motion to dismiss. 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 March 26, 2004, the plaintiffs filed a notice of appeal. As a
result of a court ordered mediation conducted as part of the appeals process,
the Company and the plaintiffs have agreed to settle the matter for an amount
to be paid in full by the Company's insurer. The Company expects the
settlement, which is subject to definitive documentation, to be completed in
the third quarter of 2004.

     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. Discovery has
commenced. The Company intends to vigorously dispute this action.

                                      22

<PAGE>


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 and
              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 April 8, 2004, the Company filed a report on Form 8-K announcing
     that at the auction for substantially all of the assets and business
     of Verestar, Inc., a bid was accepted from a strategic buyer at a
     price higher than the Company was willing to offer.

     On May 19, 2004, the Company filed a report on Form 8-K announcing its
     earnings results for the quarter ended March 31, 2004.



                                      23


<PAGE>


                                   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:  August 16, 2004            By:  /s/ JEFFREY A. LEDDY
                                       ---------------------------------------
                                        Jeffrey A. Leddy
                                        Chief Executive Officer and President
                                        (Principal Executive Officer and
                                           Principal Financial Officer)

Date:  August 16, 2004            By:  /s/ CRAIG J. KAUFMANN
                                       ---------------------------------------
                                        Craig J. Kaufmann
                                        Controller and Treasurer
                                        (Principal Accounting Officer)




                                      24