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

                                   FORM 10-K


/x/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 for the fiscal year ended December 31, 2003, or


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

                        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 Identification Number)
of incorporation or organization)

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

               Registrant's former name--Rare Medium Group, Inc.

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

       Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.01 par value

                               (Title of Class)

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

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

                                Yes / / No /x/

The aggregate market value of the voting common stock held by non-affiliates
of the registrant, as of June 30, 2003, was $7,135,730. All non-voting common
stock was held by affiliates of the registrant.

As of March 25, 2004, 6,074,791 shares of our voting common stock and
8,990,212 shares of our non-voting common stock were outstanding.

<PAGE>


                                    PART I

Forward-Looking Statements

     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. Statements that use the terms "believe," "do not believe,"
"anticipate," "expect," "plan," "estimate," "intend" and similar expressions
are intended to identify forward-looking statements. These statements reflect
our current views with respect to future events and because our business is
subject to numerous risks, uncertainties and other factors, our actual results
could differ materially from those anticipated in the forward-looking
statements, including those set forth below under "Item 1. Business," "Item 7.
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.
The factors set forth below under "Item 1. Business," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other cautionary statements made in this report should be read and understood
as being applicable to all related forward-looking statements wherever they
appear in this report.

Item 1. Business

Overview

     We operate our business through a group of complementary companies in the
telecommunications industry. These companies include: (i) the Mobile Satellite
Venture, L.P. joint venture ("MSV Joint Venture"), a joint venture which
provides mobile digital voice and data communications services via satellite;
(ii) Electronic System Products, Inc. ("ESP"), a product development and
engineering services firm; (iii) IQStat, Inc. (now doing business as Navigauge,
Inc., "Naviguage"), a market research firm that tracks the in-car radio usage
and driving habits of consumers; and (iv) Miraxis, LLC ("Miraxis"), a
development stage company that intends to provide satellite based
multi-channel, broadband data and video services. Consistent with this
strategy, we continue to pursue the acquisition of substantially all of the
assets and business of Verestar, Inc. ("Verestar"), a global provider of
integrated satellite and fiber services to government organizations,
multi-national corporations, broadcasters and communications companies.

     On March 8, 2004, we executed an asset purchase agreement to acquire,
through a newly formed subsidiary, substantially all of the assets and
business of Verestar pursuant to Section 363 of the Bankruptcy Code for $7.0
million, including cash and the forgiveness of the outstanding senior secured
note, and 19.9% of the stock of the newly formed subsidiary. In addition, we
will provide an additional $3.0 million in funding to the new subsidiary upon
closing of the purchase. The transaction is still subject to a number of
contingencies, including an auction on March 30, 2004 at which Verestar will
consider higher and better offers and final approval of the bankruptcy court
and the Federal Communications Commission (the "FCC").

     From 1998 through the third quarter of 2001, our 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 such, the
results of Rare Medium, Inc. and LiveMarket are reflected as discontinued
operations.

     From 1999 through the first quarter of 2001, we made venture investments
by taking strategic minority equity positions in other independently managed
companies. Additionally, during that period, we developed, managed and
operated companies in selected Internet-focused market segments ("Start-up
Companies"). During the first quarter of 2001, we reduced our focus on these
businesses and substantially ceased providing funding to our Start-up
Companies.

     We were incorporated in Delaware in 1985 as International Cogeneration
Corporation.

MSV Joint Venture

     Through our 80% owned MSV Investors, LLC subsidiary ("MSV Investors
Subsidiary"), we are an active participant in the MSV Joint Venture, a joint
venture that also includes TMI Communications, Inc. ("TMI"), Motient
Corporation ("Motient"), and certain other investors (collectively, the "Other
MSV Investors"). The MSV Joint Venture is currently a provider of mobile
digital voice and data communications services via satellite in North America.
We have designated three members of the 11-member board of directors of the
MSV Joint Venture's corporate general partner.

   Formation and Structure of MSV Joint Venture

     The MSV Joint Venture was originally formed in June 2000 as a subsidiary
of Motient. In November 2001, following the receipt of regulatory and other
governmental approvals, including approvals under the Hart-Scott-Rodino
Antitrust Improvements Act, by the FCC and by Canadian regulatory authorities,
Motient combined its existing satellite assets and authorizations with certain
assets and authorizations of the satellite communications business of TMI, a
subsidiary of Bell Canada Enterprises, and these assets and authorizations
were contributed to the MSV Joint Venture. The assets and authorizations of
the satellite business formerly owned by Motient that were contributed to the
MSV Joint Venture included a satellite with coverage of most of North America
and its surrounding waters and the associated existing FCC licenses and
authorizations. The assets and authorizations of the satellite business
contributed to the MSV Joint Venture by TMI included a second satellite
(technologically identical to the satellite contributed to the MSV Joint
Venture by Motient) with similar geographic coverage, as well as the
associated Canadian satellite licenses and authorizations.

     Following the approvals described above and consistent with the terms of
an agreement that we entered into in October 2001 with the MSV Joint Venture
and certain other investors (the "MSV Joint Venture Agreement"), 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 our option 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 of
$3.0 million of newly issued convertible notes with terms similar to the
convertible note already held by our MSV Investors Subsidiary. Our MSV
Investors Subsidiary exercised its basic and over subscription rights and
purchased approximately $1.1 million of these additional convertible notes.

     Currently, the approximate ownership of the MSV Joint Venture's equity
interests, assuming conversion of all convertible notes, is as follows: our
MSV Investors Subsidiary, 30.3%; TMI, 25.3%; Motient, 32.6%; and the Other MSV
Investors, 11.8%. We are under no obligation to make any further investment in
our MSV Investors Subsidiary or in the MSV Joint Venture, but we may have the
opportunity to do so in the future. Because our interest in the MSV Joint
Venture is in the form of a note, we do not reflect the results of the MSV
Joint Venture's operations in our statements of operations.

   MSV Joint Venture's Current Business

     The MSV Joint Venture is currently a provider of mobile digital voice and
data communications services via satellite in North America.

     Satellite Voice and Data Services. The MSV Joint Venture's satellite
phone service supports two-way circuit-switched voice, facsimile and data
communication services. The MSV Joint Venture markets satellite telephone and
data services to businesses that have nationwide coverage requirements,
particularly those operating in geographic areas that lack significant
terrestrial coverage, such as natural resource companies, utilities and
telecommunications companies that require backup and restorable support, and
public safety organizations.

     Satellite Dispatch Service. The MSV Joint Venture's satellite dispatch
service allows voice communications among users in a customer-defined group
using a push-to-talk device. This service facilitates team-based,
contingency-driven operations of groups over wide and/or remote areas. The MSV
Joint Venture's targeted customer groups for satellite dispatch service
include oil and gas pipeline companies, utilities and telecommunications
companies with outside maintenance fleets, state and local public safety
organizations, and public service organizations who need to seamlessly link
resources on a nationwide basis.

     From providing these services, the MSV Joint Venture produces annual
revenue of approximately $30.0 million and nominal earnings before interest,
taxes, depreciation, and amortization on an unaudited basis.

     The wireless communications industry in which the MSV Joint Venture
operates is highly competitive and characterized by continuing technological
innovation. The MSV Joint Venture's competitors primarily include wireless
communications service providers in the following markets:

          o    PCS/Cellular - PCS and cellular services presently serve the
               majority of mobile communications users in the United States.
               There are a large number of cellular and PCS carriers providing
               voice service throughout most of the densely populated regions
               of the United States, including Verizon Wireless, Cingular
               Wireless, AT&T Wireless, Sprint PCS and Nextel Communications.
               Numerous paging companies also provide services similar to
               those offered or proposed to be offered by the MSV Joint
               Venture.

          o    Mobile Satellite Services - A number of companies are selling
               or developing mobile satellite services utilizing a variety of
               satellite technologies that compete or will compete with the
               MSV Joint Venture's services. Mobile satellite services ("MSS")
               are provided using either geostationary or non-geostationary
               satellite systems.

              Geostationary Earth Orbit Systems - Geostationary earth orbit
              ("GSO") satellite systems orbit approximately 22,000 miles above
              the earth's surface and appear fixed in the sky to an observer
              on earth. This high altitude allows a GSO system to cover much
              larger areas of the earth with a single satellite. Consequently,
              because fewer satellites are necessary, GSO satellite systems
              generally are less expensive to implement and operate than
              non-geostationary earth orbit ("NGSO") satellite systems. GSO
              satellites, however, face difficulties with time delay in the
              satellite signal given the distance that must be traveled for
              the signal to reach the satellite and return to the earth's
              surface, though recent developments in echo-canceling technology
              have significantly diminished the negative effects of this
              inherent time delay for voice communications. The satellite
              signals of both NGSO and GSO satellite systems typically are
              unable to penetrate buildings and are mainly used to support an
              outdoor user market. The MSV Joint Venture's satellites use a
              GSO satellite architecture.

              Non-Geostationary Earth Orbit Systems - Unlike GSO satellite
              systems, NGSO satellite systems use satellites that orbit much
              closer to the earth's surface and appear to traverse the sky
              when viewed by an observer on the earth. The benefit of NGSO
              systems is the reduced time delay in transmitting and receiving
              signals to and from the satellite due to the satellite's
              proximity to the earth's surface. Because NGSO systems orbit
              closer to the earth, however, each satellite covers a smaller
              region of the earth's surface and, accordingly, many more
              satellites are required to provide global coverage, which
              generally makes NGSO systems more expensive to launch and
              operate. Globalstar's NGSO satellite communications service,
              which was launched in 2000, provides voice and data services in
              most areas of the world, including the service areas covered by
              the MSV Joint Venture. In addition, Iridium Satellite LLC
              provides satellite voice services using an NGSO satellite
              system. The Iridium service area overlaps with the service area
              of the MSV Joint Venture.

   MSV Joint Venture's Strategy

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

     The MSV Joint Venture plans, subject to the receipt of further regulatory
and governmental approvals and authorizations, including certain FCC
authorizations and certain approvals by Canadian regulatory authorities, to
develop, build and operate a next-generation satellite system complemented by
an ancillary terrestrial component. Incorporation of ATC into the MSV Joint
Venture's service offering will require significant planning and capital.
While a decision on a specific development plan has not yet been made, such a
plan will require compliance with the parameters set forth by the ATC Order as
described below and other regulatory orders. In addition, development plans
will entail, at a minimum, finalizing technical specifications for satellites,
handsets and signal repeater equipment and selecting manufacturers for these
components. Moreover, manufacturing, supply, launch and installation contracts
will need to be negotiated and executed, and final development of network
protocols and software will need to be completed.

     In addition to development and launch of a next-generation satellite
system, build out of an ATC-enhanced network will require installation of a
network of ground repeaters in any given metropolitan area to enable
in-building signal penetration. Because of the time and expense required to
acquire and incorporate these components, it is anticipated that an ATC will
be phased in over time in various metropolitan areas. The FCC also requires
that entities with GSO satellite systems must maintain a ground spare
satellite prior to implementing an ATC.

   FCC's ATC Order and the MSV Joint Venture's Application

     In the ATC Order, the FCC determined that it would serve the public
interest to permit MSS providers to incorporate an ATC into their satellite
systems in three frequency bands: Big LEO (where Globalstar and Iridium
operate), L-band (where the MSV Joint Venture and Inmarsat operate) and S-band
(where ICO, Celsat, Boeing and Iridium are licensed). Specifically, the ATC
Order allows MSS operators to seek authority to integrate an ATC into their
satellite networks for the purpose of enhancing their ability to offer
high-quality, affordable mobile services on land, in the air and over oceans
without using any additional spectrum resources beyond spectrum already
allocated and authorized by the FCC for MSS in these bands. A similar
application by the MSV Joint Venture is pending before Industry Canada. The
MSV Joint Venture cannot begin offering MSS with an ATC in Canada until that
application is approved.

     The FCC's authorization of ATC for these MSS bands is subject to
conditions that are designed to ensure the integrity of the underlying MSS
offering and to prevent these services from becoming stand-alone terrestrial
offerings. Specifically, to include ATC in their satellite systems, the FCC
required that the MSV Joint Venture and other MSS operators must:

     o    launch (or have launched) and operate their own satellite
          facilities;

     o    provide substantial satellite service to the public;

     o    demonstrate compliance with geographic and temporal satellite
          coverage requirements;

     o    demonstrate that the satellite system's ATC will operate only within
          the licensee's "core" MSS spectrum;

     o    limit ATC operations only to the satellite system's authorized
          footprint;

     o    provide an integrated MSS and ATC service;

     o    not offer a terrestrial only service to consumers; and

     o    obtain handset certification for MSS ATC devices under the equipment
          authorization process in accordance with FCC rules.

     Accordingly, ATC operations of the MSV Joint Venture or other MSS
providers will not be permitted until such licensee has filed an application
with the FCC demonstrating compliance with these requirements. Once the FCC
approves such an application, terrestrial operations may commence. In November
2003, the MSV Joint Venture filed its application. The FCC has put the
application out for public comment, and all objections and responses, if any,
should be filed with the FCC during the second quarter of 2004.

     If the FCC approves an ATC application from the MSV Joint Venture, the
MSV Joint Venture will be permitted to reuse its satellite spectrum
terrestrially, allowing the MSV Joint Venture's customers to use handsets,
including phones, capable of operating inside of buildings and throughout
urban environments, which is currently not possible due to terrain blockage
from buildings and other urban structures that interrupt the satellite
signal's path. Terrestrial wireless providers strenuously opposed the FCC's
proposal to grant ATC, claiming, among other things, that the spectrum held by
the MSS licensees is worth billions of dollars if authorized for exclusive
terrestrial wireless use and, therefore, should be auctioned.

     Given that the ATC Order has authorized licensees in three satellite
bands to incorporate an ATC into their satellite networks, the MSV Joint
Venture may face competition in the provision of mobile satellite service
using an ATC from Big LEO and S-band licensees. Moreover, like the MSV Joint
Venture, Inmarsat offers mobile satellite service in the U.S. using the L-band
spectrum. Although Inmarsat has vigorously opposed the grant of ATC in the
L-band - claiming it would cause unacceptable interference to its satellites -
Inmarsat may reconsider its position now that ATC has been authorized and seek
approval to incorporate an ATC into its satellite service in the U.S., which
could further increase competition in the provision of satellite services
incorporating an ATC.

     Furthermore, if any of the competitors of the MSV Joint Venture receive
approval for their ATC applications prior to the MSV Joint Venture or if the
FCC grants more extensive or more favorable approvals to these potential
competitors, the MSV Joint Venture's ability to implement its business
strategy and compete effectively could also be harmed. In order to address the
interference concerns in the L-band raised by Inmarsat, the FCC placed a limit
on the number of terrestrial base stations that the MSV Joint Venture may
implement per any given 200 kHz channel of bandwidth. Moreover, the MSV Joint
Venture, like all MSS licensees incorporating an ATC, is precluded from
causing harmful interference to other services. If the MSV Joint Venture is
unable to implement an ATC due to the restriction on the number of base
stations, the MSV Joint Venture's business will be limited and the value of
our interest in the MSV Joint Venture will be significantly impaired.

     If the FCC authorizes the MSV Joint Venture to implement an ATC, the
value of our stake in the MSV Joint Venture could significantly increase;
however, even with ATC authority, the ability of the MSV Joint Venture to
succeed is subject to significant risks and uncertainties, including the
ability of the MSV Joint Venture to raise the capital necessary or to identify
and reach an agreement with one or more strategic partners for the
implementation of the next generation satellite system and the widespread
implementation of an ATC. Additional risks include the ability of the MSV
Joint Venture to attract and retain customers, as well as increased potential
competition from other satellite and wireless service providers.

   Additional FCC Actions Impacting the MSV Joint Venture

       In July 2003, the MSV Joint Venture filed a request for reconsideration
of the ATC Order with the FCC. In its request, the MSV Joint Venture has asked
the FCC for clarification on some of the requirements and definitions
contained in the ATC Order. Additionally, the reconsideration request has
asked the FCC to consider relaxing certain of the technical requirements
stipulated in the ATC Order. If the FCC accepts some or all of the requests
made by the MSV Joint Venture, the ability of the MSV Joint Venture to
implement an ATC will be enhanced. If these requests are denied, the ability
to implement an ATC may be impaired.

     Along with issuing the ATC Order granting ATC to MSS license holders in
the Big LEO bands, the L-band and the S-band, the FCC issued a series of
orders voiding the licenses of four of the eight S-band license holders,
including the license of an affiliate of the MSV Joint Venture. The MSV Joint
Venture has the economic rights, through a subsidiary, with respect to this
license. If the license remains voided, the MSV Joint Venture will be unable
to secure any economic benefit from this license. The affiliate has appealed
this determination and has actively pursued reinstatement of the license.

   Conditional Investment By the Other MSV Investors

     Pursuant to the joint venture agreement among the partners of the MSV
Joint Venture (the "MSV Joint Venture Agreement"), in the event that the MSV
Joint Venture had received final regulatory approval from the FCC, as that
phrase is defined in the MSV Joint Venture Agreement, by March 31, 2003 for
its ATC applications, the Other MSV Investors would have been obligated to
invest an additional $50.0 million in the MSV Joint Venture. As the final
regulatory approval from the FCC, as defined in the MSV Joint Venture
Agreement, was not received by March 31, 2003, the additional investment was
not required. However, the Other MSV Investors retained the option to invest
the $50.0 million at 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. This new option will expire on March 31, 2004. We expect that the
Other MSV Investors will exercise the option.

   Automatic Conversion of Convertible Notes

     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 additional equity investments 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. Such additional
equity investments must total approximately $41.6 million if they had been
made by December 31, 2003 and will need to increase thereafter by an amount
equal to the additional interest accrued on the MSV Joint Venture's
outstanding debt. If the convertible notes held by our MSV Investors
Subsidiary are converted into equity interests and the Other MSV Investors
exercise their option, the approximate ownership of the MSV Joint Venture's
equity interests would be as follows: our MSV Investors Subsidiary, 27.4%;
TMI, 22.9%; Motient, 29.5%; and the Other MSV Investors, 20.2%.

Electronic System Products

     On August 25, 2003, for nominal consideration, we purchased all of the
outstanding common stock of ESP. Based in Duluth, Georgia, ESP is a 31-person
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. ESP leverages its engineering and manufacturing expertise to help
expedite a customer's product development cycle and, thus reduce time to
market and total cost. In November 2003, ESP made restricted stock grants to
its employees representing an aggregate of 30% of ESP's outstanding equity,
diluting our ownership to 70%. ESP represents all of our revenue for the year
ended December 31, 2003. ESP's recent achievements include developing a
single-chip stereo decoder for high volume manufacturers, a variety of
wireless security devices, and a patented flow rate monitoring and control
system for dispensing fluid.

Navigauge

     On April 21, 2003, we purchased Series B Preferred Shares from IQStat,
now doing business as Naviguage, representing an ownership interest of
approximately 5%. Through our purchase of ESP in August 2003, we acquired
Series A Preferred Shares representing an additional 16% of Navigauge. From
December 2003 through February 2004, we have participated in other equity
financings of Navigauge, raising our total ownership to approximately 24% of
the outstanding equity. We appoint two of the seven members of the Navigauge
board of directors.

     Navigauge is a privately held media and marketing research firm targeting
radio broadcasters, advertisers and advertising agencies in the United States.
After three years of extensive research and development, Navigauge has
completed development, with the help of ESP, of a revolutionary,
patent-pending monitoring device which tracks the in-car radio usage and
driving habits of consumers. Navigauge will recruit a statiscally-balanced
panel in the top media markets in the country beginning with Atlanta in April
2004. Data collected from the panel will be used to generate information
regarding radio usage and consumer behavior that can be marketed.

Miraxis

     Miraxis is a development stage company that has access to a Ka-band
license with which it intends to provide satellite based multi-channel,
broadband data and video services in North America. We currently hold
approximately 40% of the outstanding membership interests and appoint two of
the five directors of the manager of Miraxis. Additionally, we entered into a
management support agreement with Miraxis under which our current Chief
Executive Officer and President provided certain services to Miraxis in
exchange for additional equity interests in Miraxis to be issued to us. That
agreement expired in May 2003. The assets of Miraxis consist principally of
its business plan, its access to the Ka-band license and certain memoranda of
understanding between Miraxis and certain potential strategic business
partners. To execute its business plan, Miraxis will need to raise significant
amounts of capital in order to launch several satellites. Miraxis does not
currently have any customers.

