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, 2004, 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  000-13865

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

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


    19 WEST 44TH STREET, SUITE 507
       NEW YORK, NEW YORK                                       10036
(Address of principal executive offices)                      (Zip Code)

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

        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, 2004, was $31,922,127. All non-voting common
stock was held by affiliates of the registrant.

As of March 30, 2005, 8,414,809 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) AfriHUB, LLC ("AfriHUB"), an early stage
company that provides a limited amount of satellite based Internet access and
domestic and international calling services through exclusive partnerships with
certain Nigerian based universities while it actively pursues opportunities to
provide technical training in the Nigerian market, (iv) Navigauge, Inc.
(formerly known as IQStat, Inc., "Navigauge"), a market research firm that
tracks the in-car radio usage and driving habits of consumers and (v) Miraxis,
LLC ("Miraxis"), a development stage company that has access to a Ka-band
license so long as it implements its business plan to provide satellite based
multi-channel, broadband data and video services.

     In addition, the Company has been actively seeking complementary
operational opportunities. Consistent with this strategy, in December 2004, we
executed an agreement to acquire a 50% interest in the business of Hughes
Network Systems, Inc. ("HNSI"), the leading developer, manufacturer, installer
and provider of advanced satellite based networking solutions and services for
businesses, governments and consumers worldwide, from The DIRECTV Group, Inc.
("DIRECTV"). Pursuant to the terms of the agreement with DIRECTV, HNSI will
contribute to Hughes Network Systems, LLC ("HNS LLC"), a newly formed entity,
substantially all of the assets and certain liabilities of its very small
aperture terminal ("VSAT"), mobile satellite and carrier businesses, as well
as the certain portions of its SPACEWAY Ka-band satellite communications
platform that is under development. In consideration for this contribution,
HNS LLC will pay HNSI $201.0 million of cash, subject to adjustment depending
principally upon the closing value of HNSI's working capital (as defined in
the agreement). In order to finance the asset purchase, HNS LLC intends to
incur $325.0 million of term indebtedness and obtain a $50.0 million revolving
credit facility which is expected to be undrawn at closing. Upon the
consummation of these transactions, we will purchase 50% of the equity
interests of HNS LLC for $50.0 million in cash and 300,000 shares of our
common stock. Following this purchase, we will serve as the managing member of
HNS LLC.

     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 13-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 Federal Communications Commission (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 yielded interest at a
rate of 10% per year, had a maturity date of November 26, 2006, and was
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.

     Under the amended MSV Joint Venture Agreement, the convertible notes held
by our MSV Investors Subsidiary would automatically convert into equity
interests in the MSV Joint Venture upon the repayment of (i) the outstanding
principal and accrued interest on certain outstanding debt of the MSV Joint
Venture and (ii) the accrued interest on all outstanding convertible notes of
the MSV Joint Venture, including the convertible notes held by our MSV
Investors Subsidiary. On November 12, 2004, the MSV Joint Venture raised $145.0
million in cash by selling partnership units for $29.45 per unit and exchanged
or converted approximately $84.9 million of debt securities and accrued
interest. In connection with this financing, the convertible notes held by our
MSV Investors Subsidiary converted into approximately 23% of the limited
partnership interests of the MSV Joint Venture on an undiluted basis, at their
original conversion price of $6.45 per unit. As a result of these transactions,
our MSV Investors Subsidiary also received approximately $17.1 million in cash
from the MSV Joint Venture to pay the accrued interest on the convertible
notes. Our MSV Investors Subsidiary distributed approximately $13.6 million of
this cash to us and $3.4 million of cash to the unaffiliated third parties who
own the 20% minority interest.

   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.

     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, T-Mobile,
          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 ("MSS") utilizing a variety of
          satellite technologies that compete or will compete with the MSV
          Joint Venture's services. Mobile satellite services 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 also overlaps with the service area of the MSV Joint Venture.