Verestar

     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, a global provider of integrated satellite and fiber
services to government organizations, multi-national corporations,
broadcasters and communications companies. Concurrent with the signing of the
securities purchase agreement, we purchased a 10% senior secured note with a
principal balance of $2.5 million and a due date of August 2007. We terminated
the securities purchase agreement on December 22, 2003. Subsequently, Verestar
filed for bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code.

        On March 8, 2004, we executed an asset purchase agreement to acquire,
through a newly formed subsidiary, substantially all of the assets and
business of Verestar pursuant to Section 363 of the Bankruptcy Code for $7.0
million, including cash and the forgiveness of the outstanding senior secured
note, and 19.9% of the stock of the newly formed subsidiary. In addition, we
will provide an additional $3.0 million in funding to the new subsidiary upon
closing of the purchase. The transaction is still subject to a number of
contingencies, including an auction on March 30, 2004 at which Verestar will
consider higher and better offers and final approval of the bankruptcy court
and the FCC.

Employees

     As of December 31, 2003, we and our consolidated subsidiaries had 36
employees. We believe our relationship with our employees is good, and none
are represented by a union. Generally, our employees are retained on an
at-will basis. We have entered into employment agreements, however, with
certain of our key employees and require all of our senior managers, as well
as most of our key employees, to sign confidentiality agreements. Certain of
our personnel have non-competition agreements that prohibit them from
competing with us for various periods following termination of their
employment.

Government Regulation

     Currently, we are not subject to any direct governmental regulation other
than the securities laws and regulations applicable to all publicly owned
companies and laws and regulations applicable to businesses generally.
However, the mobile satellite communications business of the MSV Joint Venture
is subject to extensive government regulation in the United States and Canada.

     The ownership and operation of the MSV Joint Venture's mobile satellite
communications business is subject to the rules and regulations of the FCC,
which acts under the authority established by the Communications Act of 1934,
as amended, and related federal laws, as well as Industry Canada. Among other
things, the FCC and Industry Canada allocate portions of the radio frequency
spectrum to certain services and grant licenses to and regulate individual
entities using that spectrum. The MSV Joint Venture operates pursuant to
various licenses granted by the FCC and Industry Canada.

     In response to the applications by the MSV Joint Venture and certain
other MSS providers, the FCC has issued an order permitting the incorporation
of an ATC into mobile satellite services in various frequency bands, including
the Big LEO bands where Iridium and Globalstar provide service, as well as
other mobile satellite frequency bands, subject to a set of conditions being
met. The failure of the MSV Joint Venture to meet these conditions and obtain
the requisite regulatory authorization for an ATC-enhanced, next generation
system may harm the MSV Joint Venture's ability to implement its business
strategy and compete effectively, which may cause our joint venture interest
in the MSV Joint Venture to depreciate or never appreciate in value, and this
could have a material adverse effect on our financial condition. See "Risk
Factors - The value of our interest in the MSV Joint Venture may never
appreciate or may decline significantly in the future because the MSV Joint
Venture is entering a new stage of development and its business involves a
high degree of risk" under this Item 1.

Risk Factors

     You should carefully consider the risks described below in evaluating our
common stock. The risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently known to us may
also impair our operations and business. If we do not successfully address any
of the risks described below, there could be a material adverse effect on our
financial condition, operating results and business, and the trading price of
our common stock may decline. We cannot assure you that we will successfully
address these risks.

   The value of our interest in the MSV Joint Venture may never appreciate or
   may decline significantly in the future because the MSV Joint Venture is
   entering a new stage of development and its business involves a high degree
   of risk.

     Our interest in the MSV Joint Venture represents a substantial portion of
the value of our total assets. The value of our investment in the MSV Joint
Venture may never appreciate in value or may decline rapidly in value in the
future. With the FCC's issuance of the ATC Order, the MSV Joint Venture has
entered a new stage of development which will require significant future
funding requirements and/or a need for one or more strategic partners. The MSV
Joint Venture's business is subject to a number of significant risks and
uncertainties, including (1) rapid technological change, (2) intense
competition and (3) extensive government regulation by the FCC in the United
States and by Industry Canada in Canada.

   The inability of the MSV Joint Venture to meet certain conditions in order
   to implement an ATC system may have negative consequences on the value of
   our interest in the MSV Joint Venture.

     The FCC's authorization of ATC for the MSS bands is subject to conditions
that are designed to ensure the integrity of the underlying MSS offering and
to prevent these services from becoming stand-alone terrestrial offerings.
Specifically, to include ATC in their satellite systems, the FCC required that
the MSV Joint Venture and other MSS operators must:

     o    launch (or have launched) and operate their own satellite
          facilities;

     o    provide substantial satellite service to the public;

     o    demonstrate compliance with geographic and temporal satellite
          coverage requirements;

     o    demonstrate that the satellite system's ATC will operate only within
          the licensee's "core" MSS spectrum;

     o    limit ATC operations only to the satellite system's authorized
          footprint;

     o    provide an integrated MSS and ATC service;

     o    not offer a terrestrial only service to consumers; and

     o    obtain handset certification for MSS ATC devices under the equipment
          authorization process in accordance with FCC rules.

     Accordingly, ATC operations of the MSV Joint Venture or other MSS
providers will not be permitted until such licensee has filed an application
with the FCC demonstrating compliance with these requirements. Once the FCC
approves such an application, terrestrial operations may commence. While the
MSV Joint Venture has filed such application, there can be no assurances that
the MSV Joint Venture will receive the requisite approval to implement an ATC
system.

   The FCC may amend the initial ATC Order which may have negative
   consequences on our interest in the MSV Joint Venture.

     Terrestrial wireless providers strenuously opposed the FCC's proposal to
grant ATC, claiming that the spectrum held by the MSS providers including the
MSV Joint Venture, is worth billions of dollars if authorized for terrestrial
wireless use and should be auctioned. Their opposition is expected to continue
and could cause the amendment of the ATC Order in a manner unfavorable to the
MSV Joint Venture and other MSS providers. If the FCC changes certain aspects
of the ATC Order following an appeal, the value of the ATC Order may be
impaired. While the MSV Joint Venture along with its members, including us,
will continue to deploy our resources to support the ATC Order and seek
authorization from the FCC to implement an ATC, there can be no assurances
that we will be successful.

   If it implements an ATC system, the MSV Joint Venture may face increased
   competition which may have negative consequences on our interest in the MSV
   Joint Venture.

     The ATC Order permits the MSV Joint Venture, which currently operates in
the L-band, as well as the MSS operators in the Big LEO band and the S-band,
to implement ATCs, subject to meeting the FCC's conditions. Accordingly, the
MSV Joint Venture will likely face serious competition in the provision of MSS
using an ATC. Moreover, like the MSV Joint Venture, Inmarsat offers mobile
satellite service in the U.S. using the L-band spectrum. Although Inmarsat has
vigorously opposed the grant of ATC in the L-band - claiming it would cause
unacceptable interference to its satellites - if the ATC Order remains
unchanged and the MSV Joint Venture meets the requirement set forth in the ATC
Order and receives authorization to operate an ATC system, Inmarsat may
reconsider its position and seek approval to incorporate an ATC into its
satellite service in the U.S.

     Furthermore, if any of the competitors of the MSV Joint Venture receive
approval for their final applications for an ATC prior to the MSV Joint
Venture or if the FCC grants more extensive or more favorable approvals to
these potential competitors, the MSV Joint Venture's ability to implement its
business strategy and compete effectively could also be harmed. If an ATC does
not receive final regulatory approval or if the MSV Joint Venture is unable to
implement an ATC due to restrictions imposed by the FCC or otherwise, the MSV
Joint Venture's business will be severely limited and the value of our
interest in the MSV Joint Venture will be significantly impaired.

   The MSV Joint Venture has experienced, and may continue to experience,
   anomalies with its satellites which may have negative consequences on our
   interest in the MSV Joint Venture.

     Satellite services face numerous uncertainties that are unique to the
industry. Satellite launches are inherently risky and launch failures occur.
Moreover, once in orbit, satellites can experience failures or technical
anomalies that could damage the ability to provide services to customers. The
MSV Joint Venture's satellites have experienced anomalies. No adequate
assurance can be given that such anomalies will not impair the MSV Joint
Venture's business or that they will not occur on future satellites.
Satellites cannot be repaired once in orbit and, accordingly, even a technical
anomaly short of total failure of the satellite could limit the usefulness of
the satellite. The MSV Joint Venture's application to incorporate an ATC
contemplates that these services will be provided using one or more
next-generation satellites. Accordingly, the MSV Joint Venture will face the
risks attendant with launching new satellites in the near term should specific
authorizations to launch be received.

   The MSV Joint Venture may be unable to raise the additional capital
   necessary to meet its strategic objectives which may have negative
   consequences on our interest in the MSV Joint Venture.

     The MSV Joint Venture will need to raise additional funds through public
or private debt or equity financings in order to (1) implement its business
plans; (2) take advantage of opportunities, including acquisitions of, or
investments in, businesses or technologies; (3) develop new services; or (4)
respond to competitive pressures. We cannot assure you that any such
additional financing will be available on terms favorable to the MSV Joint
Venture, or at all.

   Governmental regulation of the mobile satellite services industry could
   negatively impact the value of our interest in the MSV Joint Venture.

     Currently, we are not subject to any direct governmental regulation other
than the securities laws and regulations applicable to all publicly owned
companies and laws and regulations applicable to businesses generally. The
mobile satellite services business of the MSV Joint Venture, however, is
subject to extensive government regulation in the United States and Canada.
Unlike some satellite services where a satellite licensee is granted an
exclusive right to a predetermined amount of spectrum for a definite time
period, L-band spectrum historically has been shared among five different
licensees (Solidaridad in Mexico, TMI in Canada, Motient in the U.S., the
Russian Federation, and Inmarsat), and these five licensees have agreed to
coordinate their spectrum needs on an annual basis and divide the available
L-band spectrum among themselves. Among other considerations, prior usage of
the L-band to provide service is one factor determining the allotment to each
licensee on an annual basis. Notwithstanding the agreement among these five
licensees to coordinate annually their spectrum usage in the L-band, the five
licensees currently continue to operate pursuant to a coordination agreement
reached in Mexico City in 1995 and annual coordination meetings have not been
held since 1999. Motient and TMI were licensed by their respective
communications regulatory agencies many years ago to use L-band spectrum in
their respective countries. Following FCC and Industry Canada consent, Motient
and TMI assigned their respective L-band satellite licenses to the MSV Joint
Venture. The MSV Joint Venture cannot be assured that it will have access to
sufficient L-band spectrum to meet its needs in the future pursuant to this
annual coordination process. Moreover, Inmarsat has vigorously opposed the
approval of ATC in the L-band, which may complicate the annual coordination
process for spectrum in the L-band.

     Moreover, several companies were authorized by the FCC to use mobile
earth terminals in the U.S. over the Inmarsat L-band satellites. These
authorizations could increase the demand for and usage of the L-band by
Inmarsat, which in turn could increase Inmarsat's demand for L-band spectrum
pursuant to the annual coordination process in the L-band. The FCC further
proposed that any new spectrum that becomes available in the L-band may be
awarded to competing mobile satellite service providers. If the FCC adopts
this proposal, the MSV Joint Venture could face increased competition in the
mobile satellite services marketplace.

   We may not collect on the outstanding promissory note from Motient.

     On May 1, 2002, to mitigate the risk, uncertainties and expenses
associated with Motient's plan of reorganization, the Company cancelled the
outstanding amounts due under the original promissory notes issued by Motient
and accepted a new note in the principal amount of $19.0 million (the "New
Motient Note") that was issued by a new, wholly-owned subsidiary of Motient
that owns 100% of Motient's interests in the MSV Joint Venture ("MSV Holdings
Inc."). The New Motient Note is due on May 1, 2005 and bears interest at a
rate of 9% per annum. Although the New Motient Note is unsecured, there are
material restrictions placed on the use of MSV Holdings Inc.'s assets, and MSV
Holdings, Inc. is prohibited from incurring or guarantying any debt in excess
of $21.0 million (including the New Motient Note). Additionally, there are
events of default (e.g., a bankruptcy filing by Motient) that would accelerate
the due date of the New Motient Note. In light of, among other things, the
operating results and financial condition of Motient, there can be no
assurance that we will be able to collect the New Motient Note. As a result of
the uncertainty with respect to the ultimate collection, a reserve continues
to be maintained for the entire amount of the New Motient Note and accrued
interest thereon.

   Apollo beneficially owns a large percentage of our voting stock.

     As of March 25, 2004, Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P., AIF IV/RRRR LLC and AP/RM Acquisition LLC (collectively,
the "Apollo Stockholders") owned 1,745,375 shares of our voting common stock,
all of the 8,990,212 shares of our non-voting common stock, all of the
1,171,612 outstanding shares of our preferred stock and all of our outstanding
Series 1-A and Series 2-A warrants. Assuming that all currently outstanding
shares of our preferred stock are converted and all Series 1-A warrants and
Series 2-A warrants are exercised, the Apollo Stockholders would beneficially
own approximately 76.0% of our outstanding common stock and 52.1% of our
outstanding voting power. Additionally, the Apollo Stockholders' ownership
interest in us may increase upon its conversion of additional shares of
preferred stock or its exercise of additional Series 1-A warrants received as
in-kind dividends on its shares of preferred stock. As long as the Apollo
Stockholders own at least 100,000 shares of the preferred stock, we are
precluded from taking various corporate actions and entering into various
transactions without the Apollo Stockholders' consent. In addition, voting as
a separate class, the Apollo Stockholders have the right to elect two of the
members of our board of directors and have certain approval rights with
respect to additional members of our board of directors in the event that the
size of our board of directors is increased. Furthermore, the delisting of our
common stock from the Nasdaq National Market resulted in an event of
non-compliance under the provisions of our preferred stock. As a result, the
Apollo Stockholders have the right to elect the majority of our board of
directors. In addition to being entitled to 975,000 votes with respect to the
preferred stock, the Apollo Stockholders have agreed that the 474,427 shares
of voting common stock acquired in the July 2002 tender offer which would
otherwise entitle them to cast more than 29.9% of our voting power will be
voted pro-rata with all other votes cast by the holders of voting common
stock.

     Because of the Apollo Stockholders' large percentage of ownership and
their rights as holders of preferred stock, the Apollo Stockholders have
significant influence over our management and policies, such as the election
of our directors, the appointment of new management and the approval of any
other action requiring the approval of our stockholders, including any
amendments to our certificate of incorporation and mergers or sales of all or
substantially all of our assets. In addition, the level of the Apollo
Stockholders' ownership of our shares of common stock and these rights could
have the effect of discouraging or impeding an unsolicited acquisition
proposal.

   The Apollo Stockholders will be entitled to quarterly cash dividends
   commencing July 1, 2004.

     In accordance with the terms of our preferred stock, the Apollo
Stockholders will be entitled to receive cash dividends commencing on July 1,
2004 with the first such payment being due on September 30, 2004. While we had
cash, cash equivalents and short-term investments of $28.7 million as of
December 31, 2003, such dividend payment will be approximately $5.6 million
per year through the mandatory redemption on June 30, 2012 or such earlier
time as the terms of the preferred stock are renegotiated. There can be no
assurance that we will be able to meet these quarterly dividend obligations
from existing cash, cash equivalents and short-term investments through
redemption, to raise additional capital to meet these obligations or to
otherwise reach an agreement with the Apollo Stockholders to modify the terms
of these obligations.

   Our ability to acquire the assets of Verestar is subject to
   numerous uncertainties.

     On March 8, 2004, we executed an asset purchase agreement to acquire,
through a newly formed subsidiary, substantially all of the assets and
business of Verestar pursuant to Section 363 of the Bankruptcy Code for $7.0
million, including cash and the forgiveness of the outstanding senior secured
note, and 19.9% of the stock of the newly formed subsidiary. In addition, we
will provide an additional $3.0 million in funding to the new subsidiary upon
closing of the purchase. The transaction is still subject to a number of
contingencies, including an auction on March 30, 2004 at which Verestar will
consider higher and better offers and final approval of the bankruptcy court
and the FCC. There can be no assurance that we will be the winning bidder,
that we will be able to close the transaction or that the business, under our
ownership, will ultimately be profitable or otherwise increase in value.

     As of December 31, 2003, the carrying value of our senior secured note
from Verestar approximates its fair value based on the value of the collateral
supporting the note. Although Verestar filed for bankruptcy protection on
December 22, 2003, we entered into a stipulation with Verestar under which the
parties agreed to, among other things, the validity and enforcement of the
obligation under the note and the Company's security interest in Verestar's
assets. The bankruptcy court approved the stipulation on February 9, 2004. If
the Creditors' Committee does not object to the order by April 2, 2004, then
the note will be deemed a secured claim of Verestar for all purposes of the
bankruptcy proceeding. On March 26, 2004, we entered a consent order with the
Creditors' Committee pursuant to which the Creditors' Committee stipulated to
the allowance of the $2.5 million secured claim on our senior secured note.
Pursuant to the same consent order, we stipulated to extend by 75 days, the
time in which the Creditors' Committee could object to our claim, but only to
the extent the claim exceeded $2.5 million. There can be no assurance that the
Creditors' Committee will not make such an objection or that such efforts will
not impair our ability to collect any interest or other amounts owed on the
note in excess of the $2.5 million.

   Our common stock has been listed on the OTC Bulletin Board for the past
   year which limits the liquidity and could negatively affect the value of
   our common stock.

     Since January 30, 2003, following our delisting from the Nasdaq National
Market, price quotations have been available on the OTC Bulletin Board.
Delisting from the Nasdaq resulted in a reduction in the liquidity of our
common stock. This lack of liquidity will likely also make it more difficult
for us to raise additional capital, if necessary, through equity financings.
In addition, the delisting of our common stock from the Nasdaq National Market
resulted in an event of non-compliance under the provisions of our preferred
stock. As we have been unable to obtain a waiver of this event of
non-compliance, the Apollo Stockholders are entitled to elect a majority of
the members of our board of directors.

   We may suffer adverse consequences if we are deemed to be an investment
   company.

     We may suffer adverse consequences if we are deemed to be an investment
company under the Investment Company Act of 1940. A company may be deemed to
be an investment company if it owns investment securities with a value
exceeding 40% of its total assets, subject to certain exclusions. Some
investments made by us may constitute investment securities under the
Investment Company Act of 1940. If we were to be deemed an investment company,
we would become subject to registration and regulation as an investment
company under the Investment Company Act of 1940. If we failed to do so, we
would be prohibited from engaging in business or issuing our securities and
might be subject to civil and criminal penalties for noncompliance. In
addition, certain of our contracts might be voidable, and a court-appointed
receiver could take control of our company and liquidate our business. If we
registered as an investment company, we would be subject to restrictions
regarding our operations, investments, capital structure, governance and
reporting of our results of operations, among other things, and our ability to
operate as we have in the past would be adversely affected.

     Although our investment securities currently do not comprise more than
40% of our assets, fluctuations in the value of these securities or of our
other assets may cause this limit not to be satisfied. Unless an exclusion or
safe harbor were available to us, in certain circumstances, we would have to
attempt to reduce our investment securities as a percentage of our total
assets in order to avoid becoming subject to the requirements of the
Investment Company Act of 1940. This reduction can be attempted in a number of
ways, including the disposition of investment securities and the acquisition
of non-investment security assets. If we were required to sell investment
securities, we may sell them sooner than we otherwise would. These sales may
be at depressed prices, and we may never realize anticipated benefits from, or
may incur losses on, these investments. Some investments may not be sold due
to contractual or legal restrictions or the inability to locate a suitable
buyer. Moreover, we may incur tax liabilities when we sell assets. We may also
be unable to purchase additional investment securities that may be important
to our operating strategy. If we decide to acquire non-investment security
assets, we may not be able to identify and acquire suitable assets and
businesses.

   Fluctuations in our financial performance could adversely affect the
   trading price of our common stock.

     Our financial results may fluctuate as a result of a variety of factors,
many of which are outside of our control, including:

     o    risks and uncertainties affecting the current and proposed business
          of the MSV Joint Venture and the mobile satellite services industry;

     o    risks and uncertainties associated with our agreement to purchase
          the assets of Verestar pursuant to Section 363 of the Bankruptcy
          Code;

     o    increased competition in the mobile satellite services industry;

     o    costs associated with discontinuing our Internet professional
          services business; and

     o    general economic conditions.

     As a result of these possible fluctuations, period-to-period comparisons
of our financial results may not be reliable indicators of future performance.

   The price of our common stock has been volatile.

     The market price of our common stock has been, and is likely to continue
to be, volatile, experiencing wide fluctuations. In recent years, the stock
market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many companies
in the technology sector. Future market movements may materially and adversely
affect the market price of our common stock, particularly in light of the
diminished liquidity of our common stock as a result of our delisting from the
Nasdaq.

   Our business is subject to general economic conditions. Future economic
   downturns could have an adverse impact on the value of our interest in the
   MSV Joint Venture.

     Our business is subject to fluctuations based upon the general economic
conditions in North America and, to a lesser extent, the global economy.
Future general economic downturns or a continued recession in the United
States could substantially reduce the demand for satellite communications
services, thereby reducing the value of our interest in the MSV Joint Venture.
A further deterioration in existing economic conditions could therefore
materially and adversely affect our financial condition, operating results and
business.

   We do not intend to pay dividends on shares of our common stock in the
   foreseeable future.

       We currently expect to retain our future earnings, if any, for use in
the operation and expansion of our business. We do not anticipate paying any
cash dividends on shares of our common stock in the foreseeable future.

   The issuance of preferred stock or additional common stock may adversely
   affect our stockholders.

     Our board of directors has the authority to issue up to 10,000,000 shares
of our preferred stock and to determine the terms, including voting rights, of
those shares without any further vote or action by our common stockholders.
The voting and other rights of the holders of our common stock will be subject
to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. Similarly, our board may
issue additional shares of common stock without any further vote or action by
our common stockholders, which would have the effect of diluting common
stockholders. An issuance could occur in the context of another public or
private offering of shares of common stock or preferred stock or in a
situation where the common stock or preferred stock is used to acquire the
assets or stock of another company. The issuance of common stock or preferred
stock, while providing desirable flexibility in connection with possible
acquisitions, investments and other corporate purposes, could have the effect
of delaying, deferring or preventing a change in control.

   Anti-takeover provisions could make a third-party acquisition of our
   company difficult.

     We are a Delaware corporation. The Delaware General Corporation Law
contains provisions that could make it more difficult for a third party to
acquire control of our company. In addition, the holders of our preferred
stock have certain rights which could prevent or impair the ability of a third
party to acquire control of the company.

   Shares eligible for future sale could cause our stock price to decline.

     The market price of our common stock could decline as a result of future
sales of substantial amounts of our common stock, or the perception that such
sales could occur. Furthermore, certain of our existing stockholders have the
right to require us to register their shares, and the holders of our preferred
stock and Series 1-A and 2-A warrants have the right to require us to register
the shares of common stock underlying these securities, which may facilitate
their sale of shares in the public market.

Item 2.  Properties

     Our principal office is located in New York, New York, where we lease
approximately 2,300 square feet of space. We routinely evaluate our facilities
for adequacy in light of our plans for the future.

Item 3.  Legal Proceedings

     On November 19, 2001, five of our shareholders filed a complaint against
us, certain of our 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 stock when they sold the company that
they owned to us. 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, we 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, we filed a
motion to dismiss on behalf of our self and our current and former officers
and directors. On March 7, 2003, the Court denied the motion to dismiss, and
discovery commenced. We expect to file a motion for summary judgment in the
second quarter of 2004. We intend to continue to dispute this matter
vigorously.

     We and certain of our 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., our former name, and
the Engelhard/ICC ("E/ICC") joint venture arising from the desiccant air
conditioning business that we and our subsidiaries sold in 1998. The claimant
has sought $8.5 million for (a) its alleged out of pocket losses in investing
in certain of E/ICC's technology, (b) unjust enrichment resulting from the
reorganization of E/ICC in 1998, and (c) 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. We intend to vigorously dispute this
action.

     On July 26, 2002, plaintiffs James D. Loeffelbein, Terrie L. Pham and
certain related parties filed suit against the lead plaintiff's counsel in the
class action lawsuit, us, certain of our current and former officers, our
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 us and
certain of our 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. On
October 11, 2002, the plaintiffs sought to have the matter remanded to state
court. On May 7, 2003, the Federal District Court denied the plaintiffs
request to remand the matter as it related to us, our defendants and an
additional defendant. On June 9, 2003, we and our defendants filed a motion to
dismiss. On August 4, 2003, the plaintiffs responded. On October 21, 2003, the
Federal District Court dismissed the action, holding that it lacked personal
jurisdiction over us and our defendants and, accordingly, found it unnecessary
to rule upon our other bases for dismissal. On February 26, 2004, the court
denied a motion by the plaintiffs to reconsider the dismissal. On March 26,
2004, the plaintiffs filed a notice of appeal. We intend to vigorously oppose
this appeal.

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

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

     Our annual meeting of stockholders for the year ended December 31, 2002
was held on December 4, 2003. We solicited proxies for the meeting pursuant to
Regulation 14A under the Securities and Exchange Act of 1934 (the "Exchange
Act"). All of management's nominees for the election of the board of directors
were elected, and there was no solicitation in opposition to management's
nominees. In addition, the Company's stockholders also voted on the following
proposal with the following results:

     The amendment to the Certificate of Incorporation of the Company to
eliminate the classified board structure was ratified as broker non-votes
effectively counted as votes against the proposal.

<TABLE>
<CAPTION>
                                                                             Broker
                                  For             Against        Abstain     Non-Votes
                                  ---             -------        -------     ---------
<S>                             <C>                  <C>              <C>            <C>
    Preferred Stock             975,000              0                0              0
    Common Stock              5,700,739         42,880           33,036              0
</TABLE>

     The amendment to the Certificate of Incorporation of the Company to
reduce the number of authorized shares of voting common stock, non-voting
common stock and preferred stock was not ratified as broker non-votes
effectively counted as votes against the proposal.

<TABLE>
<CAPTION>
                                                                              Broker
                                  For          Against          Abstain      Non-Votes
                                  ---          -------          -------      ---------
<S>                           <C>               <C>              <C>         <C>
    Preferred Stock             975,000              0                0              0
    Common Stock              2,165,303         47,458           32,761      3,531,133
</TABLE>

     The appointment of KPMG LLP as the independent auditors of the Company
for the year ended December 31, 2003 was ratified.

<TABLE>
<CAPTION>
                                                                              Broker
                                  For          Against          Abstain      Non-Votes
                                  ---          -------          -------      ---------
<S>                           <C>               <C>              <C>            <C>
    Preferred Stock             975,000              0                0              0
    Common Stock              5,725,680         20,827           30,148              0
</TABLE>


Item 4A.  Executive Officers of the Registrant


     The following table sets forth information concerning our directors and
executive officers as of March 25, 2004:


           Name       Age                         Position
--------------------------------------------------------------------------------
Jeffrey A. Leddy      48           Chief Executive Officer and President
Robert C. Lewis       38    Senior Vice President, General Counsel and Secretary
Erik J. Goldman       43                       Vice President
Keith C. Kammer       42                       Vice President
Craig J. Kaufmann     28                  Controller and Treasurer

-----------------

Jeffrey A. Leddy - Chief Executive Officer and President. Mr. Leddy has been
the Company's Chief Executive Officer and President since April 2003, having
served as its President and Chief Operating Officer since October 2002 and its
Senior Vice President of Operations since June 2002. From September 1980 to
December 2001, Mr. Leddy worked for EMS Technologies, most recently as a Vice
President. Mr. Leddy also currently serves as President of Miraxis, LLC, an
affiliate of the Company, a position he has held since September 2001.

Robert C. Lewis - Senior Vice President, General Counsel and Secretary. Mr.
Lewis has been the Company's Vice President and General Counsel since May 1998
and Secretary of the Company since August 1998. Mr. Lewis was appointed the
Company's Senior Vice President on July 26, 2000. Prior to joining the
Company, Mr. Lewis was an associate at the law firm of Fried, Frank, Harris,
Shriver & Jacobson from October 1992.

Erik J. Goldman - Vice President. Mr. Goldman has been a Vice President of the
Company since March 2003. Prior to joining the Company Mr. Goldman consulted
to a European Satellite Digital Audio Radio start-up. From 1995 to December
2001, Mr. Goldman worked for Leo One Worldwide, most recently as Vice
President of Technology and Business Development. Previously, Mr. Goldman
served as Director of Business Development for dbX Corporation, a telecom
focused investment and management group. Prior to joining dbX in 1991, Mr.
Goldman served as a Member of Technical Staff of Mitre Corporation and as a
Senior Communications Design Engineer of Raytheon Corporation.

Keith C. Kammer - Vice President. Mr. Kammer has been a Vice President of the
Company since August 2003. From September 2000 to May 2003, Mr. Kammer was the
Chief Financial Officer of Alpha Fund Management, and from October 1980 to
September 2000, Mr. Kammer worked at United Parcel Service, most recently as a
Vice President of Finance.

Craig J. Kaufmann - Controller and Treasurer. Mr. Kaufmann has been the
Company's Controller and Treasurer since April 2003, having served as its
Director of Financial Reporting since November 2000. Prior to joining the
Company, Mr. Kaufmann was the Financial Reporting Manager of Kozmo.com since
March 2000 and an associate at PricewaterhouseCoopers from August 1998 to
March 2000.


                                    PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters

     There is no established public trading market for our voting common
stock. On December 23, 2002, our voting common stock was delisted from the
Nasdaq National Market. Since that time, shares of our voting common stock
have traded in interdealer and over-the-counter transactions and price
quotations have been available in the "pink sheets." On January 30, 2003, our
voting common stock also became listed on the OTC Bulletin Board. Our voting
common stock has traded under the symbol "SKYT" since our name change on
September 24, 2003.

     The following table sets forth, for the fiscal quarters indicated, (i)
the high and low sales prices per share as reported on the Nasdaq National
Market where our stock traded prior to the December 23, 2002 delisting by the
Nasdaq; (ii) the high and low sales prices per share as reported by the Pink
Sheets LLC at www.pinksheets.com on and after December 23, 2002; and (iii) the
high and low sales prices per share as reported on the OTC Bulletin Board on
and after January 30, 2003:

<TABLE>
<CAPTION>
                                                                                 High        Low
                                                                                 ----        ---
<S>                                                                             <C>        <C>
           Nasdaq
             Year ended December 31, 2002
               First quarter.........................................           $  8.00    $  2.10
               Second quarter........................................              4.00       1.30
               Third quarter.........................................              2.10       0.85
               Fourth quarter (through December 20, 2002)............              1.36       0.64

           Pink Sheets
             Year ended December 31, 2002
               Fourth quarter (December 23 to December 31, 2002).....           $  1.05    $  0.05

             Year ended December 31, 2003
               First quarter (through January 29, 2003)..............           $  1.25    $  0.05

           OTC Bulletin Board
             Year ended December 31, 2003
               First quarter (January 30 to March 31, 2003)..........           $  1.00    $  0.45
               Second quarter........................................              3.41       0.75
               Third quarter.........................................              4.00       1.30
               Fourth quarter .......................................              3.85       1.40
</TABLE>


     The above quotations reported by Nasdaq, Pink Sheets LLC and the OTC
Bulletin Board reflect interdealer prices, which may not include retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions. On March 25, 2004, the last sale price for our voting common
stock as reported by the OTC Bulletin Board was $3.30 per share.

     As of March 25, 2004, we had approximately 863 recordholders of our
voting common stock. This number was derived from our stockholder records, and
does not include beneficial owners of our voting common stock whose shares are
held in the names of various dealers, clearing agencies, banks, brokers, and
other fiduciaries. Holders of our voting common stock are entitled to share
ratably in dividends, if and when declared by our board of directors.

     We have not paid a cash dividend on our common stock for the fiscal years
ended December 31, 2002 and December 31, 2003, and it is unlikely that we will
pay any cash dividends on our common stock in the foreseeable future. The
payment of cash dividends on our common stock will depend on, among other
things, our earnings, capital requirements and financial condition, and
general business conditions. Under the terms of the purchase agreement we
entered into with the holders of our preferred stock, for so long as such
holders beneficially own not less than 100,000 shares of preferred stock, we
are prohibited from declaring or paying, and may not permit any of our
subsidiaries to declare or pay, any dividend or make any other distribution in
respect of any other shares of our capital stock without the prior written
consent of such holders. In addition, future borrowings or issuances of
preferred stock may prohibit or restrict our ability to pay or declare
dividends.


Item 6. Selected Financial Data

     The following historical selected financial data for the years ended
December 31, 2003, 2002, 2001, 2000 and 1999 have been derived from financial
statements that have been audited by our independent accountants. There were
no cash dividends paid to holders of our common stock in any of these years.
The data should be read in conjunction with our financial statements and the
notes thereto included elsewhere in this report. The format of prior year data
has been reclassified to reflect the accounting for discontinued operations.

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                               -------------------------------------------------------------------------------
                                                  2003             2002            2001             2000             1999
                                               ------------    -------------    ------------    --------------    ------------
                                                                      (in thousands except share data)
<S>                                                       <C>                           <C>             <C>             <C>
Consolidated Statements of Operations
   Data:
Revenues                                         $        699    $       --      $      1,906    $      8,284    $      1,569
Cost of revenues                                          913            --             1,337           6,102           1,019
                                                 ------------    ------------    ------------    ------------    ------------
   Gross (loss) profit                                   (214)           --               569           2,182             550
                                                 ------------    ------------    ------------    ------------    ------------
Expenses:
   Selling, general and administrative                  6,690           6,406          21,186          58,760          14,818
   Depreciation and amortization                           43             107           3,028           8,187           1,848
                                                 ------------    ------------    ------------    ------------    ------------
     Total expenses                                     6,733           6,513          24,214          66,947          16,666
                                                 ------------    ------------    ------------    ------------    ------------
Loss from operations                                   (6,947)         (6,513)        (23,645)        (64,765)        (16,116)
Interest income (expense), net                          6,304           5,602           9,189          10,182          (1,479)
Loss on investments in affiliates                        (404)           (385)        (54,633)        (11,102)         (1,469)
Other income (expense), net                               244         (14,716)        (22,239)           (205)            200
Minority interest                                      (1,126)           (998)            (97)           --              --
                                                 ------------    ------------    ------------    ------------    ------------
Loss before taxes and discontinued
   operations                                          (1,929)        (17,010)        (91,425)        (65,890)        (18,864)
Income tax benefit                                       --               350            --              --              --
                                                 ------------    ------------    ------------    ------------    ------------
Loss before discontinued operations                    (1,929)        (16,660)        (91,425)        (65,890)        (18,864)
                                                 ------------    ------------    ------------    ------------    ------------
Discontinued operations:
   Loss from discontinued operations                     --              --          (116,046)        (62,532)        (30,606)
   Gain (Loss) from wind-down of
     discontinued operations                            1,211          12,632          (2,873)           --              --
                                                 ------------    ------------    ------------    ------------    ------------
     Gain (Loss) from discontinued
       operations                                       1,211          12,632        (118,919)        (62,532)        (30,606)
                                                 ------------    ------------    ------------    ------------    ------------
Net loss                                                 (718)         (4,028)       (210,344)       (128,422)        (49,470)
Deemed dividend attributable to
   issuance of convertible preferred
   stock                                                 --              --              --              --           (29,879)
Cumulative dividends and accretion of
   convertible preferred stock to
   liquidation value                                   (9,687)        (10,937)        (11,937)        (22,718)        (13,895)
                                                 ------------    ------------    ------------    ------------    ------------
Net loss attributable to common                  $    (10,405)   $    (14,965)   $   (222,281)   $   (151,140)   $    (93,244)
   stockholders                                  ============    ============    ============    ============    ============
Basic and diluted (loss) earnings per share:
   Continuing operations                         $      (0.76)   $      (2.32)   $     (16.21)   $     (16.57)   $     (17.10)
   Discontinued operation                                0.08            1.06          (18.66)         (11.69)          (8.36)
                                                 ------------    ------------    ------------    ------------    ------------
     Net loss per share                          $      (0.68)   $      (1.26)   $     (34.87)   $     (28.26)   $     (25.46)
                                                 ============    ============    ============    ============    ============
Basic weighted average common shares               15,341,518      11,865,291       6,374,020       5,348,895       3,662,545
   outstanding                                   ============    ============    ============    ============    ============

</TABLE>


<TABLE>
<CAPTION>
                                                                        December 31,
                                            ----------------------------------------------------------------------
                                               2003           2002          2001           2000           1999
                                            -----------    -----------    ----------    -----------    -----------
                                                                       (in thousands)
<S>                                            <C>            <C>           <C>           <C>             <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents, and short-term
   investments                                 $28,692        $39,492       $16,807       $157,483        $28,540
Investment in XM Satellite Radio                    --             --        91,800             --             --
Notes receivable, net                           65,138         56,823        50,486             --             --
Investments in affiliates                        2,769          2,343         2,600         48,016         26,467
Total assets                                    98,099        100,346       163,716        317,491        160,423
Notes payable, less current portion                 --             --            --             --            997
Total liabilities                                6,066          7,715        24,757         40,761         19,208
Series A convertible preferred
   stock, net                                   80,182         70,495        59,558         47,621         26,224
Minority interest                               12,467         11,334        10,097             --             --
Stockholders' (deficit) equity                    (616)        10,802        69,304        229,109        104,991
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

     The following discussion of our financial condition and results of
operations should be read together with our consolidated financial statements
and the related notes thereto. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements.

Overview

     We operate our business through a group of complementary companies in the
telecommunications industry, including the MSV Joint Venture, ESP, IQStat (now
doing business as Naviguage) and Miraxis. Consistent with this strategy we
continue to pursue the acquisition of substantially all the assets and
business of Verestar, a global provider of integrated satellite and fiber
services to governmental organizations, multi-national corporations,
broadcasters and communications companies.

     On August 25, 2003, for nominal consideration, we purchased all of the
outstanding common stock of ESP, a product development firm that creates
products for and provides consulting and engineering services targeted toward
the telecommunications, broadband, satellite communications, and wireless
industries. Through the purchase of ESP, we acquired an additional 16% of
Navigauge, raising our total stake to 21%, as we initially purchased a 5%
interest in Navigauge on April 21, 2003. Navigauge is a privately held media
and marketing research firm that collects data on in-car radio usage and
driving habits of consumers and markets the aggregate date to radio
broadcasters, advertisers and advertising agencies in the United States.

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

     On March 8, 2004, we executed an asset purchase agreement to acquire,
through a newly formed subsidiary, substantially all of the assets and
business of Verestar pursuant to Section 363 of the Bankruptcy Code for $7.0
million, including cash and the forgiveness of the outstanding senior secured
note, and 19.9% of the stock of the newly formed subsidiary. In addition, we
will provide an additional $3.0 million in funding to the new subsidiary upon
closing of the purchase. The transaction is still subject to a number of
contingencies, including an auction on March 30, 2004 at which Verestar will
consider higher and better offers and final approval of the bankruptcy court
and the FCC.

     During the 2003, we evaluated 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-K. Prior to consummating any
transaction, we will have to, among other things, initiate and satisfactorily
complete a due diligence investigation, negotiate the financial and other
terms (including price) and conditions of such transaction, obtain appropriate
board of directors', regulatory and other necessary consents and approvals and
secure financing, to the extent deemed necessary.

     As a result of the decision to discontinue the operations of Rare Medium,
Inc. and its subsidiary LiveMarket, the results of operations of these
businesses have been accounted for as discontinued operations. Accordingly,
our discussion in the section entitled "Results of Operations" focuses on our
continuing operations and includes our results and those of our MSV Investors
Subsidiary, ESP and certain of our Start-up Companies up to their respective
dates of dissolution. If the transaction to acquire substantially all of the
assets of Verestar closes, we expect to consolidate the operating results of
the acquired business after the date of closing.

Critical Accounting Policies and Estimates

     Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. These
accounting principles require us to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and expense
during the periods presented. Although these estimates are based on our
knowledge of current events and actions we may undertake in the future, actual
results may differ from estimates. The following discussion addresses our most
critical accounting policies, which are those that are most important to the
portrayal of our financial condition and results from operations, and that
require judgment. Also, see the notes accompanying the consolidated financial
statements, which contain additional information regarding our accounting
policies.

   Consolidation

     We consolidate the operating results and financial position of
subsidiaries in which we own a controlling financial interest, which is
usually indicated by ownership of a majority voting interest of over fifty
percent of the outstanding voting shares. Because we own approximately 80% of
the voting interest in our MSV Investors Subsidiary and 70% of the voting
interest of ESP, these entities have been included in our consolidated
financial statements.