   MSV Joint Venture's Strategy

     The MSV Joint Venture plans to develop, build and operate a
next-generation satellite system complemented by an ancillary terrestrial
component ("ATC"). Such a system would combine some the best characteristics of
satellite systems and of terrestrial wireless systems. While satellite systems
can provide communications where it is difficult or impossible to provide
communications coverage via terrestrial base stations, such as rural areas,
such systems are susceptible to signal blockage in urban areas and inside
buildings. By contrast, terrestrial systems do not serve significant remote
areas, but function well in urban areas because of their ground network. The
MSV Joint Venture intends to operate a satellite system with an ATC, enabling
it to reach rural areas via satellite and function in urban settings and
indoors through the terrestrial component.

     Incorporation of an 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 FCC rulings, as described below. 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.

     Build out of an ATC-enhanced network will require installation of a ground
network in any given metropolitan area to enable in-building signal
penetration. Because of the time and expense required to acquire and
incorporate these components, we anticipate that an ATC will be phased in over
time in various metropolitan areas. The FCC also requires geostationary orbit
satellite systems like the MSV Joint Venture's to maintain a spare satellite
either on the ground or in orbit.

   FCC's ATC Orders and Approval of the MSV Joint Venture's Application

     On February 10, 2003, the FCC released an order (the "February 2003 ATC
Order"), which greatly expanded the scope of the MSV Joint Venture's business
by permitting the incorporation of an ATC into its mobile satellite network. In
the February 2003 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 TMI, ICO and Celsat are licensed). Specifically, the February 2003 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 to the February 2003 ATC Order was approved by Industry Canada, the
FCC's counterpart in Canada, on May 22, 2004.

     The FCC's authorization of an ATC for these MSS bands was 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 an ATC in their satellite systems, the FCC
required that the MSV Joint Venture and other MSS operators:

     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, under the February 2003 ATC Order, ATC operations of the MSV
Joint Venture or other MSS providers were not 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 submitted its
application.

     In November 2004, the FCC granted the MSV Joint Venture's application to
operate an ATC in the L-Band, subject to certain conditions (the "November 2004
Application Approval"). The authorization was the first license for ATC
operation granted by the FCC, allowing the MSV Joint Venture to offer an ATC
with its commercial service. In addition, the FCC approved several of the MSV
Joint Venture's waiver requests, providing the MSV Joint Venture more
flexibility with respect to operating an ATC than previously provided in the
February 2003 ATC Order. However, the FCC deferred ruling on certain of the MSV
Joint Venture's other waiver requests until it acted on certain other pending
petitions related to the February 2003 ATC Order. The FCC's order was subject
to reconsideration and included various limitations and conditions necessary
for the implementation of an ATC operation.

     In February 2005, the FCC released its new rules for the deployment and
operation by the MSV Joint Venture of an ATC for its service, which provided
the MSV Joint Venture with substantial additional flexibility in its system
implementation, which is expected to allow it to significantly lower the cost
of an ATC deployment and increase the capacity of the MSS/ATC hybrid system
(the "February 2005 Order"). This additional flexibility provided by the FCC's
decision is expected to allow the MSV Joint Venture to offer users affordable
and reliable voice service from virtually anywhere on the North American
continent. In addition, the MSV Joint Venture expects to be able to offer a
cost effective high-speed data communications service in North America through
its integrated satellite/terrestrial service system.

     The FCC's February 2005 Order rejected arguments that would have limited
ATC flexibility. Instead, the FCC reaffirmed the fundamental underpinnings of
the February 2003 ATC Order and removed many constraints that would have
limited the spectral efficiency and communications efficacy of an ATC. The
FCC's decision recognized the essential nature of an ATC in providing spectral
efficiency to MSS users in populous areas, and that it can do so at an
insignificant cost of interference potential to other systems.