     We account for minority owned subsidiaries in which we own greater than
20% of the outstanding voting shares but less than 50% and possess significant
influence over their operations under the equity method, whereby we record our
proportionate share of the subsidiary's operating results. Because we own
approximately 24% of the voting interest of Navigauge and 40% of the voting
interest of Miraxis, our proportionate share of these entities respective
operating results have been included in "Loss on Investments in Affiliates" on
the accompanying consolidated statements of operations. Although our notes
receivable currently convert into approximately 30% of the equity interests of
the MSV Joint Venture, so long as our notes have not converted to equity, we
will not record our proportionate share of the MSV Joint Venture's operating
results.

   Notes Receivable

     We value our notes receivable based on the face amount, net of a
valuation reserve for unrealized amounts. We review the net balance of our
notes for changes to the reserve, either increases or decreases, whenever
events or circumstances indicate that the carrying amount differs from its
expected recovery.

     As of December 31, 2003, as a result of the uncertainty with respect to
the ultimate collection on the New Motient Note, we maintain a reserve for the
entire amount of the note. However, the New Motient Note is issued by a wholly
owned subsidiary of Motient that owns 100% of Motient's interests in the MSV
Joint Venture. If we are able to collect on any portion of the New Motient
Note, an adjustment to the reserve will be reflected as income in our
statements of operations.

     As of December 31, 2003, the carrying value of our 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 our interest in the MSV Joint Venture may be significantly impaired.

     As of December 31, 2003, the carrying value of our senior secured note
from Verestar approximates its fair value based on the value of the collateral
supporting the note. Although Verestar filed for bankruptcy protection on
December 22, 2003, we entered into a stipulation with Verestar under which the
parties agreed to, among other things, the validity and enforcement of the
obligation under the note and the Company's security interest in Verestar's
assets. The bankruptcy court approved the stipulation on February 9, 2004. If
the Creditors' Committee does not object to the order by April 2, 2004, then
the note will be deemed a secured claim of Verestar for all purposes of the
bankruptcy proceeding. We do not believe the Creditors' Committee has a valid
basis to object to the stipulation or the underlying validity of the senior
secured note.

   Revenue Recognition

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

Results of Operations

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

   Revenues

     Revenues for the year ended December 31, 2003 increased to $0.7 million
from nil for the year ended December 31, 2002, an increase of $0.7 million.
This increase was due to the acquisition of ESP on August 25, 2003. In future
periods, we expect to report an increase in revenues from services performed
by ESP, as a full period of ESP's operating results will be included.

   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 year ended December 31, 2003 increased to $0.9 million from
nil for the year ended December 31, 2002, an increase of $0.9 million. This
increase was due to the acquisition of ESP on August 25, 2003. In future
periods, we expect cost of revenues from services performed by ESP to
increase, as a full period of ESP's operating results will be included.

   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 year ended December 31, 2003
increased to $6.7 million from $6.4 million for the year ended December 31,
2002, an increase of $0.3 million. This increase was primarily related to the
$0.5 million of professional fees related to the Verestar transaction which
was terminated in December 2003, the $0.4 million of expenses incurred by ESP
after the August 25, 2003 acquisition and the approximately $0.4 million
charge recognized in the year ended December 31, 2003 relating to the
severance and benefits for the Company's former Controller and former
Treasurer. These items were partially offset by the $0.3 million charge
recognized in the year ended December 31, 2002 related to the settlement of
the class action lawsuit and the reduced legal and advisory fees after the
settlement of the class action lawsuit and the $0.3 million insurance claim
payment related to the costs associated with the class action lawsuit.
Furthermore, we recognized $0.1 million of compensation expense and $0.2
million of compensation contra-expense in the years ended December 31, 2003
and 2002, respectively, relating to the re-pricing of certain stock options in
2001 and 2002. As these costs relate to our current operations, including ESP,
we expect our selling, general and administrative expense, excluding any
non-cash compensation expense arising from fluctuations in the price of our
common stock in association with the repricing of certain stock options in
2001 and 2002, to increase in future years as a full year of ESP's operating
results will be included.

   Depreciation and Amortization Expense

     Depreciation and amortization expense consists of the depreciation of
property and equipment and the amortization of the financing costs associated
with the issuance of our Series A convertible preferred stock. Depreciation
and amortization expense for the year ended December 31, 2003 decreased to
approximately $43,000 from $0.1 million for the year ended December 31, 2002,
a decrease of approximately $64,000. This decrease is primarily the result of
the reduction in property and equipment used in our continuing operations,
partially offset by the depreciation of ESP's property and equipment after the
August 2003 acquisition. As our capital expenditures remain nominal, we expect
depreciation and amortization expense to remain at this level in future
periods.

   Interest Income, Net

     Interest income, net for the year ended December 31, 2003 is mainly
comprised of the interest earned on our cash, cash equivalents, and short-term
investments and on our notes receivable from the MSV Joint Venture and
Verestar.

   Loss on Investment in Affiliates

     For the year ended December 31, 2003, we recorded a loss on investments
in affiliates of approximately $0.4 million relating primarily to our
proportionate share of Miraxis' and Navigauge's operating loss. For the year
ended December 31, 2002, we recorded a loss on investments in affiliates of
approximately $0.4 million for our proportionate share of Miraxis' operating
loss. We will continue to monitor the carrying value of our remaining
investments in affiliates.

   Minority Interest

     For the years ended December 31, 2003 and 2002, we recorded minority
interest of approximately $1.1 million and $1.0 million, respectively,
relating to the equity in earnings, primarily the interest income earned on
the convertible notes from the MSV Joint Venture, which is attributable to the
group of unaffiliated third parties who invested approximately $10.2 million
in our MSV Investors Subsidiary.

   Gain from Discontinued Operations

     At the end of the third quarter of 2001, a decision to discontinue the
operations of Rare Medium, Inc. and its LiveMarket subsidiary was made in
light of their performance and prospects. For the years ended December 31,
2003 and 2002, we recognized a gain of approximately $1.2 million and $12.6
million, respectively, as a result of the settlement of Rare Medium, Inc.
liabilities at amounts less than their recorded amounts.

   Net Loss Attributable to Common Stockholders

     For the year ended December 31, 2003, we recorded a net loss attributable
to common stockholders of approximately $10.4 million. The loss was due to the
$0.7 million net loss and the $9.7 million of non-cash deemed dividends and
accretion related to the issuance of our Series A convertible preferred stock.
Dividends were accrued related to the pay-in-kind dividends payable quarterly
on Series A convertible preferred stock and to the accretion of the carrying
amount of the Series A convertible preferred stock up to its $100 per share
face redemption amount over 13 years.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

   Revenues

     Revenues for the year ended December 31, 2002 decreased to nil from
approximately $1.9 million for the year ended December 31, 2001, a decrease of
approximately $1.9 million. The decrease is the result of the sale of our
majority interest in the operations of three Start-up Companies in 2001.

   Cost of Revenues

     Cost of revenues includes salaries, payroll taxes and related benefits
and other direct costs associated with the generation of revenues. Cost of
revenues for the year ended December 31, 2002 decreased to nil from
approximately $1.3 million for the year ended December 31, 2001, a decrease of
approximately $1.3 million. The decrease is the result of the sale of our
majority interest in the operations of three Start-up Companies in 2001.

   Selling, General and Administrative Expense

     Sales, 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 year ended December 31, 2002
decreased to $6.4 million from $21.2 million for the year ended December 31,
2001, a decrease of $14.8 million. This decrease was primarily related to the
reduced infrastructure needed to manage our continuing operations and the sale
of our majority interest in the operations of three Start-up Companies in
2001, partially offset by the legal and advisory costs associated with our
negotiations and settlement with the plaintiffs in the class action lawsuit.

   Depreciation and Amortization Expense

     Depreciation and amortization expense substantially consists of the
depreciation of property and equipment and amortization of intangible assets
as a result of the acquisitions of our Start-up Companies. Depreciation and
amortization expense for the year ended December 31, 2002 decreased to
approximately $0.1 million from $3.0 million for the year ended December 31,
2001, a decrease of approximately $2.9 million. This decrease is primarily the
result of the sale or shutdown of the operations of our Start-up Companies in
2001 and the disposal of property and equipment associated with our
restructuring activities.

   Interest Income, Net

     Interest income, net for the year ended December 31, 2002 is mainly
comprised of the interest earned on our cash, cash equivalents, and short-term
investments and on our convertible notes receivable from the MSV Joint
Venture.

   Loss on Investment in Affiliates

     For the year ended December 31, 2002, we recorded a loss on investments
in affiliates of approximately $0.4 million for our proportionate share of
affiliates' operating losses and amortization of our net excess investment
over our equity in an affiliate's net assets accounted for under the equity
method. For the year ended December 31, 2001, we recorded a loss on
investments in affiliates of $54.6 million, $43.8 million for the impairment
to the carrying value of certain affiliates accounted for under the cost
method, $3.6 million for the realized loss on the sale of publicly traded
securities, $2.7 million for our proportionate share of affiliates' operating
losses and amortization of our net excess investment over our equity in each
affiliate's net assets for those affiliates accounted for under the equity
method, and $4.5 million related to our Start-Up Companies.

   Other Expense, Net

     For the year ended December 31, 2002, we recorded other expense, net of
approximately $14.7 million, consisting primarily of $14.9 million for the
realized loss on the sale of XM Satellite Radio common stock. For the year
ended December 31, 2001, we recorded other expense, net of approximately $22.2
million, consisting primarily of the approximate loss of $26.9 million
relating to the reserve recognized for the Motient promissory notes, partially
offset by a gain of $5.3 million that resulted from difference between the
value of the XM Satellite Radio common stock received in connection with
partial repayment of the Motient notes in accordance with their terms and the
value of XM Satellite Radio common stock using its closing price on the date
of partial repayment.

   Minority Interest

     For the year ended December 31, 2002, we recorded minority interest of
approximately $1.0 million relating to the equity in earnings, primarily the
interest income earned on the convertible notes from the MSV Joint Venture,
which is attributable to the group of unaffiliated third parties who invested
approximately $10.2 million in our MSV Investors Subsidiary.

   Gain (Loss) 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 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. For the year ended December 31,
2002, we recognized a gain of $12.6 million as a result of the settlement of
Rare Medium, Inc. liabilities at amounts less than their recorded amounts. For
the year ended December 31, 2001, we recognized a loss from operations of
$116.0 million relating to these businesses and $2.9 million relating to the
wind down of these businesses.

   Net Loss Attributable to Common Stockholders

     For the year ended December 31, 2002, we recorded a net loss attributable
to common stockholders of approximately $15.0 million. The loss was due to the
$4.0 million net loss and the $11.0 million of non-cash deemed dividends and
accretion related to the issuance of our Series A convertible preferred stock.
Dividends were accrued related to the pay-in-kind dividends payable quarterly
on Series A convertible preferred stock and to the accretion of the carrying
amount of the Series A convertible preferred stock up to its $100 per share
face redemption amount over 13 years.

Liquidity and Capital Resources

     We had $28.7 million in cash, cash equivalents and short-term investments
as of December 31, 2003. Cash used in operating activities from continuing
operations was $6.3 million for the year ended December 31, 2003 and resulted
primarily from cash used for general corporate overhead including payroll and
professional fees. We expect cash used in continuing operations to decrease in
future periods as we resolve outstanding litigation. Cash used by discontinued
operations was $0.4 million for the year ended December 31, 2003 and resulted
from cash used for settlement of vendor liabilities and legal and advisory
fees.

     For the year ended December 31, 2003, cash used in investing activities
from continuing operations, excluding purchases and sales of short-term
investments, was approximately $2.9 million and primarily consisted of $2.5
million used to purchase the senior secured promissory note from Verestar and
$0.5 million used to purchase investments in Navigauge and Miraxis. Other than
our agreements with ESP and Verestar as described below, we do not have any
future funding commitments with respect to any of our investments. However, we
expect that the MSV Joint Venture, Miraxis, and Navigauge will require
additional funding from time to time, and we may choose to provide additional
funding, subject to our liquidity and capital resources at the time.

     For the year ended December 31, 2003, cash used in financing activities
was approximately $1.2 million and resulted primarily from the repurchase of
shares of common stock in the tender offer as described below.

   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. As a result of the uncertainty with respect to the ultimate
collection on the New Motient Note, a reserve continues to be maintained for
the entire amount of the note. If we recover any amount on the New Motient
Note, adjustments to the reserve would be reflected in the accompanying
consolidated statements of operations. Furthermore, we have been conducting
periodic discussions with Motient concerning alternatives related to the New
Motient Note including the exchange of such note, or a portion thereof, into
an additional equity interest in the MSV Joint Venture.

   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 at 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. This new option will expire on March 31, 2004. We expect that the
Other MSV Investors will exercise the option.

     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 additional equity investments 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. Such additional
equity investments must total $41.6 million if they had been made by December
31, 2003 and will need to increase thereafter by an amount equal to the
additional interest accrued on the MSV Joint Venture's outstanding debt.
Currently, our MSV Investors Subsidiary owns, upon conversion, approximately
30.3% of the equity interests in the MSV Joint Venture. If the Other MSV
Investors exercise their option, our MSV Investors Subsidiary would own, upon
conversion, approximately 27.4% of the equity interests.

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

   Verestar Transactions

     On August 29, 2003, we signed a securities purchase agreement to acquire,
through a newly formed subsidiary, approximately 66.7% (on a fully-diluted
basis) of Verestar. Concurrent with the signing of the securities purchase
agreement, we purchased a 10% senior secured note with a principal balance of
$2.5 million and a due date of August 2007. We terminated the securities
purchase agreement on December 22, 2003. Subsequently, Verestar filed for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
In connection with the Verestar bankruptcy, we entered into a stipulation with
Verestar under which the parties agreed to, among other things, the validity
and enforcement of the obligation under the senior secured note and the
Company's security interest in Verestar's assets. The bankruptcy court
approved the stipulation on February 9, 2004. If the Creditors' Committee does
not object to the order by April 2, 2004, then the note will be deemed a
secured claim of Verestar for all purposes of the bankruptcy proceeding. On
March 26, 2004, we entered a consent order with the Creditors' Committee
pursuant to which the Creditors' Committee stipulated to the allowance of the
$2.5 million secured claim on our senior secured note. Pursuant to the same
consent order, we stipulated to extend by 75 days, the time in which the
Creditors' Committee could object to our claim, but only to the extent the
claim exceeded $2.5 million.

     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. Under this agreement, the
Company will pay $7.0 million, including cash and forgiveness of the
outstanding senior secured note, and 19.9% equity interest in the newly formed
subsidiary. In addition, we will provide $3.0 million in funding to the new
subsidiary upon closing of the purchase. The transaction is still subject to a
number of contingencies, including an auction on March 30, 2004 at which
Verestar will consider higher and better offers and final approval by the
bankruptcy court and the FCC.

     In connection with our termination of the securities purchase agreement
on December 22, 2003, we believe that we are entitled to a $3.5 million break
up fee and potentially certain other damages from Verestar's parent company.
Verestar's parent company has not agreed that all such amounts are due, and we
are currently in discussions to resolve the issue. There can be no assurance
that we will be successful in collecting all or part of the amount claimed. As
such, we did not reflect this contingency in our consolidated financial
statements for the year ended December 31, 2003. However, if we are successful
in collecting any amount on this claim, a gain would be reflected in our
consolidated statements of operations.

   ESP Senior Secured Promissory Notes

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

   Tender Offer

     On March 13, 2003, we commenced a cash tender offer at a price of $1.00
per share for up to 2,500,000 shares of our outstanding voting common stock.
The tender offer expired on April 23, 2003 with 968,398 shares purchased by us
for an aggregate cost, including all fees and expenses applicable to the
tender offer, of approximately $1.2 million. The primary purpose of the tender
offer was to provide our public stockholders with additional liquidity for
their shares of common stock, particularly in light of decreased liquidity
arising from the decision of Nasdaq to delist our common stock, and to do so
at a premium over the stock price before the tender offer and without the
usual transaction costs associated with open market sales. Our preferred
stockholders did not sell any shares of common stock in the tender offer.

   Issuance of Common Stock

     On November 19, 2001, we entered into a settlement agreement with our
former public relations firm in order to resolve a dispute concerning our
alleged failure to deliver options covering a number of shares of our common
stock that were allegedly owed relating to past services rendered which
allegedly resulted in damages of $12.8 million to the public relations firm.
Pursuant to the settlement agreement, we, among other things, issued 125,000
shares of unregistered common stock to the firm and an option to purchase an
additional 4,700 unregistered shares of common stock. The fair value of this
consideration approximated $1.2 million.

     On July 16, 2002, we sold 9,138,105 shares of our common stock for gross
proceeds of $18.4 million (net proceeds of $17.0 million) in a rights
offering. In connection with the settlement of the class action lawsuit, we
distributed to each holder of record of our common stock, warrants and
preferred stock, as of the close of business on May 16, 2002, one
non-transferable right to purchase one additional share of our common stock,
for each share held, at a purchase price of $2.01 per share. Included in the
rights offering is the advance purchase by our preferred stockholders of
3,876,584 shares of non-voting common stock in April 2002 for total gross
proceeds of approximately $7.8 million and an additional 5,113,628 shares of
non-voting common stock purchased by our preferred stockholders pursuant to
their over subscription privilege.

Off-Balance Sheet Arrangements

     We do not have any off-balance sheet arrangements. All subsidiaries in
which we have a controlling financial interest are included in the
consolidated financial statements, and we do not have any relationships with
any special purpose entities.

     We have guaranteed a lease obligation relating to the business of Rare
Medium, Inc. The total maximum potential liability of this guarantee is
approximately $3.4 million, subject to certain defenses. 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. Included in
accrued expenses on the accompanying consolidated balance sheet is
approximately $1.0 million relating to this obligation.

Contractual Obligations

     As of December 31, 2003, we and our consolidated subsidiaries were
contractually obligated to make the following payments to unrelated parties
(in thousands):

<TABLE>
<CAPTION>
                                                                        Payments Due By Period
                                                     --------------------------------------------------------------
                                        Total         Less Than         1 to 3          3 to 5          More Than
                                                        1 Year           Years           Years           5 Years
                                     ------------    -------------    ------------    ------------     ------------
<S>                                         <C>              <C>               <C>             <C>              <C>
Operating leases - continuing               $199             $199              $-              $-               $-
   operations
Operating leases - discontinued
   operations                              2,388            1,343           1,045               -                -
                                     ------------    -------------    ------------    ------------     ------------
Total                                     $2,587           $1,542          $1,045              $-               $-
                                     ============    =============    ============    ============     ============
</TABLE>

Delisting from the Nasdaq National Market

     As a result of the delisting by the Nasdaq on December 20, 2002, the
shares of our common stock have traded in interdealer and over-the-counter
transactions and price quotations have been available in the "pink sheets."
Since January 30, 2003, price quotations also have been available on the OTC
Bulletin Board. Delisting from the Nasdaq National Market resulted in a
reduction in the liquidity of our common stock. This lack of liquidity will
likely also make it more difficult for us to raise additional capital, if
necessary, through equity financings. In addition, the delisting of our common
stock from the Nasdaq National Market resulted in an event of non-compliance
under the provisions of our preferred stock. As we have been unable to obtain
a waiver of this event of non-compliance, the Apollo Stockholders are entitled
to elect a majority of the members of our board of directors.

Supplementary Unaudited Quarterly Financial Information

<TABLE>
<CAPTION>
                                          2002                                               2003
                     -----------------------------------------------    ------------------------------------------------
                        Q1          Q2           Q3           Q4          Q1          Q2            Q3           Q4
                     ---------   ----------   ---------    ---------    --------    --------     ---------    ----------
                                                    (in thousand, except per share data)
<S>                       <C>          <C>         <C>          <C>         <C>         <C>          <C>           <C>
Revenue                   $--          $--         $--          $--         $--         $--          $196          $503
Gross profit (loss)        --           --          --           --          --          --           (23)         (191)
Net (loss) income      (1,196)      11,477     (14,705)         396        (269)       (189)           59          (319)
Net (loss) income
  attributable to
  common
  stockholders         (4,269)       8,366     (17,075)      (1,987)     (2,668)     (2,603)       (2,370)       (2,764)
Basic and diluted
  (loss) income
  per share             (0.07)        0.81       (1.15)       (0.13)      (0.17)      (0.17)        (0.16)        (0.18)
</TABLE>

Recently Issued Accounting Standards

           In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred. When the liability is initially recorded, the
entity is required to capitalize the cost by increasing the carrying amount of
the related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a
material impact on our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS
No. 148 amends SFAS No. 123, "Stock-Based Compensation" ("SFAS No. 123"), to
provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosure in both annual and interim
financial statements about the effects on reported net income of an entity's
method of accounting for stock-based employee compensation. The disclosure
provisions of SFAS No. 148 are effective for fiscal years ending after
December 15, 2002 and have been incorporated into these financial statements
and accompanying footnotes.

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

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS No. 150"). SFAS No. 150 establishes standards for how a company
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires the classification of certain
financial instruments as a liability (or in certain circumstances an asset)
because that instrument embodies an obligation of the company. SFAS No. 150 is
effective immediately for instruments entered into or modified after May 31,
2003 and in the first interim period beginning after June 15, 2003 for all
instruments entered into before May 31, 2003. The adoption of SFAS No. 150 did
not have a material impact on our financial position or results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     As of December 31, 2003, we had $28.7 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 8. Financial Statements and Supplementary Data

     The financial statements and supplementary financial data required by
this Item 8 are set forth in Item 15 of this report. All information which has
been omitted is either inapplicable or not required.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

     None

Item 9A. Controls and Procedures

   Disclosure Controls and Procedures

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

   Internal Control Over Financial Reporting

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


                                   PART III

Item 10. Directors and Executive Officers of the Registrant

     See Item 4A of this Form 10-K for information with respect to the
Company's executive officers. The remaining information required by this item
is incorporated herein by reference to our definitive proxy statement for our
2004 Annual Meeting of Stockholders.

Item 11. Executive Compensation

     The information required by this item is incorporated herein by reference
to our definitive proxy statement for our 2004 Annual Meeting of Stockholders.

Item 12. Security Ownership Of Certain Beneficial Owners And Management and
         Related Stockholder Matters

     The information required by this item is incorporated herein by reference
to our definitive proxy statement for our 2004 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions.

     The information required by this item is incorporated herein by reference
to our definitive proxy statement for our 2004 Annual Meeting of Stockholders.

Item 14.  Principal Accounting Fees and Services

     The information required by this item is incorporated herein by reference
to our definitive proxy statement for our 2004 Annual Meeting of Stockholders.


                                    PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a) The following is a list of certain documents filed as a part of this
report:

         (1) Financial Statements of the Registrant.

                   (i)  Report of Independent Auditors.

                  (ii)  Consolidated Balance Sheets as of December 31, 2003 and
                        2002.

                 (iii)  Consolidated Statements of Operations for the years
                        ended December 31, 2003, 2002 and 2001.

                  (iv)  Consolidated Statements of Cash Flows for the years
                        ended December 31, 2003, 2002 and 2001.

                   (v)  Consolidated Statements of Changes in Stockholders'
                        Equity (Deficit) for the years ended December 31,
                        2003, 2002 and 2001.

                   (vi) Notes to Consolidated Financial Statements.

                  (vii) Schedule II - Valuation and Qualifying Accounts.

     All other schedules specified in Item 8 or Item 15(d) of Form 10-K are
omitted because they are not applicable or not required, or because the
required information is included in the Financial Statements or notes thereto.

(b)      Reports on Form 8-K. The following Current Reports on Form 8-K were
         filed with the Securities and Exchange Commission during the
         quarterly period ending December 31, 2003:

         On December 23, 2003, the Company filed a report on Form 8-K
         announcing the termination of the definitive purchase agreement to
         acquire equity of Verestar, Inc.

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

Exhibit
Number        Description
------        -----------

  2.1      --   Merger Agreement and Plan of Reorganization, dated as of April
                8, 1998, by and among ICC Technologies, Inc., RareMedium
                Acquisition Corp., Rare Medium, Inc. and the Founding
                Stockholders named therein ("Rare Medium Merger Agreement")
                was filed as Exhibit 2.1 to the Company's Current Report on
                Form 8-K dated April 15, 1998 and is hereby incorporated
                herein by reference.

  2.2      --   Stock Purchase Agreement, dated as of August 18, 2003, between
                Rare Medium Group, Inc. and Arris International, Inc. was
                filed as Exhibit 2.1 to the Company's Current Report on Form
                8-K filed September 3, 2003 and is hereby incorporated herein
                by reference.

  2.3      --   Securities Purchase Agreement, dated as of August 29, 2003, by
                and among the Company, American Tower Corporation, Verestar
                Manager, LLC, and Verestar, Inc., was filed as Exhibit 2.2 to
                the Company's Current Report on Form 8-K filed September 3,
                2003 and is hereby incorporated by reference.

  3.1.1    --   Restated Certificate of Incorporation of the Company.

  3.1.2    --   Certificate of Amendment, dated July 17, 2002, to the Restated
                Certificate of Incorporation of the Company.

  3.1.3    --   Certificate of Ownership and Merger, dated September 23, 2003,
                merging SkyTerra Communications, Inc. into Rare Medium Group,
                Inc.

  3.2      --   Amended and Restated By-Laws of the Company, was filed as
                Exhibit 3.2 to the Company's Form 10-K for the year ended
                December 31, 1999, and is hereby incorporated herein by
                reference.

  10.1     --   Employment Agreement between the Company and Glenn S. Meyers,
                dated April 14, 1998, which was filed as Exhibit 10.6 to the
                Company's Annual Report on Form 10-K for the year ended
                December 31, 1998, and is hereby incorporated herein by
                reference.

  10.2     --   The Company's Incentive Stock Option Plan, as amended, which
                was filed as Exhibit 4(g) to the Company's Registration
                Statement on Form S-8, No. 33-85636, filed on October 26,
                1994, and is hereby incorporated herein by reference.

  10.3     --   The Company's Nonqualified Stock Option Plan as amended and
                restated, which was filed as Exhibit C to the Company's
                Definitive Proxy Statement dated November 18, 1994, for
                Stockholders Meeting held December 15, 1994, and is hereby
                incorporated herein by reference.

  10.4     --   The Company's Equity Plan for Directors is hereby
                incorporated herein by reference from ICC's Definitive Proxy
                Statement dated November 18, 1994, for Stockholders Meeting
                held December 15, 1994.

  10.5     --   The Company's 1998 Long-Term Incentive Plan was filed as
                Appendix I to the Company's Definitive Proxy Statement dated
                February 17, 1999, for the Stockholders Meeting held March 16,
                1998, and is hereby incorporated herein by reference.

  10.6     --   The Company's Amended and Restated Equity Plan for Directors,
                which was filed as Exhibit 10.22 to the Company's Annual
                Report on Form 10-K for the year ended December 31, 1998, and
                is hereby incorporated herein by reference.

  10.7     --   Amended and Restated Securities Purchase Agreement, dated as
                of June 4, 1999, among the Company, Apollo Investment Fund IV,
                L.P., Apollo Overseas Partners IV, L.P. and AIF/RRRR LLC,
                which was filed as Exhibit 10.1 to the Company's Current Report
                on Form 8-K filed on June 21, 1999, and is hereby incorporated
                herein by reference.

  10.8     --   Form of Series 1-A Warrant of the Company, which was filed as
                Exhibit 4.3 to the Company's Current Report on Form 8-K filed
                on June 21, 1999, and is hereby incorporated herein by
                reference.

  10.9     --   Form of Series 2-A Warrant of the Company, which was filed
                as Exhibit 4.5 to the Company's Current Report on Form 8-K
                filed on June 21, 1999, and is hereby incorporated herein
                by reference.

  10.10    --   Pledge, Escrow and Disbursement Agreement, dated as of June 4,
                1999, among the Company, Apollo Investment Fund IV, L.P.,
                and The Chase Manhattan Bank, which was filed as Exhibit
                10.2 to the Company's Current Report on Form 8-K filed
                on June 21, 1999, and is hereby incorporated herein by
                reference.

  10.11    --   Form of Stock Option Agreement, dated April 15, 1998, by and
                between the Company and Glenn S. Meyers, which was
                filed as Exhibit 4(e) to the Company's Form S-8 filed on April
                23, 1999, and is hereby incorporated herein by reference.

  10.12    --   The Company's Amended and Restated 1998 Long-Term Incentive
                Plan, which was filed as Exhibit 4(d) to the Company's Form
                S-8 filed on November 3, 2000, and is hereby incorporated
                herein by reference.

  10.13    --   Amended and Restated Investment Agreement, dated as of October
                12, 2001, by and among Motient Corporation, Mobile Satellite
                Ventures LLC, TMI Communications and Company, Limited
                Partnership, MSV Investors, LLC and the other investors named
                therein, which was filed as Exhibit 99.1 to the Company's
                Current Report on Form 8-K dated December 3, 2001 and is
                incorporated herein by reference.

  10.14    --   Form of Stockholders' Agreement of Mobile Satellite Ventures
                GP Inc., which was filed as Exhibit 99.2 to the Company's
                Current Report on Form 8-K dated December 3, 2001 and is
                incorporated herein by reference.

  10.15    --   Form of Limited Partnership Agreement of Mobile Satellite
                Ventures LP, which was filed as Exhibit 99.3 to the Company's
                Current Report on Form 8-K dated December 3, 2001 and is
                incorporated herein by reference.

  10.16    --   Form of Convertible Note of Mobile Satellite Ventures LP in
                the principal amount of $50 million, issued to MSV Investors,
                LLC, which was filed as Exhibit 99.4 to the Company's Current
                Report on Form 8-K dated December 3, 2001 and is incorporated
                herein by reference.

  10.17    --   Amendment to Employment Agreement, dated as of February 15,
                2001, between the Company and Craig C. Chesser, which
                was filed as exhibit 10.1 to the Company's Form 10-Q for
                the period ended March 31, 2001 and is hereby incorporated by
                reference.

  10.18    --   Amendment to Employment Agreement, dated as of February 15,
                2001, between the Company and Michael A. Hultberg, which
                was filed as exhibit 10.2 to the Company's Form 10-Q for
                the period ended March 31, 2001 and is hereby incorporated by
                reference.

  10.19    --   Amendment to Employment Agreement, dated as of February 15,
                2001, between the Company and Robert C. Lewis, which was
                filed as exhibit 10.3 to the Company's Form 10-Q for the
                period ended March 31, 2001 and is hereby incorporated by
                reference.

  10.20    --   Investment Agreement, dated as of April 2, 2002, between the
                Company and the Apollo Stockholders, which was filed as
                Exhibit 99.2 to the Company's Current Report filed on Form
                8-K, filed on April 4, 2002, and is hereby incorporated by
                reference.

  10.21    --   Stipulation of Settlement in the matter In Re Rare Medium
                Group, Inc. Shareholders Litigation, Consolidated C.A. No.
                18879 NC, which was filed as Exhibit 99.3 to the Company's
                Current Report on Form 8-K, filed on April 4, 2002, and is
                hereby incorporated by reference.

  10.22    --   Senior Indebtedness Note in the amount of $19.0 million, dated
                May 1, 2002, issued by MVH Holdings, Inc. to the Company which
                was filed as Exhibit 10.3 to the Company's Form 10-Q for the
                period ended June 30, 2002 and is hereby incorporated by
                reference.

  10.23    --   Employment Agreement, dated May 23, 2002, between the Company
                and Jeffrey A. Leddy which was filed as Exhibit 10.4 to the
                Company's Form 10-Q for the period ended June 30, 2002 and is
                hereby incorporated by reference.

  10.24    --   Stock Option Agreement, dated October 17, 2002, between the
                Company and Glenn S. Meyers which was filed as Exhibit 10.28
                to the Company's Form 10-K for the year ended December 31,
                2002 and is hereby incorporated herein by reference.

  10.25    --   Note Purchase and Revolving Credit Agreement, dated August 29,
                2003, between the Company and Verestar, Inc. which was filed
                as Exhibit 10.1 to the Company's Current Report filed on Form
                8-K, filed on September 3, 2003, and is hereby incorporated by
                reference.

  10.26    --   Amended and Restated Employment Agreement, effective as of
                January 1, 2004, between the Company and Jeffrey A. Leddy.

  21       --   Subsidiaries of the Company are Electronic System Products,
                Inc., an Illinois corporation; Rare Medium, Inc., a New York
                corporation; Notus Communications, Inc., a Georgia
                corporation; and MSV Investors Holdings, Inc., a Delaware
                corporation.

  23.1     --   Consent of KPMG LLP, Independent Auditors.

  23.2     --   Independent Auditors' Report on Schedule.

  31.1     --   Certification of Jeffrey A. Leddy, Chief Executive Officer
                and President of the Company, 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 the Company, 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 the Company, 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 the Company, Pursuant to 18 U.S.C Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of SkyTerra Communications, Inc.:

     We have audited the accompanying consolidated balance sheets of SkyTerra
Communications, Inc. and subsidiaries as of December 31, 2003 and 2002, and
the related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for each of the years in the three-year period
ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SkyTerra
Communications, Inc. and subsidiaries as of December 31, 2003 and 2002, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.


/s/ KPMG LLP

New York, New York
March 29, 2004

<PAGE>


<TABLE>
<CAPTION>

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

                                                                                                 December 31,
                                                                                        -------------------------------
                                                                                            2003              2002
                                                                                        --------------    -------------
<S>                                                                                            <C>             <C>
                                        Assets
Current assets:
   Cash and cash equivalents                                                               $   9,897         $  37,484
   Short-term investments                                                                     18,795             2,008
                                                                                           ---------         ---------
     Total cash, cash equivalents and short-term investments                                  28,692            39,492
   Accounts receivable, net of allowance for bad debt of $44 and nil, respectively               237              --
   Note receivable from Verestar, Inc.                                                         2,500              --
   Prepaid expenses and other current assets                                                   1,048             1,412
                                                                                           ---------         ---------
     Total current assets                                                                     32,477            40,904

Property and equipment, net                                                                       57                24
Notes receivable from the Mobile Satellite Venture, L.P., including interest
   receivable of $11,520 and $5,705, respectively                                             62,638            56,823
Notes receivable from Motient Corporation, net of reserve of $22,016 and $20,160,
   respectively                                                                                 --                --
Investments in affiliates                                                                      2,769             2,343
Other assets                                                                                     158               252
                                                                                           ---------         ---------
       Total assets                                                                        $  98,099         $ 100,346
                                                                                           =========         =========

                     Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
   Accounts payable                                                                        $   1,958         $   2,105
   Accrued liabilities                                                                         3,950             5,610
   Deferred revenue                                                                              158              --
                                                                                           ---------         ---------
     Total current liabilities                                                                 6,066             7,715
                                                                                           ---------         ---------
Series A Convertible Preferred Stock, $.01 par value, net of unamortized
  discount of $36,979 and $41,373, respectively                                               80,182            70,495
                                                                                           ---------         ---------
Minority interest                                                                             12,467            11,334
                                                                                           ---------         ---------
Stockholders' (deficit) equity:
   Preferred stock, $.01 par value. Authorized 10,000,000 shares; issued
     1,171,612 shares as Series A Convertible Preferred Stock at December 31,
     2003 and 1,118,684 shares at December 31, 2002                                               --                --
   Common stock, $.01 par value.  Authorized 200,000,000 shares; issued and
     outstanding 6,075,727 shares at December 31, 2003 and 6,682,615 shares at
     December 31, 2002                                                                            61                67
   Non-voting common stock, $.01 par value.  Authorized 100,000,000 shares; issued
     and outstanding 8,990,212 shares at December 31, 2003 and 2002                               90                90
   Additional paid-in capital                                                                546,243           547,250
   Accumulated deficit                                                                      (546,839)         (536,434)
   Treasury stock, at cost, 6,622 shares                                                        (171)             (171)
                                                                                           ---------         ---------
       Total stockholders' (deficit) equity                                                     (616)           10,802
                                                                                           ---------         ---------
       Total liabilities and stockholders' (deficit) equity                                $  98,099         $ 100,346
                                                                                           =========         =========
</TABLE>


         See accompanying notes to consolidated financial statements.


<TABLE>
<CAPTION>

                         SKYTERRA COMMUNICATIONS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except share data)

                                                                             Years Ended December 31,
                                                                 -------------------------------------------------
                                                                     2003              2002             2001
                                                                 --------------    -------------    --------------
<S>                                                               <C>                      <C>       <C>
Revenues                                                          $        699      $       --       $      1,906
Cost of revenues                                                           913              --              1,337
                                                                  ------------      ------------     ------------
   Gross (loss) profit                                                    (214)             --                569
Expenses:
   Selling, general and administrative                                   6,690             6,406           21,186
   Depreciation and amortization                                            43               107            3,028
                                                                  ------------      ------------     ------------
     Total expenses                                                      6,733             6,513           24,214
                                                                  ------------      ------------     ------------
Loss from operations                                                    (6,947)           (6,513)         (23,645)
Interest income, net                                                     6,304             5,602            9,189
Loss on investments in affiliates                                         (404)             (385)         (54,633)
Other income (expense), net                                                244           (14,716)         (22,239)
Minority interest                                                       (1,126)             (998)             (97)
                                                                  ------------      ------------     ------------
Loss before taxes and discontinued operations                           (1,929)          (17,010)         (91,425)
Income tax benefit                                                        --                 350             --
                                                                  ------------      ------------     ------------
Loss before discontinued operations                                     (1,929)          (16,660)         (91,425)
Discontinued operations:
   Loss from discontinued operations                                      --                --           (116,046)
  Gain (Loss) from wind-down of discontinued operations                  1,211            12,632           (2,873)
                                                                  ------------      ------------     ------------
     Gain (Loss) from discontinued operations                            1,211            12,632         (118,919)
                                                                  ------------      ------------     ------------
Net loss                                                                  (718)           (4,028)        (210,344)
   Cumulative dividends and accretion of convertible preferred
     stock to liquidation value                                         (9,687)          (10,937)         (11,937)
                                                                  ------------      ------------     ------------
Net loss attributable to common stockholders                      $    (10,405)     $    (14,965)    $   (222,281)
                                                                  ============      ============     ============
Basic and diluted (loss) earnings per share:
  Continuing operations                                           $      (0.76)     $      (2.32)    $     (16.21)
  Discontinued operations                                                 0.08              1.06           (18.66)
                                                                  ------------      ------------     ------------
     Net loss per share                                           $      (0.68)     $      (1.26)    $     (34.87)
                                                                  ============      ============     ============
Basic weighted average common shares outstanding                    15,341,518        11,865,291        6,374,020
                                                                  ============      ============     ============
</TABLE>


         See accompanying notes to consolidated financial statements.



<TABLE>
<CAPTION>

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

                                                                                            Years ended December 31,
                                                                                  ---------------------------------------------
                                                                                     2003            2002             2001
                                                                                  ------------    ------------     ------------
<S>                                                                                    <C>           <C>            <C>
Cash flows from operating activities:
   Net loss                                                                       $    (718)      $  (4,028)      $(210,344)
   Adjustments to reconcile net loss to net cash used in operating activities:
     (Gain) Loss from discontinued operations                                        (1,211)        (12,632)        118,919
     Depreciation and amortization                                                       43             107           3,028
     Loss on investments in affiliates                                                  404             385          54,633
     Loss on XM Satellite Radio common stock                                           --            14,864            --
     Loss on disposal of fixed assets                                                  --              --               689
     Common stock and stock options issued for services rendered                       --              --             1,208
     Net loss on notes receivable from Motient Corporation                             --              --            21,613
     Non-cash compensation charges (benefit)                                            107            (228)            233
     Non-cash charge for issuance of warrant by consolidated subsidiary                  27              56            --
     Changes in assets and liabilities, net of acquisitions and sale of
      businesses:
       Accounts receivable, net                                                         219            --              --
       Prepaid expenses, interest receivable and other assets                        (4,339)         (5,158)         (2,521)
       Accounts payable and accrued liabilities                                        (838)         (1,324)         (3,487)
       Deferred revenue                                                                 (15)           --               665
                                                                                  ---------       ---------       ---------
           Net cash used in continuing operations                                    (6,321)         (7,958)        (15,364)
           Net cash used in discontinued operations                                    (427)         (1,940)        (29,496)
                                                                                  ---------       ---------       ---------
           Net cash used in operating activities                                     (6,748)         (9,898)        (44,860)
                                                                                  ---------       ---------       ---------
Cash flows from investing activities:
   Cash paid for investments in affiliates                                             (482)           (493)         (6,199)
   Cash received from investments in affiliates                                           1             365           3,799
   Cash received from sale of XM Satellite Radio common stock                          --            16,630            --
   Purchases of property and equipment, net                                              (7)           --               (95)
   Purchases of notes receivable                                                     (2,500)         (1,118)       (100,000)
   Cash acquired from acquisitions, net of purchase price and acquisition costs         125            --              --
   Purchases of short-term investments                                              (22,137)         (6,163)        (79,813)
   Sales of short-term investments                                                    5,350          13,452         111,845
                                                                                  ---------       ---------       ---------
           Net cash (used in) provided by continuing operations                     (19,650)         22,673         (70,463)
           Net cash provided by (used in) discontinued operations                      --               500            (656)
                                                                                  ---------       ---------       ---------
           Net cash (used in) provided by investing activities                      (19,650)         23,173         (71,119)
                                                                                  ---------       ---------       ---------
Cash flows from financing activities:
   Proceeds from contributions to a consolidated subsidiary                              48             177          10,000
   Proceeds from issuance of common stock, net of costs                                --            16,968            --
   Proceeds from issuance of common stock in connection with the exercise of
     warrants and options                                                                 6               3              22
   Cash paid in connection with tender offer                                         (1,243)           --              --
                                                                                  ---------       ---------       ---------
           Net cash (used in) provided by financing activities                       (1,189)         17,148          10,022
                                                                                  ---------       ---------       ---------
Net (decrease) increase in cash and cash equivalents                                (27,587)         30,423        (105,957)
Cash and cash equivalents, beginning of period                                       37,484           7,061         113,018
                                                                                  ---------       ---------       ---------
Cash and cash equivalents, end of period                                          $   9,897       $  37,484       $   7,061
                                                                                  =========       =========       =========
</TABLE>


         See accompanying notes to consolidated financial statements.