     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. Many of these same
terrestrial wireless providers filed court challenges to the February 2003 ATC
Order, which could result in changes to the terms of the February 2003 ATC
Order or the February 2005 Order that are unfavorable to the MSV Joint Venture
or completely preclude the incorporation of an ATC in MSS networks, though
neither we nor the MSV Joint Venture expect such an outcome. Inmarsat which
offers mobile satellite service in the U.S. using the L-band spectrum,
vigorously opposed the grant of ATC in the L-band - claiming it would cause
unacceptable interference to its satellites. However, recently Inmarsat
reconsidered its position now that ATC has been authorized and has announced
that it will seek approval to incorporate an ATC into its satellite service in
the United States, which could further increase competition in the provision of
satellite services incorporating an ATC.

     As a result of the FCC's authorizations, the value of our stake in the MSV
Joint Venture has significantly increased; 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 for the implementation of a satellite system including an ATC
or to identify and reach an agreement with one or more strategic partners.
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.

   TerreStar Networks

     TerreStar Networks, Inc. ("TerreStar") was established by the MSV Joint
Venture in February 2002, as a wholly owned subsidiary, to develop business
opportunities related to the proposed receipt of certain licenses in the 2 GHz
band. TMI, one of our partners in the MSV Joint Venture, holds the approval
issued by Industry Canada for a 2 GHz space station authorization and related
spectrum licenses for the provision of MSS in the 2 GHz band, as well as an
authorization from the FCC for the provision of MSS in the 2 GHz band ("MSS
Authorization"). These authorizations are subject to FCC and Industry Canada
milestones relating to construction, launch, and operational date of the
system. TMI plans to transfer the Canadian authorizations to an entity that is
eligible to hold the Canadian authorizations and in which TerreStar and/or TMI
will have an interest, subject to obtaining the necessary Canadian regulatory
approvals. In order to satisfy the milestone requirements included within the
authorizations, TerreStar and TMI entered into an agreement in which TerreStar
agreed to enter into a non-contingent satellite procurement contract for the
construction and delivery to TMI of a satellite that is consistent with the
Canadian and FCC authorizations. Further, TMI agreed that at TerreStar's
election, TMI will transfer the 2 GHz assets to the entity described above,
subject to any necessary Canadian and U.S. regulatory approvals. In December
2002, TMI and TerreStar jointly applied to the FCC for authority to transfer
TMI's MSS Authorization to TerreStar.

     In August 2002, Industry Canada advised the MSV Joint Venture that this
arrangement met the requirement that TMI demonstrate that it is bound to a
contractual agreement for the construction of the proposed satellite. However,
certain wireless carriers had urged the FCC to cancel TMI's MSS Authorization.
A similar group also filed a petition in January 2003 asking the FCC to dismiss
the application to transfer TMI's MSS Authorization to TerreStar. In February
2003, the FCC adopted an order canceling TMI's MSS Authorization due to an
alleged failure to enter into a noncontingent satellite construction contract
before the specified first milestone date.

     In June 2004, the FCC agreed to waive aspects of the first milestone
requirement applicable to TMI's MSS Authorization and, therefore, reinstated
that authorization, along with the application to transfer TMI's MSS
Authorization to TerreStar. The FCC also modified the milestone schedule
applicable to TMI's MSS Authorization. TMI recently certified to the FCC its
compliance with the second milestone under its MSS Authorization. The FCC is
currently reviewing that certification for compliance with the requirements.
The application to transfer TMI's MSS Authorization to TerreStar is still
pending before the FCC.

     On December 20, 2004, the MSV Joint Venture issued rights to receive all
of the shares of TerreStar's common stock to the limited partners of the MSV
Joint Venture, including our MSV Investors Subsidiary, pro rata in accordance
with each limited partner's percentage ownership. The rights will be exchanged
into shares of TerreStar common stock automatically on May 20, 2005. In
connection with the distribution of the rights, TerreStar issued warrants to
purchase shares of its common stock representing 3% of the outstanding equity
to one of the Other MSV Investors. These warrants have an exercise price of
$0.21491 per share and expire on December 20, 2006. Following the exchange of
the rights and considering this warrant, our MSV Investors Subsidiary would own
approximately 22% of TerreStar on an undiluted basis.