<PAGE>


                         SKYTERRA COMMUNICATIONS, INC.
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                       (In thousands, except share data)

<TABLE>
<CAPTION>

                                                                        Voting Common     Non-Voting
                                                                            Stock        Common Stock    Additional
                                                              Preferred   ($.01 par       ($.01 par       Paid-In
                                                               Stock        value)          value)        Capital
                                                               -----        ------          ------        -------
<S>                   <C>                                       <C>          <C>              <C>          <C>
Balance, January 1, 2001                                      $  --      $     637        $   --         $ 528,958
  Comprehensive loss:
   Net loss                                                      --           --              --              --
   Other comprehensive loss:
    Net unrealized loss arising during period                    --           --              --              --
    Net foreign exchange loss arising during period              --           --              --              --
     Total comprehensive loss
  Retirement of 4,394 shares of common stock in
   connection with acquired businesses                           --             (1)           --              (528)
  Issuance of 41,998 shares of common stock and
   8,000 stock options in connection with acquired
   business                                                      --              4            --                61
  Issuance of 2,166 shares of common stock through
   exercise of stock options and warrants                        --           --              --                36
  Issuance of 125,000 shares of common stock and
   4,700 stock options for services rendered                     --             13            --             1,195
  Non-cash compensation charge for option repricing              --           --              --               233
  Deemed dividends and accretion of preferred stock              --           --              --              --
                                                                ---      ---------       ---------       ---------
Balance, December 31, 2001                                       --            653            --           529,955
  Comprehensive loss:
   Net loss                                                      --           --              --              --
   Other comprehensive loss:
    Net unrealized loss arising during period                    --           --              --              --
    Net foreign exchange loss arising during period              --           --              --              --

     Total comprehensive loss
  Issuance of 147,893 shares of voting common stock
   and 8,990,212 shares of non-voting common stock
   in rights offering                                            --             15             899          16,054
  One for ten reverse stock split (including 154
   shares of common stock purchased for cash in
   lieu of fractional shares)                                    --           (601)           (809)          1,410
  Retirement of 286 shares of common stock in
   connection with acquired business                             --           --              --              --
  Issuance of 2,666 shares of common stock through
   exercise of stock options                                     --           --              --                 3
  Non-cash compensation benefit for option repricing             --           --              --              (228)
  Non-cash charge for issuance of warrant by
   consolidated subsidiary                                       --           --              --                56
  Deemed dividends and accretion of preferred stock              --           --              --              --
                                                                ---      ---------       ---------       ---------
Balance, December 31, 2002                                       --             67              90         547,250
  Comprehensive loss:
   Net loss                                                      --           --              --              --
     Total comprehensive loss
  Issuance of 357,143 shares of common stock in
   connection with the settlement of the class
   action lawsuit                                                --              4            --                85
  Issuance of 4,367 shares of common stock through
   exercise of stock options                                     --           --              --                 6
  Retirement of 968,398 shares of common stock in
   connection with the tender offer                              --            (10)           --            (1,233)
  Non-cash compensation charge for option repricing              --           --              --               107
  Non-cash charge for issuance of warrant by
   consolidated subsidiary                                       --           --              --                28
  Deemed dividends and accretion of preferred stock              --           --              --              --
                                                                ---      ---------       ---------       ---------
Balance, December 31, 2003                                      $--      $      61       $      90       $ 546,243
                                                                ===      =========       =========       =========
</TABLE>

(TABLE CONTINUED)

<TABLE>
<CAPTION>
                                                          Accumulated                                Total
                                                             Other                   Treasury    Stockholders'
                                                         Comprehensive  Accumulated    Stock        Equity
                                                            Income        Deficit     at Cost      (Deficit)
                                                            ------        -------     -------      ---------
<S>                  <C>                                   <C>          <C>            <C>           <C>
    Balance, January 1, 2001                               $(1,127)     $(299,188)     $(171)       $229,109
      Comprehensive loss:
       Net loss                                                  --      (210,344)         --       (210,344)
       Other comprehensive loss:
        Net unrealized loss arising during period           61,240             --          --         61,240
        Net foreign exchange loss arising during period        223             --          --            223
                                                                                                         ---
         Total comprehensive loss                                                                   (148,881)
      Retirement of 4,394 shares of common stock in
       connection with acquired businesses                       --            --          --           (529)
      Issuance of 41,998 shares of common stock and
       8,000 stock options in connection with acquired
       business                                                  --            --          --             65
      Issuance of 2,166 shares of common stock through
       exercise of stock options and warrants                    --            --          --             36
      Issuance of 125,000 shares of common stock and
       4,700 stock options for services rendered                 --            --          --          1,208
      Non-cash compensation charge for option repricing          --            --          --            233
      Deemed dividends and accretion of preferred stock          --       (11,937)         --        (11,937)
                                                                 --      --------          --        --------
    Balance, December 31, 2001                               60,336      (521,469)      (171)         69,304
      Comprehensive loss:
       Net loss                                                  --        (4,028)         --         (4,028)
       Other comprehensive loss:
        Net unrealized loss arising during period           (60,306)           --          --        (60,306)
        Net foreign exchange loss arising during period         (30)           --          --            (30)
                                                                                                         ----
         Total comprehensive loss                                                                    (64,364)
      Issuance of 147,893 shares of voting common stock
       and 8,990,212 shares of non-voting common stock
       in rights offering                                        --            --          --         16,968
      One for ten reverse stock split (including 154
       shares of common stock purchased for cash in
       lieu of fractional shares)                                --            --          --              --
      Retirement of 286 shares of common stock in
       connection with acquired business                         --            --          --              --
      Issuance of 2,666 shares of common stock through
       exercise of stock options                                 --            --          --              3
      Non-cash compensation benefit for option repricing         --            --          --           (228)
      Non-cash charge for issuance of warrant by
       consolidated subsidiary                                   --            --          --             56
      Deemed dividends and accretion of preferred stock          --       (10,937)         --        (10,937)
                                                                 --      --------          --        --------
    Balance, December 31, 2002                                   --      (536,434)      (171)         10,802
      Comprehensive loss:
       Net loss                                                  --          (718)         --           (718)
                                                                                                       -----
         Total comprehensive loss                                                                       (718)
      Issuance of 357,143 shares of common stock in
       connection with the settlement of the class
       action lawsuit                                            --            --          --             89
      Issuance of 4,367 shares of common stock through
       exercise of stock options                                 --            --          --              6
      Retirement of 968,398 shares of common stock in
       connection with the tender offer                          --            --          --         (1,243)
      Non-cash compensation charge for option repricing          --            --          --            107
      Non-cash charge for issuance of warrant by
       consolidated subsidiary                                   --            --          --             28
      Deemed dividends and accretion of preferred stock          --        (9,687)         --         (9,687)
                                                                 --       -------          --        -------
    Balance, December 31, 2003                                  $--     $(546,839)     $(171)          $(616)
                                                                ===     ==========     ======        =======

</TABLE>

         See accompanying notes to consolidated financial statements.

<PAGE>


                         SKYTERRA COMMUNICATIONS, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies

     (a) Description of Business and Basis of Presentation

     SkyTerra Communications, Inc. (the "Company"), formerly known as Rare
Medium Group, Inc., operates its business through a group of complementary
companies in the telecommunications industry, including Mobile Satellite
Venture, L.P. joint venture ("MSV Joint Venture"), Electronic System Products,
Inc. ("ESP"), IQStat, Inc. (now doing business as Navigauge, Inc.,
"Naviguage") and Miraxis, LLC ("Miraxis"). Consistent with this strategy, the
Company continues to pursue the acquisition of substantially all of the assets
and business of Verestar, Inc. ("Verestar"), a global provider of integrated
satellite and fiber services to government organizations, multi-national
corporations, broadcasters and communications companies.

     Through its 80% owned MSV Investors, LLC subsidiary ("MSV Investors
Subsidiary"), the Company is an active participant in the MSV Joint Venture, a
joint venture that also includes TMI Communications, Inc., Motient Corporation
("Motient"), and certain other investors (collectively, the "Other MSV
Investors"). The MSV Joint Venture is currently a provider of mobile digital
voice and data communications services via satellite in North America. The
Company has designated three members of the 11-member board of directors of
the MSV Joint Venture's corporate general partner.

     On February 10, 2003, the Federal Communications Commission (the "FCC")
released an order relating to an application submitted by the MSV Joint
Venture and certain of its competitors that could greatly expand the scope of
the MSV Joint Venture's business by permitting the incorporation of ancillary
terrestrial base stations (which we refer to as an "ancillary terrestrial
component" or "ATC") into its mobile satellite network. A similar application
is pending before Industry Canada, the FCC's counterpart in Canada. The MSV
Joint Venture cannot expand its mobile satellite services business using ATC
base stations into Canada until this application pending before Industry
Canada is approved. With the FCC's issuance of the ATC order, the MSV Joint
Venture has entered a new stage of development which requires significant
future funding requirements and/or a need for one or more strategic partners.

     On August 25, 2003, the Company purchased 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. Through the purchase of ESP, the Company acquired an additional
16% of Navigauge, raising the Company's total stake to 21%. Navigauge is a
privately held media and marketing research firm that collects data on in-car
radio usage and driving habits of consumers and sells the aggregate date to
radio broadcasters, advertisers and advertising agencies in the United States.

     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 such, the results of Rare Medium, Inc. and LiveMarket are
reflected as discontinued operations.

     From 1999 through the first quarter of 2001, the Company made venture
investments by taking strategic minority equity positions in other
independently managed companies. Additionally, during that period, the Company
developed, managed and operated companies in selected Internet-focused market
segments ("Start-up Companies"). During the first quarter of 2001, the Company
reduced its focus on these businesses and substantially ceased providing
funding to its Start-up Companies.

     (b) Cash and Cash Equivalents

     The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. As of
December 31, 2003 and 2002, Rare Medium, Inc. has cash equivalents in the
amount of $0.3 million supporting letters of credit issued for certain real
estate leases (see Note 16).

     (c) Short-Term Investments

     The Company classifies investments in short-term debt securities as held
to maturity. These investments are diversified among high credit quality
securities in accordance with the Company's investment policy. The Company has
both the intent and ability to hold these securities to maturity. The cost of
these securities is adjusted for amortization of premiums and accretion of
discounts to maturity over the contractual life of the security. Such
amortization and accretion are included in interest income.

     The Company classified its investment in XM Satellite Radio common stock
as an available-for-sale, marketable security and reported such investment at
fair value with net unrealized gains and losses recorded in stockholders'
equity. Gains and losses are recognized in the statements of operations when
realized. During 2002, the Company sold its shares of XM Satellite Radio for
$16.6 million and recognized a loss on the sale of $14.9 million.

     (d) Property and Equipment

     The Company uses the straight-line method of depreciation. The estimated
useful lives of property and equipment are as follows:
                                                               Years
     Computer equipment and software......................    3 to 5
     Furniture and fixtures...............................    5 to 7
     Machinery and equipment..............................    2 to 5

     Leasehold improvements are amortized on a straight-line basis over the
term of the lease or the estimated useful life of the improvement, whichever
is shorter.

     (e) Goodwill and Intangibles

     In accordance with Accounting Principles Board ("APB") Opinion No. 17
(which was subsequently superceded by Statement of Financial Accounting
Standards ("SFAS") No. 142), goodwill, which represents the excess of purchase
price over fair value of net assets acquired, was amortized on a straight-line
basis over the expected period to be benefited, which was typically three
years. Accumulated amortization amounted to nil at December 31, 2003 and 2002.
In connection with discontinuation of the operations of Rare Medium, Inc. and
LiveMarket (see Note 12), and with the sale or shutdown of all the Start-up
Companies (see Note 3(e)), all remaining goodwill balances were written off in
2001. As such, for the year ended December 31, 2001, included in "Loss from
Discontinued Operations" and "Loss on Investments in Affiliates" is $19.0
million and $4.9 million, respectively, related to the impairment of goodwill.

     Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

     (f) Revenue Recognition

     Revenues from contracts for consulting and engineering services are
recognized using the percentage-of-completion method for fixed price contracts
and as time is incurred for time and materials contracts, provided the
collection of the resulting receivable is reasonably assured. Unbilled
receivables, representing time and costs incurred on projects in process in
excess of amounts billed, are recorded as work in process in the accompanying
balance sheets. Deferred revenue represents amounts billed in excess of costs
incurred and are recorded as liabilities. To the extent costs incurred and
anticipated costs to complete projects in progress exceed anticipated
billings, a loss is recognized in the period such determination is made for
the excess.

     Reimbursements, including those relating to travel and other
out-of-pocket expenses, are included in revenues. A handling and finance
charge is added to materials and equipment purchased for certain product
development engagements. The costs of these reimbursements are included in
cost of revenues.

     For the year ended December 31, 2001, advertising revenues derived from
the delivery of advertising impressions were recognized in the period the
impressions are delivered, provided the collection of the resulting receivable
was reasonably assured. Advertising revenues publications were recognized at
the time the related publications were sent to the subscriber or were
available at newsstands. Subscription revenue was deferred and recognized as
income over the subscription period. Revenues related to newsstand magazine
sales were recognized at the time that the publications were available at the
newsstands, net of estimated returns.

     (g) Investments in Affiliates

     The Company accounts for its investments in affiliates in which it owns
less than 20% of the voting stock and does not possess significant influence
over the operations of the investee, under the cost method of accounting. The
Company accounts for those investments where the Company owns greater than 20%
of the voting stock and possesses significant influence under the equity
method.

     (h) Income Taxes

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and for operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.

     (i) 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
Financial Accounting Standards Board ("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 (see Note 13).

     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. For the year ended December
31 2001, the Company recognized compensation expense of $0.2 million relating
to the re-pricing of stock options. For the year ended December 31, 2002, the
Company recognized compensation contra-expense of $0.2 million resulting from
the decrease in the price of the Company's common stock. For the year ended
December 31, 2003, the Company recognized compensation expense of $0.1 million
resulting from the increase in the price of the Company's common stock.

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

<TABLE>
<CAPTION>
                                                                      2003              2002             2001
                                                                  --------------    -------------    --------------
<S>                                                                      <C>            <C>             <C>
Net loss, as reported:                                                   $(718)         $(4,028)        $(210,344)
Add (Deduct):  Stock-based compensation expense
   (contra-expense), as reported                                           107             (228)              233
(Deduct) Add:  Total stock-based compensation (expense)
   contra-expense determined under fair value based method for
   all awards                                                             (415)            (576)           22,485
                                                                  --------------    -------------    --------------
Pro forma net loss                                                     $(1,026)         $(4,832)        $(187,626)
                                                                  ==============    =============    ==============
Basic and diluted net loss attributable to common stockholders per share:
   As reported                                                          $(0.68)          $(1.26)          $(34.87)
   Pro forma                                                            $(0.70)          $(1.33)          $(31.31)
</TABLE>

     The per share weighted average fair value of stock options granted during
2003, 2002 and 2001 was $1.02, $0.62 and $0.81, respectively, on the date of
grant using the Black-Scholes option pricing model with the following
assumptions: (1) a risk free interest rate ranging from 1.1% to 4.0% in 2003,
1.6% to 5.4% in 2002 and 2.5% to 5.3% in 2001, (2) an expected life of three
years in 2003, 2002 and 2001, (3) volatility of approximately 175% in 2003,
164% in 2002 and 162% in 2001, and (4) an annual dividend yield of 0% for all
years.

     (j) Use of Estimates

     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

     (k) Net Loss Per Share

     Basic earnings per share ("EPS") is computed by dividing net income or
net loss attributable to the common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution from the exercise or conversion of securities into common
stock. Net loss and weighted average shares outstanding used for computing
diluted loss per common share were the same as that used for computing basic
loss per common share.

     For the purposes of computing EPS from continuing operations, the Company
had potentially dilutive common stock equivalents of 795,343, 178,915 and
10,336 for the years ended December 31, 2003, 2002 and 2001, respectively,
made up of stock options. These common stock equivalents were not included in
the computation of earnings per common share because they were antidilutive on
continuing operations for the periods presented.

     (l) Fair Value of Financial Instruments

     The fair value of cash and cash equivalents, short-term investments and
the investment in XM Satellite Radio common stock approximate book value. The
fair value of the convertible note receivable from the MSV Joint Venture
approximates book value based on the equity value of the MSV Joint Venture's
recent funding transactions. The carrying value of the senior secured note
receivable from Verestar approximates its fair value based on the value of the
collateral supporting the note (see Note 3(b)). The Company also holds a
promissory note from Motient with a principal amount of $19.0 million. As a
result of uncertainty with respect to the ultimate collection on the Motient
note, the Company maintains a reserve for the entire amount of the note (see
Note 4).

     (m) Concentration of Credit Risk

     Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term
investments, the notes receivable from the MSV Joint Venture and the note
receivable from Verestar. Cash, cash equivalents and short-term investments
consist of deposits, money market funds, and commercial paper placed with
various high credit quality financial institutions.

     The note receivable by the MSV Investors Subsidiary from the MSV Joint
Venture is convertible into approximately 30.3% of the equity interests in the
joint venture (see Note 2). The Company holds an approximate 80% interest in
the MSV Investors Subsidiary.

     In connection with the Verestar bankruptcy, the Company entered into a
stipulation with Verestar under which the parties agreed to, among other
things, the validity and enforcement of the obligation under the senior
secured note and the Company's security interest in Verestar's assets. The
bankruptcy court approved the stipulation on February 9, 2004. If the
Creditors' Committee does not object to the order by April 2, 2004, then the
note will be deemed a secured claim of Verestar for all purposes of the
bankruptcy proceeding. On March 26, 2004, the Company entered a consent order
with the Creditors' Committee pursuant to which the Creditors' Committee
stipulated to the allowance of the $2.5 million secured claim on the senior
secured note. Pursuant to the same consent order, the Company stipulated to
extend by 75 days, the time in which the Creditors' Committee could object to
the Company's claim, but only to the extent the claim exceeded $2.5 million.

     ESP's revenues are generated principally from customers located in the
United States. From the August 25, 2003 acquisition through December 31, 2003,
two customers individually accounted for more than 10% of ESP's revenues.
Combined, these customers accounted for approximately $0.4 million of total
revenues for the period. As of December 31, 2003, accounts receivable from
these significant customers was approximately $0.1 million.

     (n) Recently Issued Accounting Standards

           In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred. When the liability is initially recorded, the
entity is required to capitalize the cost by increasing the carrying amount of
the related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a
material impact on the Company's financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS
No. 148 amends SFAS No. 123, "Stock-Based Compensation" ("SFAS No. 123"), to
provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosure in both annual and interim
financial statements about the effects on reported net income of an entity's
method of accounting for stock-based employee compensation. The disclosure
provisions of SFAS No. 148 are effective for fiscal years ending after
December 15, 2002 and have been incorporated into these financial statements
and accompanying footnotes.

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

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS No. 150"). SFAS No. 150 establishes standards for how a company
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires the classification of certain
financial instruments as a liability (or in certain circumstances an asset)
because that instrument embodies an obligation of the company. SFAS No. 150 is
effective immediately for instruments entered into or modified after May 31,
2003 and in the first interim period beginning after June 15, 2003 for all
instruments entered into before May 31, 2003. The adoption of SFAS No. 150 did
not have a material impact on the Company's financial position or results of
operations.

     (o) Reclassifications

     Certain reclassifications, primarily related to discontinued operations
(see Note 12) and the one for ten reverse stock split, have been made to the
prior years' financial statements to conform to the current year's
presentation.

(2)  Interest in the MSV Joint Venture

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

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

     Pursuant to the joint venture agreement among the partners of the MSV
Joint Venture (the "MSV Joint Venture Agreement"), in the event that the MSV
Joint Venture had received final regulatory approval from the FCC, as that
phrase is defined in the MSV Joint Venture Agreement, by March 31, 2003 for
its ATC applications, the Other MSV Investors would have been obligated to
invest an additional $50.0 million in the MSV Joint Venture. As the final
regulatory approval from the FCC, as defined in the MSV Joint Venture
Agreement, was not received by March 31, 2003, the additional investment was
not required. However, the Other MSV Investors retained the option to invest
the $50.0 million at 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. This new option will expire on March 31, 2004.

     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 additional equity investments 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. Such additional
equity investments must total approximately $41.6 million if they had been
made by December 31, 2003 and will need to increase thereafter by an amount
equal to the additional interest accrued on the MSV Joint Venture's
outstanding debt. Currently, the MSV Investors Subsidiary owns, upon
conversion, approximately 30.3% of the equity interests in the MSV Joint
Venture. If the Other MSV Investors exercise their option, the MSV Investors
Subsidiary would own, upon conversion, approximately 27.4% of the equity
interests.

     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.

(3)  Business Transactions

     (a) Acquisitions

     In August 2003, for nominal consideration, the Company 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, the
Company agreed to purchase up to $0.8 million of senior secured promissory
notes from ESP and up to an additional $0.6 million of senior secured
promissory notes if ESP meets certain financial performance metrics. As of
December 31, 2003, the Company has purchased approximately $0.8 million in
principal of these senior secured notes. In November 2003, ESP made restricted
stock grants to its employees representing an aggregate of 30% of ESP's
outstanding equity, diluting the Company's ownership to 70%.

     The following table summarizes the estimated fair value of the
identifiable assets acquired and liabilities assumed at the date of
acquisition. These estimates may be subject to adjustment to reflect actual
amounts, primarily in the case of accrued liabilities relating to a certain
acquired customer contract that is expected to incur a loss. Any subsequent
adjustments are not expected to be material.

                                                        As of
                                                     August 25,
                                                        2003
                                                    --------------
                                                    (in thousands)
Current assets                                               $666
Property and equipment                                         54
Investment in affiliates                                      349
                                                    --------------
     Total assets acquired                                  1,069
Current liabilities                                          (983)
                                                    --------------
Net assets acquired                                           $86
                                                    ==============

     The following unaudited pro forma information is presented as if the
Company had completed the acquisition of ESP as of January 1, 2002. The pro
forma information is not necessarily indicative of what the results of
operations would have been had the acquisitions taken place at those dates or
of the future results of operations.

<TABLE>
<CAPTION>
                                                                                     2003               2002
                                                                                 --------------    ---------------
                                                                                   (in thousands, except share
                                                                                              data)
<S>                                                                                    <C>                <C>
Revenues                                                                               $2,543             $3,799
                                                                                 ==============    ===============
Loss before cumulative effect of a change in accounting principle                     $(2,983)          $(13,510)
Cumulative effect of a change in accounting principle                                      --            (10,806)
                                                                                 --------------    ---------------
Net loss                                                                              $(2,983)          $(24,316)
                                                                                 ==============    ===============
Loss per share attributable to common stockholders - basic and diluted                 $(0.83)            $(2.97)
                                                                                 ==============    ===============
</TABLE>

      (b) Verestar Transactions

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

     In March 2004, the Company executed an asset purchase agreement to
acquire, through a newly formed subsidiary, substantially all of the assets
and business of Verestar pursuant to Section 363 of the Bankruptcy Code. Under
this agreement, the Company will pay $7.0 million, including cash and
forgiveness of the outstanding senior secured note, and 19.9% equity interest
in the newly formed subsidiary. In addition, the Company will provide $3.0
million in funding to the new subsidiary upon closing of the purchase. The
transaction is still subject to a number of contingencies, including an
auction on March 30, 2004 at which Verestar will consider higher and better
offers and final approval of the bankruptcy court and the FCC.

     In connection with the termination of the securities purchase agreement
on December 22, 2003, the Company believes that it is entitled to a $3.5
million break up fee and potentially certain other damages from Verestar's
parent company. Verestar's parent company has not agreed that all such amounts
are due, and the Company is currently in discussions to resolve the issue (see
Note 16).

     (c) Interest in Miraxis

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

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

     In April 2003, the Company acquired additional Series C Preferred Shares
and warrants for approximately $40,000. Subsequent to June 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. Currently, the Company holds
approximately 40% of the ownership interests of Miraxis. The Company's
President and Chief Executive Officer currently holds an approximate 1%
interest in Miraxis.

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

     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 Miraxis' loss being recorded in
"Loss on Investments in Affiliates" on the accompanying consolidated
statements of operations.

      (d) Interest in Navigauge

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

     In connection with the acquisition of ESP in August 2003, the Company
obtained indirect ownership of Series A Preferred Shares representing an
additional 16% ownership interest in Navigauge. In December 2003, the Company
acquired additional Series B Preferred Shares and warrants for approximately
$0.1 million. In 2004 through the date hereof, the Company acquired additional
Series B Preferred Shares and warrants from Navigauge for approximately $0.3
million. Currently, the Company owns approximately 24% of the outstanding
equity of Navigauge.

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

   (e) Sale of Businesses

   In April 2001, the Company sold a majority of its equity interest in two of
its Start-up Companies: ChangeMusic and ePrize. The Company received total
aggregate consideration of $1.4 million, consisting of cash and a promissory
note with a principal amount of approximately $0.5 million. The Company
retained a 15% equity interest in ChangeMusic and a 5% equity interest in
ePrize. During 2001, the Company recognized a loss of approximately $2.5
million relating to the sale of ChangeMusic and a gain of approximately $1.5
million relating to the sale of ePrize. In December 2001, the Company sold the
assets of Regards.com. The Company received consideration of approximately
$0.1 million of cash. The Company recognized a nominal gain relating to this
transaction.

(4)  Notes Receivable from Motient

     On April 2, 2001, the Company agreed to purchase from Motient 12.5%
secured promissory notes, issuable in two tranches, each in the principal
amount of $25.0 million. The notes were collateralized by five million shares
of XM Satellite Radio common stock owned by Motient. The first tranche was
purchased on April 4, 2001, and the second tranche was purchased on July 16,
2001. The principal of and accrued interest on the notes were payable on
October 1, 2001 in either cash, shares of XM Satellite Radio, or any
combination thereof at Motient's option, as set forth in the agreement. At the
option of the Company, the notes were exchangeable for a number of XM
Satellite Radio shares based on a formula, as set forth in the agreement.

     On May 14, 2001, the Company entered into an agreement to merge with a
subsidiary of Motient. By a letter agreement dated October 1, 2001, Motient
and the Company terminated the planned merger. As a result of the termination,
neither the Company nor Motient have any obligation to the other party,
except for repayment by Motient to the Company of amounts outstanding under
the promissory notes.

     On October 1, 2001, and again on October 8, 2001, the Company extended
the maturity date of the notes. On October 12, 2001, in accordance with the
terms of the notes, the Company received five million shares of XM Satellite
Radio as payment for $26.2 million of the notes and accrued interest. The
maturity date for the remaining balance of the Motient Notes in the principal
amount of approximately $26.2 million, and interest thereon, was extended for
60 days. On January 10, 2002, Motient and its subsidiaries filed for
protection under Chapter 11 of the United States Bankruptcy Code. As part of
its filing, Motient indicated that it would likely challenge the Company's
right to the $26.2 million outstanding principal balance and accrued interest
thereon, as well as the delivery of the shares of XM Satellite Radio common
stock as partial repayment of the aggregate $50.0 million principal amount of
the notes. As a result of uncertainty with respect to the ultimate collection
on the notes, a reserve was recognized for the entire amount. This loss of
approximately $26.9 million was partially offset by a gain of $5.3 million
that resulted from the difference between the value of the XM Satellite Radio
common stock received in connection with the partial repayment of the Motient
notes in accordance with their terms and the value of the XM Satellite Radio
common stock using its closing price on the date of the partial repayment. The
results of these transactions are reflected in "Other Expense, Net" on the
accompanying consolidated statements of operations.

     On May 1, 2002, to mitigate the risk, uncertainties and expenses
associated with Motient's plan of reorganization, the Company cancelled the
outstanding amounts due under the original promissory notes issued by Motient
and accepted a new note in the principal amount of $19.0 million (the "New
Motient Note") that was issued by a new, wholly-owned subsidiary of Motient
that owns 100% of Motient's interests in the MSV Joint Venture ("MSV Holdings
Inc."). The New Motient Note is due on May 1, 2005 and bears interest at a
rate of 9% per annum. Although the New Motient Note is unsecured, there are
material restrictions placed on MSV Holdings Inc.'s assets, and MSV Holdings
Inc. is prohibited from incurring or guarantying any debt in excess of $21.0
million (including the New Motient Note). Additionally, there are events of
default (e.g., a bankruptcy filing by Motient) that would accelerate the due
date of the New Motient Note. As a result of the uncertainty with respect to
the ultimate collection on the New Motient Note, a reserve continues to be
maintained for the entire amount of the note (see Note 16).

(5)  Investments in Affiliates

     The following is a summary of the carrying value of investments held by
the Company at December 31:

                                         2003              2002
                                     -------------     -------------
                                             (in thousands)
Cost investments                           $2,250            $2,250
Equity investments                            519                93
                                     -------------     -------------
                                           $2,769            $2,343
                                     =============     =============

     For the years ended December 31, 2003 and 2002, the Company recognized a
loss on investment in affiliates of approximately $0.4 million each year
consisting primarily of its proportionate share of affiliates' operating
losses for those affiliates accounted for under the equity method. For the
year ended December 31, 2001, the Company recognized a loss on investment in
affiliates of $54.6 million consisting of $43.8 million for the impairment to
the carrying value of certain affiliates accounted for under the cost method,
$3.6 million for the realized loss on the sale of publicly traded securities,
$0.5 million for its proportionate share of affiliates' operating losses and
$2.2 million for amortization of its net excess investment over its equity in
each affiliate's net assets for those affiliates accounted for under the
equity method, and $4.5 million related to the sale or shutdown of its
Start-up Companies.

     During the year ended December 31, 2001, the Company's discontinued
subsidiary Rare Medium, Inc. recognized revenues of approximately $4.5 million
for services provided to affiliates which is included in the loss from
discontinued operations.

(6)  Investment in XM Satellite Radio

     The Company classified its investment in XM Satellite Radio common stock
as an available-for-sale, marketable security and reported such investment at
fair value with net unrealized gains and losses recorded in stockholders'
equity. Gains and losses are recognized in the accompanying consolidated
statements of operations when realized or when a decline in value is
considered to be other than temporary. During the year ended December 31,
2002, the Company sold its 5,000,000 shares of XM Satellite Radio common stock
at an average price of $3.36 per share, resulting in net proceeds of $16.6
million. These sales resulted in a loss of approximately $14.9 million which
is included in "Other Expense, Net" on the accompanying consolidated
statements of operations.

(7)  Short-Term Investments

     The following is a summary of the amortized cost, which approximates fair
value, of securities held to maturity at December 31:

<TABLE>
<CAPTION>
                                                                                         2003              2002
                                                                                     -------------     -------------
                                                                                             (in thousands)
<S>                                                                                       <C>                <C>
Government agencies obligations                                                           $18,795            $1,508
United States corporate debt obligations                                                       --               500
                                                                                     -------------     -------------
                                                                                          $18,795            $2,008
                                                                                     =============     =============

(8)  Property and Equipment

     Property and equipment consists of the following at December 31:

                                                                                         2003              2002
                                                                                     -------------     -------------
                                                                                             (in thousands)
Computer equipment and software                                                              $247              $293
Furniture and fixtures                                                                         29                29
Machinery and equipment                                                                         4                --
Leasehold improvements                                                                         21                --
                                                                                     -------------     -------------
                                                                                              301               322
Less accumulated depreciation and amortization                                               (244)             (298)
                                                                                     -------------     -------------
Property and equipment, net                                                                   $57               $24
                                                                                     =============     =============

(9)  Accrued Liabilities

     Accrued liabilities consists of the following at December 31:

                                                                                         2003              2002
                                                                                     -------------     -------------
                                                                                             (in thousands)
Accrued compensation                                                                         $402               $67
Accrued professional fees                                                                   1,461             1,951
Accrued restructuring charges                                                               1,580             2,838
Other accrued liabilities                                                                     507               754
                                                                                     -------------     -------------
                                                                                           $3,950            $5,610
                                                                                     =============     =============
</TABLE>

(10)   Stockholders' Equity

     On March 13, 2003, the Company commenced a cash tender offer at a price
of $1.00 per share for up to 2,500,000 shares of its outstanding voting common
stock. The tender offer expired on April 23, 2003 with 968,398 shares
purchased for an aggregate cost, including all fees and expenses applicable to
the tender offer, of approximately $1.2 million. The primary purpose of the
tender offer was to provide public stockholders with additional liquidity for
their shares of common stock, particularly in light of decreased liquidity
arising from the decision of Nasdaq to delist the Company's common stock, and
to do so at a premium over the stock price before the tender offer and without
the usual transaction costs associated with open market sales. The Apollo
Stockholders did not sell any shares of common stock in the tender offer.

     On January 10, 2003, as part of the settlement of the class action
lawsuit, the Company issued 357,143 shares of the Company's common stock
(worth $1.0 million based on a price of $2.80 per share) to the plaintiff's
counsel as attorney's fees. During the year ended December 31, 2002, the
Company recognized a charge of $0.3 million relating to this settlement based
on the $0.25 trading price of the common stock on January 2, 2003, the date
the shares were issuable. The charge is included in accrued liabilities at
December 31, 2002.

     On July 16, 2002, the Company sold 9,138,105 shares of common stock for
gross proceeds of $18.4 million (net proceeds of $17.0 million) in a rights
offering. In connection with the settlement of the class action lawsuit, the
Company distributed to each holder of record of common stock, warrants and
preferred stock, as of the close of business on May 16, 2002, one
non-transferable right to purchase one additional share of common stock, for
each share held, at a purchase price of $2.01 per share. As part of the rights
offering, the Apollo Stockholders purchased 3,876,584 shares of non-voting
common stock in April 2002 and an additional 5,113,628 shares of non-voting
common stock purchased by the Apollo Stockholders pursuant to their over
subscription privilege.

     On November 19, 2001, the Company entered into a settlement agreement
with its former public relations firm in order to resolve a dispute concerning
the Company's alleged failure to deliver options covering a number of shares
of the Company's common stock that were allegedly owed relating to past
services rendered which allegedly resulted in damages of $12.8 million to the
public relations firm. Pursuant to the settlement agreement, the Company,
among other things, issued 125,000 shares of unregistered common stock to the
firm and an option to purchase an additional 4,700 unregistered shares of
common stock. The fair value of this consideration approximated $1.2 million.

     In connection with certain acquisitions made in 1999, the former
shareholders agreed to indemnify the Company for any losses resulting from a
breach of, among other things, their respective representations, warranties
and covenants. To secure the indemnification obligations of these shareholders
thereunder, 14,975 shares of the Company's common stock delivered to these
shareholders, included as part of the consideration, remain in escrow at
December 31, 2003, and the liability of these shareholders under such
indemnification obligations is expressly limited to the value of such shares
held in escrow. During the year ended December 31, 2001, the Company issued
41,998 shares of its common stock and 8,000 stock options as additional
consideration for an acquisition made during 1999 and retired 4,394 shares of
its common stock as a reduction of consideration for acquisitions made during
1999 and 2000. During the year ended December 31, 2002, the Company retired
286 shares of its common stock as a reduction of consideration for a 2000
acquisition.

 (11)   Redeemable Preferred Stock

     On June 4, 1999, the Company issued and sold to Apollo Investment Fund
IV, LP, Apollo Overseas Partners IV, LP and AIF IV/RRRR LLC (collectively with
AP/RM Acquisition LLC, the "Apollo Stockholders"), for an aggregate purchase
price of $87.0 million, 126,000 shares of the Company's Series A Convertible
Preferred Stock (the "Series A Preferred Stock"), 126,000 Series 1-A Warrants,
1,916,994 Series 2-A Warrants, 744,000 shares of the Company's Series B
Preferred Stock, 744,000 Series 1-B Warrants and 10,345,548 Series 2-B
Warrants. As approved at the Company's 1999 annual meeting of stockholders,
all Series B securities were converted to Series A securities.

     The Series A Preferred Stock is subject to mandatory and optional
redemption. On June 30, 2012, the Company will be required to redeem all
Series A Preferred Stock plus any accrued and unpaid dividends. At the option
of the Company, the Series A Preferred Stock can be redeemed after June 30,
2002 provided that the trading price of the Company's common stock for each of
the preceding 30 trading days is greater than $120.00 per share, or after June
30, 2004 at a price of 103% of the face value of the Series A Preferred Stock
plus any accrued and unpaid dividends. In the event of a change of control, as
defined, at the option of the holders of the majority of the then outstanding
shares of the Series A Preferred Stock, the Company is required to redeem all
or any number of such holders' shares of Series A Preferred Stock plus any
accrued and unpaid dividends. As a result of the rights offering, the
conversion price of the Series A Preferred Stock was adjusted, pursuant to
certain anti-dilution provisions as defined, from $70.00 to $68.50 per share.
The conversion price is subject to further adjustment pursuant to the
anti-dilution provisions.

     From the date of issuance to June 30, 2002, the quarterly dividends on
the Series A securities were based on a rate of 7.5% per annum and were paid
in additional shares of Series A securities. Under the terms of the securities
purchase agreement, from July 1, 2002 through June 30, 2004, the quarterly
dividend is based on a rate of 4.65% per annum and is payable, at the option
of the holder, in additional shares of Series A securities or cash. As part of
the settlement of the class action lawsuit, the Apollo Stockholders agreed to
accept payment in additional shares of Series A securities. Dividends paid
from July 1, 2004 through the date of redemption will be based on a rate of
4.65% per annum and will be payable in cash.

     The exercise price and the number of shares for which the Series 1-A and
Series 2-A warrants are exercisable for is subject to adjustment under certain
anti-dilution and other provisions as defined. As such, as a result of the
issuance of additional shares of common stock in the rights offering at a
price below the conversion price of the warrants at the time of the offering,
the exercise price of the Series 1-A warrants was adjusted from $42.00 to
$41.12, and the number of shares of the Company's common stock issuable upon
the exercise of each Series 1-A warrant was adjusted from 1.35 to 1.379
shares. The exercise price of the Series 2-A warrants was adjusted from $70.00
to $68.50, and the number of shares of the Company's common stock issuable
upon the exercise of each Series 2-A warrant was adjusted from 0.1 to 0.1022
shares. The Series 1-A and Series 2-A warrants are exercisable at any time and
expire ten years from the date issued. The holders of the Series 1-A and
Series 2-A warrants have the option to pay the exercise price of the warrant
in cash, Company common stock previously held, or instructing the Company to
withhold a number of Company shares with an aggregate fair value equal to the
aggregate exercise price.

     On January 2, 2003, pursuant to the settlement of the class action
lawsuit, 22,218 Series 1-A warrants and 2,452,509 Series 2-A warrants were
cancelled. Including the warrant cancellation and assuming all remaining
Series A securities are converted, as of December 31, 2003, the Apollo
Stockholders would own approximately 76% of the Company's outstanding common
stock.

     At the time of issuance, the Company ascribed value to the Series A
securities based on their relative fair value. As such, $29.9 million was
allocated to Series A Preferred Stock and the remaining $57.1 million was
allocated to the related Series 1-A and Series 2-A warrants. This transaction
was accounted for in accordance with FASB Emerging Issues Task Force 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features."
Subsequently, dividends have been recorded representing the accrual of the
quarterly paid-in-kind dividends and the accretion of the carrying value up to
the face redemption over 13 years.