     For additional information on the MSV Joint Venture and TerreStar, refer
to the consolidated financial statements and related notes thereto of the MSV
Joint Venture included in Item 15 of this Form 10-K.

Hughes Network Systems

     In December 2004, we signed an agreement with DIRECTV to acquire a 50%
interest in the business of HNSI. Pursuant to the terms of the agreement, HNSI
will contribute to HNS LLC, a newly formed entity, substantially all of the
assets and certain liabilities of its VSAT, mobile satellite and carrier
businesses, as well as the certain portions of its SPACEWAY Ka-band satellite
communications platform that is under development. In consideration for this
contribution, HNS LLC will pay HNSI $201.0 million of cash, subject to
adjustment depending principally upon the closing value of HNSI's working
capital (as defined in the agreement). In order to finance the asset purchase,
HNS LLC intends to incur $325.0 million of term indebtedness and obtain a $50.0
million revolving credit facility which is expected to be undrawn at closing.
Upon the consummation of these transactions, we will purchase 50% of the equity
interests of HNS LLC for $50.0 million in cash and 300,000 shares of our common
stock. Following this purchase, we will serve as the managing member of HNS
LLC. Our purchase is currently expected to close in April 2005 and is subject
to HNS LLC completing the issuance of the senior notes, regulatory approvals
and other customary closing conditions.

     Based in Germantown, MD, HNS is the world's leading provider of broadband
satellite networks and services to the VSAT enterprise market and the largest
satellite Internet access provider to the North American consumer market. HNS
offers highly customized products and services that help its customers meet
their unique needs for data, voice and video communications, typically across
geographically dispersed locations. HNS invented VSATs in 1983 and has been a
leader in commercializing satellite communications since then, achieving
extensive depth and experience in the operation of satellite data, voice and
video networks. A VSAT system uses satellite communications technology to
provide broadband connectivity to one or more fixed locations on the ground.
HNS provides or enables a variety of satellite based broadband services, such
as intranet and Internet access, voice services, connectivity to suppliers,
franchisees and customers, credit authorization, inventory management, content
delivery and video distribution to large, medium and small enterprise
customers. HNS is a leading provider to these end markets and serves over 200
large enterprises, many of which are Fortune 1000 corporations. Over the past
15 years, HNS has shipped more than 750,000 satellite terminals to over 100
countries, either directly or through its subsidiaries and international joint
venture arrangements. HNS is the largest satellite broadband consumer Internet
access provider in North America based on terminals shipped.

     HNS's network solutions best support enterprise network requirements that
consist of geographically dispersed sites communicating with a singe central
data center or access point with a need for highly secure and reliable service
availability across one or more regions. In addition, due to the shared nature
of HNS's satellite communications resources, its networks provide attractive
economics for multi-site applications that have varying levels of traffic
requirements at any one site. To date, HNS has shipped approximately 430,000
enterprise terminals in networks of up to 16,000 sites. HNS maintains its
market leadership position by offering large enterprises a customizable and
complete turnkey solution, including program management, installation, training
and support services. HNS is also targeting the expanding small and medium
enterprise ("SME") and small office/home office ("SOHO") markets by packaging
access, network and hosted services normally reserved for large enterprises
into a comprehensive solution. HNS's extensive experience in product
development and service delivery yields quality and reliability for HNS's
enterprise customers, which include leaders in the automotive, energy,
financial, hospitality, retail and services industries. HNS's large enterprise
VSAT customers typically enter into long-term contracts with HNS with an
average length of 3 to 5 years.