(12)   Discontinued Operations

     At the end of the third quarter of 2001, a decision to discontinue the
operations of Rare Medium, Inc. and the LiveMarket subsidiary was made 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. During the year ended December 31,
2001, in connection with the discontinuance of these businesses, the Company
recorded a charge of $55.6 million related to severance and benefits resulting
from headcount reductions, an accrual for estimated losses of $2.9 million
during the wind-down period and the write-off of unamortized goodwill and
property and equipment, net of expected proceeds. Of the total charge of $55.6
million, the total non-cash write-offs were approximately $43.0 million. As of
December 31, 2003 and 2002, the remaining assets of Rare Medium, Inc. and
LiveMarket totaled approximately $0.1 million and $0.2 million, respectively,
consisting of cash (excluding the $0.3 million of cash collateralizing a
letter of credit) and other assets. As of December 31, 2003 and 2002, the
liabilities of these subsidiaries totaled approximately $2.4 million and $4.1
million, respectively, 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 approximately $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 years ended
December 31, 2003 and 2002, the Company recognized a gain of approximately
$1.2 million and $12.6 million, respectively, as a result of the settlement of
Rare Medium, Inc. liabilities at amounts less than their recorded amounts.

     The discontinuance of these businesses represents the disposal of a
business segment under SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". Accordingly, the results of these operations
have been classified as discontinued operations, and prior period results have
been reclassified. For the year ended December 31, 2001, revenue from these
discontinued operations amounted to $26.9 million.

     In 2000, Rare Medium, Inc. entered into a strategic alliance agreement,
as amended, with a software company (the "Partner") to assist in the training
of personnel and development and delivery by Rare Medium, Inc. of solutions
built utilizing the Partner's technology. Under the terms of the alliance, the
Partner was to provide Rare Medium, Inc. with refundable advances of
approximately $17.1 million, on an interest-free basis, to be paid to Rare
Medium, Inc. over the term of the two-year agreement, subject to Rare Medium,
Inc.'s compliance with certain requirements set forth in the agreement. The
amount and timing of the repayment of the advances were adjustable based on
Rare Medium, Inc.'s achievement of certain milestones in accordance with the
terms of the agreement. The Partner and Rare Medium, Inc. had a dispute as to
whether certain milestones were achieved. Efforts at renegotiating the payment
schedule and milestones were not successful. In July 2001, the Partner
commenced an arbitration against Rare Medium, Inc. seeking the return of the
approximately $8.6 million, plus interest, that had been advanced by the
Partner. On May 6, 2002, Rare Medium, Inc. and the Partner settled this
dispute and certain related disputes with an affiliate of the Partner, with
Rare Medium, Inc. agreeing to pay the affiliate of the Partner $0.9 million.

 (13)  Employee Compensation Plans

     The Company provides incentive and nonqualified stock option plans for
directors, officers, and key employees of the Company and others. The Company
has reserved a total of 2.3 million shares of authorized common stock for
issuance under the 1998 Long-Term Incentive Plan ("Stock Incentive Plan"). The
Company has options outstanding under the Nonqualified Stock Option Plan and
Equity Plan for Directors, but no new grants are being made under these plans.
The number of options to be granted and the option prices are determined by
the Compensation Committee of the Board of Directors in accordance with the
terms of the plans. Options generally expire five to ten years after the date
of grant.

     During 1998, the Board of Directors approved the Stock Incentive Plan
under which "non-qualified" stock options ("NQSOs") to acquire shares of
common stock may be granted to non-employee directors and consultants of the
Company, and "incentive" stock options ("ISOs") to acquire shares of common
stock may be granted to employees. The Stock Incentive Plan also provides for
the grant of stock appreciation rights ("SARs"), shares of restricted stock,
deferred stock awards, dividend equivalents, and other stock-based awards to
the Company's employees, directors, and consultants. Under the Stock Incentive
Plan, the option price of any ISO may not be less than the fair market value
of a share of common stock on the date on which the option is granted. The
option price of an NQSO may be less than the fair market value on the date the
NQSO is granted if the Board of Directors so determines. An ISO may not be
granted to a "ten percent stockholder" (as such term is defined in section
422A of the Internal Revenue Code) unless the exercise price is at least 110%
of the fair market value of the common stock and the term of the option may
not exceed five years from the date of grant. Common stock subject to a
restricted stock purchase or a bonus agreement is transferable only as
provided in such agreement. The maximum term of each stock option granted to
persons other than ten percent stockholders is ten years from the date of
grant.

     Under the Nonqualified Stock Option Plan, which provided for the issuance
of up to 510,000 shares, the option price as determined by the Compensation
Committee may be greater or less than the fair market value of the common
stock as of the date of the grant, and the options are generally exercisable
for three to five years subsequent to the grant date. The Nonqualified Stock
Option Plan expired on July 18, 2000, and thereafter, no new options can be
granted under the plan.

     The Equity Plan for Directors was a fixed stock option plan whereby
vesting was dependent upon the performance of the market price of the common
stock. Under the Equity Plan for Directors, options may have been granted for
the purchase of up to 50,000 shares of common stock to outside directors.
Under the terms of the Equity Plan for Directors, the option price could not
be less than the fair market value of the common stock on the date of the
grant. Subsequent to November 1998, grants of stock options to directors have
been made under the Stock Incentive Plan. Therefore, no further grants will be
made under the Equity Plan for Directors.

     On October 5, 2001, the compensation committee of the Company's board of
directors determined that because the outstanding options held by certain
executive officers and employees were exercisable at prices that were
significantly above prevailing market prices for the Company's common stock,
they no longer provided an adequate level of incentive. Accordingly, to
reincentivize certain executive officers and employees of the Company and in
recognition of their service to the Company, the compensation committee
approved the repricing of the exercise prices of options to purchase an
aggregate of 32,833 shares of common stock to $1.30 per share, the fair market
value at the date of the repricing. On December 21, 2001, the compensation
committee approved an additional repricing of the exercise prices of options
to purchase an aggregate of 40,000 shares of common stock held by
non-management directors to $6.00 per share, the fair market value at the date
of the repricing. On October 15, 2002, in recognition of the former Chief
Executive Officer's contribution to the Company, among other things, the
compensation committee of the Company's board of directors approved the
repricing of the exercise price of the former Chief Executive Officer's
outstanding options to purchase 140,000 shares of common stock to $0.85, the
fair market value at the date of the repricing. As a result of these actions,
the Company recorded non-cash compensation expense during the year ended
December 31, 2001 and 2003 of approximately $0.2 million and $0.1 million,
respectively, and non-cash compensation contra-expense during the year ended
December 31, 2002 of approximately $0.2 million.

     Stock option activity under the various option plans is shown below:

<TABLE>
<CAPTION>
                                                                    Weighted
                                                                     Average
                                                                    Exercise          Number of
                                                                     Prices            Shares
                                                                  --------------    --------------
<S>                                                                     <C>             <C>
Outstanding at January 1, 2001                                          $118.20         1,639,149
     Granted                                                              16.10           302,314
     Forfeited                                                           123.50        (1,489,802)
     Exercised                                                            16.60            (2,166)
                                                                                    --------------
Outstanding at December 31, 2001                                          32.45           449,495
     Granted                                                               0.89           630,000
     Forfeited                                                            33.12          (153,005)
     Exercised                                                             1.30            (2,666)
                                                                                    --------------
Outstanding at December 31, 2002                                          10.91           923,824
     Granted                                                               1.02           235,000
     Forfeited                                                            19.38           (37,650)
     Exercised                                                             1.30            (4,367)
                                                                                    --------------
Outstanding at December 31, 2003                                           8.58         1,116,807
                                                                                    ==============
</TABLE>

     The following table summarizes weighted-average option price information:
<TABLE>
<CAPTION>

                                Number          Weighted      Weighted          Number         Weighted
                              Outstanding       Average       Average        Exercisable       Average
                              at December       Remaining     Exercise       at December       Exercise
Range of Exercise Prices       31, 2003           Life          Price          31, 2003         Price
-------------------------    --------------     ----------    ----------    ---------------    ---------

<S>                                <C>            <C>             <C>              <C>            <C>
     $0.85 - $0.85                 605,000        7.46            $0.85            436,669        $0.85
     $0.91 - $1.30                 227,466        8.07            $0.97             32,466        $1.30
     $1.55 - $51.10                264,491        5.61           $25.04            218,241       $30.01
    $53.75 - $95.00                 12,350        5.03           $83.89             12,350       $83.89
  $158.13 - $158.13                  7,500        5.85          $158.13              7,500      $158.13
                             --------------                                 ---------------
                                 1,116,807        7.11            $8.58            707,226       $12.99
                             ==============                                 ===============
</TABLE>

(14)   Income Taxes

     The difference between the statutory federal income tax rate and the
Company's effective tax rate for the years ended December 31, 2003 and 2002 is
principally due to the Company incurring net operating losses for which no tax
benefit was recorded.

     For Federal income tax purposes, the Company has unused net operating
loss carryforwards ("NOL") of approximately $201.3 million expiring in 2008
through 2023, including various foreign subsidiaries, and a capital loss of
approximately $78.7 million expiring in 2006 through 2008. As a result of
various recent equity transactions, management believes the Company
experienced at least one "ownership change" as defined by Section 382 of the
Internal Revenue Code since 1999. Accordingly, the utilization of its net
operating loss carryforwards is subject to a significant annual limitation in
offsetting future taxable income.

     The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets at December 31 are as follows:

<TABLE>
<CAPTION>
                                                                                         2003              2002
                                                                                     -------------     -------------
                                                                                             (in thousands)
<S>                                                                                       <C>               <C>
Deferred tax assets:
   Net operating loss carryforwards                                                       $76,487           $71,876
   Capital loss carryforwards                                                              29,900            25,357
   Impairment loss on investments in affiliates                                            11,455            17,308
   Reserve for notes receivable from Motient                                                8,366             7,220
   Other assets                                                                               605             1,099
                                                                                     -------------     -------------
     Total gross deferred tax assets                                                      126,813           122,860
Less valuation allowance                                                                 (126,813)         (122,860)
                                                                                     -------------     -------------
     Total deferred tax assets                                                                $--               $--
                                                                                     =============     =============
</TABLE>

     In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning in making these assessments.

     Due to the Company's operating losses, there is uncertainty surrounding
whether the Company will ultimately realize its deferred tax assets.
Accordingly, these assets have been fully reserved. During 2003 and 2002, the
valuation allowance increased by approximately $4.0 million and $26.9 million,
respectively. Of the total valuation allowance of $126.8 million, subsequently
recognized tax benefits, if any, in the amount of $6.5 million will be applied
directly to contributed capital. This amount relates to the tax effect of
employee stock option deductions included in the Company's net operating loss
carryforward.

     Due to changes in the Federal tax code, the Company received a refund of
approximately $0.4 million during the year ended December 31, 2002 relating to
alternate minimum tax paid in 1998.

 (15)  Related Party Transactions

     From the August 25, 2003 acquisition through December 31, 2003, ESP
recognized revenues totaling approximately $0.3 million for certain services
provided to Navigauge and the MSV Joint Venture.

     In May 2002, the Company acquired ownership interests in Miraxis (see
Note 3(c)). Prior to joining the Company, the Company's Chief Executive
Officer and President served as President of Miraxis, a position he continues
to hold. The Company's Chief Executive Officer and President currently holds
shares, options and warrants of Miraxis representing approximately 1% of the
outstanding ownership interests.

     Miraxis License Holdings, LLC, an entity unaffiliated with Miraxis, other
than as described herein, holds the rights to certain orbital slots that
Miraxis has acquired access to in order to implement its business plan.
Miraxis issued 10% of its outstanding common equity on a fully diluted basis
to MLH in exchange for access to those slots. Prior to becoming affiliated
with the Company, its Chief Executive Officer and President acquired a 2%
interest in MLH. In addition, an affiliate of the Company's preferred
stockholders holds an approximate 70% interest in MLH.

     During 2002, in accordance with the terms of the Investment Agreement,
dated April 2, 2002, and the Amended and Restated Purchase Agreement, dated
June 4, 1999, each between the Company and the Apollo Stockholders, the
Company paid approximately $0.2 million for professional fees resulting from
the Company's rights offering and approximately $0.9 million for certain
professional fees substantially associated with the class action lawsuit and
other indemnified legal actions, all of which were incurred by the Apollo
Stockholders.

(16)   Contingencies and Commitments

    Motient Notes

     On May 1, 2002, to mitigate the risk, uncertainties and expenses
associated with Motient's plan of reorganization, the Company cancelled the
outstanding amounts due under the original promissory notes issued by Motient
and accepted a new note in the principal amount of $19.0 million that was
issued by 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 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. As a
result of the uncertainty with respect to the ultimate collection on the New
Motient Note, a reserve continues to be maintained for the entire amount of
the note. If the Company recovers any amount on the New Motient Note,
adjustments to the reserve would be reflected as other income in the
accompanying consolidated statements of operations.

   Verestar Transactions

     On August 29, 2003, we signed a securities purchase agreement to acquire,
through a newly formed subsidiary, approximately 66.7% (on a fully-diluted
basis) of Verestar. Concurrent with the signing of the securities purchase
agreement, we purchased a 10% senior secured note with a principal balance of
$2.5 million and a due date of August 2007. We terminated the securities
purchase agreement on December 22, 2003. Subsequently, Verestar filed for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
In connection with the Verestar bankruptcy, we entered into a stipulation with
Verestar under which the parties agreed to, among other things, the validity
and enforcement of the obligation under the senior secured note and the
Company's security interest in Verestar's assets. The bankruptcy court
approved the stipulation on February 9, 2004. If the Creditors' Committee does
not object to the order by April 2, 2004, then the note will be deemed a
secured claim of Verestar for all purposes of the bankruptcy proceeding. On
March 26, 2004, the Company entered a consent order with the Creditors'
Committee pursuant to which the Creditors' Committee stipulated to the
allowance of the $2.5 million secured claim on the senior secured note.
Pursuant to the same consent order, the Company stipulated to extend by 75
days, the time in which the Creditors' Committee could object to the Company's
claim, but only to the extent the claim exceeded $2.5 million.

     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. Under
this agreement, the Company will pay $7.0 million, including cash and
forgiveness of the outstanding senior secured note, and 19.9% equity interest
in the newly formed subsidiary. In addition, the Company will provide $3.0
million in funding to the new subsidiary upon closing of the purchase. The
transaction is still subject to a number of contingencies, including an
auction on March 30, 2004 at which Verestar will consider higher and better
offers and final approval of the bankruptcy court and the FCC.

     In connection with our termination of the securities purchase agreement
on December 22, 2003, the Company believes that it is entitled to a $3.5
million break up fee and potentially certain other damages from Verestar's
parent company. Verestar's parent company has not agreed that all such amounts
are due, and the Company is currently in discussions to resolve the issue.
There can be no assurance that the Company will be successful in collecting
all or part of the amount claimed. As such, we did not reflect this
contingency in our consolidated financial statements for the year ended
December 31, 2003. However, if the Company is successful in collecting any
amount on this claim, a gain would be reflected in the accompanying
consolidated statements of operations.

   MSV Joint Venture Convertible Notes Receivable

     As of December 31, 2003, 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.

   Leases

     The Company has non-cancelable leases, primarily related to the rental of
facilities by Rare Medium, Inc., which is one of the Company's discontinued
operating subsidiaries. Future minimum payments, by year and in the aggregate,
under operating leases with initial or remaining terms of one year or more
consisted of the following at December 31, 2003 (in thousands):

Year Ending December 31:
   2004                                                             $1,542
   2005                                                              1,045
   2006                                                                 --
   2007                                                                 --
   2008                                                                 --
   Thereafter                                                           --
                                                             --------------
   Total minimum lease payments                                     $2,587
                                                             ==============

     Of the total commitment, approximately $0.2 million in 2004 relate to
leases for the Company's continuing operations. Also included in the total
commitment is approximately $1.3 million, net of secured letters of credit,
which is guaranteed by the Company (see Note 12). Excluded from total
commitments is $3.1 million, net of secured letters of credit issued by the
assignee, relating to leases that have been assigned and require no future
payments by the Company or its subsidiaries unless there is a default by the
party to which the respective lease has been assigned.

     Total expense under operating leases amounted to $0.2 million, $0.1
million and $3.1 million for 2003, 2002 and 2001, respectively. Rare Medium,
Inc. is holding funds in certificates of deposit which are maintained under
agreements to assure future credit availability relating to these leases. As
of December 31, 2003 and 2002, these restricted funds amounted to
approximately $0.3 million which is included in cash and cash equivalents.

   Employment Agreements

     The Company is a party to an amended and restated employment agreement
with its Chief Executive Officer and President. The term of the agreement is
from January 1, 2004 to December 31, 2005 and calls for a base salary of
$300,000 per year. Annual increases are at the sole discretion of the
compensation committee of the Company's board of directors. In addition, the
officer is eligible, based upon the achievement of certain subjective goals
established by the compensation committee, to receive a bonus of up to 75% of
his base salary following the end of each calendar year during the term of the
agreement.

     The Company is party to an employment agreement with one of its other
executive officers. Under this agreement, if, either (i) after 90 days
following a change in control of the Company, the executive terminates his
employment or (ii) the executive is terminated for other than "cause" as such
term is defined in his agreement, then the executive is entitled to receive
severance compensation in a lump sum payment consisting of one year of his
current salary and the right to exercise all vested stock options and unvested
stock options which become exercisable upon a change of control through the
option expiration date for such options.

   Litigation

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

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

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

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

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

(17)   Subsequent Events

     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. Under
this agreement, the Company will pay $7.0 million, including cash and
forgiveness of the outstanding senior secured note, and 19.9% equity interest
in Newco. In addition, the Company will provide $3.0 million in funding to
Newco upon closing of the purchase. The transaction is still subject to a
number of contingencies, including an auction on March 30, 2004 at which
Verestar will consider higher and better offers, and final approval of the
bankruptcy court and the FCC.

     On March 26, 2004, the Company entered a consent order with the
Creditors' Committee pursuant to which the Creditors' Committee stipulated to
the allowance of the $2.5 million secured claim on the senior secured note.
Pursuant to the same consent order, the Company stipulated to extend by 75
days, the time in which the Creditors' Committee could object to the Company's
claim, but only to the extent the claim exceeded $2.5 million.
<PAGE>


<TABLE>
<CAPTION>
                                                       SKYTERRA COMMUNICATIONS, INC.
                                              Schedule II - Valuation and Qualifying Accounts


                                                                    Additions      Additions
                                                    Balance at     Charged to     Charged to
                                                   Beginning of     Costs and        Other                           Balance at
            Deductions - Descriptions                  Year         Expenses       Accounts         Deductions       End of Year
            -------------------------                  ----         --------       --------         ----------       -----------
Reserves and allowances deducted asset accounts:

Allowances for uncollectible accounts receivable

<S>                                                   <C>            <C>                   <C>      <C>                 <C>
Year ended December 31, 2001                          $3,241,482     $5,583,324             --      $(8,174,845)        $649,961
Year ended December 31, 2002                            $649,961             --             --        $(649,961)              --
Year ended December 31, 2003                                  --        $43,672             --               --          $43,672

Allowances for uncollectible notes receivable

Year ended December 31, 2001                                  --    $26,956,853             --               --      $26,956,853
Year ended December 31, 2002                         $26,956,853     $1,160,774             --      $(7,956,853)     $20,160,774
Year ended December 31, 2003                         $20,160,774     $1,855,292             --               --      $22,016,066
</TABLE>


<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.


                                             SKYTERRA COMMUNICATIONS, INC.


Date: March 29, 2004                         By:  /s/ JEFFREY A. LEDDY
                                                  --------------------

                                             Name:  Jeffrey A. Leddy
                                             Title: Chief Executive Officer
                                                    and President


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


<TABLE>
<CAPTION>

                Signature                                    Title                              Date
<S>     <C>                                <C>                                           <C>

           /s/ JEFFREY A. LEDDY             Chief Executive Officer and President          March 29, 2004
           --------------------               (Principal Executive Officer and
             Jeffrey A. Leddy                 Principal Financial Officer)


          /s/ CRAIG J. KAUFMANN             Controller and Treasurer (Principal            March 29, 2004
          ---------------------               Accounting Officer)
            Craig J. Kaufmann


           /s/ ANDREW D. AFRICK             Director                                       March 29, 2004
           --------------------
             Andrew D. Africk


           /s/ MICHAEL S. GROSS             Director                                       March 29, 2004
           --------------------
             Michael S. Gross


          /s/ JEFFREY M. KILLEEN            Director                                       March 29, 2004
          ----------------------
            Jeffrey M. Killeen


                                            Director
              -------------
              Marc J. Rowan


            /s/ WILLIAM F. STASIOR          Director                                       March 29, 2004
            ---------------------
            William F. Stasior
</TABLE>