     We believe that HNS's long heritage of operating networks has created one
of the industry's most reliable services, with network availabilities in excess
of 99.96% in 2004, and a legacy of innovation that has made the HNS brand one
of the most respected in the industry. HNS believes its VSAT systems offer a
distinct advantage for its target customers compared with terrestrial-based
alternatives by offering a combination of homogenous coverage to geographically
dispersed sites, high reliability and security levels, rapid and cost-efficient
deployment, attractive economics for multicast and broadcast applications and
the ability to completely bypass local and inter exchange carriers. These
system features allow HNS to control the overall performance and grade of
service, regardless of the geographic location of its customers. Moreover,
HNS's VSAT systems provide a global service footprint that can reach
approximately 90% of the world's population with a single provider solution
through leased satellite transponder capacity.

     HNS has a long history of product development and leadership which allows
it to both reduce the cost of its hardware and increase the functionality and
throughput of its systems. We expect that HNS will continue this tradition with
the release of its DW 7000 terminal, scheduled for mid-2005, which is expected
to increase its customers' in route data speed by as much as 600% and expand
service functionality with lower hardware costs.

     HNS plans to launch its next-generation SPACEWAY 3 satellite over North
America in late-2006 and to introduce service on SPACEWAY's data network in
2007. With SPACEWAY, HNS will be able to offer communication rates that meet or
exceed those currently available on DSL, cable or T-1 lines. HNS intends to
leverage SPACEWAY's faster communication rates and greater functionality to
grow its market share in the rapidly expanding North American SME and SOHO
markets, which have historically been largely serviced by terrestrial
alternatives, to further increase its consumer subscriber base. The SPACEWAY
satellite will also allow HNS to reduce its transponder leasing needs and its
high capacity will allow HNS to reduce its transponder leasing needs and to
reduce costs as new and renewing customers migrate onto its SPACEWAY satellite.

Electronic System Products

     Based in Atlanta, Georgia, ESP is an engineering services firm with
expertise in the design and manufacturing of electronic products and systems
across many disciplines of electrical engineering. ESP also owns a portfolio of
patented intellectual property, including BTSC stereo encoding and decoding
technology used to support the end-to-end delivery of stereo audio over legacy
analog television transmission systems and several versions of FLEX paging
reference designs used to provide one-way machine-to-machine wireless telemetry
control for commercial and industrial applications. Substantially all of our
consolidated revenues for the years ended December 31, 2004 and 2003 relate to
services provided by ESP. During the fourth quarter of 2004, ESP experienced a
significant decline in demand for its services, including from its existing
customers. As a result, in January 2005, ESP was forced to reduce its workforce
from 21 employees to four employees to compensate for the reduced cash inflows.
ESP is still performing services for the MSV Joint Venture and Navigauge;
however, it is no longer seeking new client engagements and is instead focusing
on exploiting its intellectual property portfolio. As of December 31, 2004, we
owned approximately 78% of ESP.

AfriHUB

     Based in Fairfax, Virginia, AfriHUB planned to provide instructor led and
distance based technical training and satellite based broadband Internet access
and domestic and international calling services through exclusive partnerships
with certain Nigerian based universities. While establishing centers which
provide these services on two university campuses during the fourth quarter of
2004, AfriHUB experienced significant unanticipated delays and costs in opening
these facilities, as well as greater price sensitivity within the university
communities. As a result, AfriHUB has suspended its planned roll out of service
to additional campuses and is actively pursuing other opportunities to provide
technical training in the Nigerian market. As of December 31, 2004, we owned
approximately 70% of AfriHUB.

Navigauge

     Based in Atlanta, Georgia, 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 completed development, with the help of
ESP, of a patent-pending monitoring device which tracks the in-car radio usage
and driving habits of consumers. In the fourth quarter of 2004, Navigauge
launched its service in Atlanta and intends, upon raising sufficient capital,
to recruit panels in other top media markets in the country. Data collected
from the panels will be used to generate information regarding radio usage and
consumer behavior that can be marketed. As of December 31, 2004, we owned
approximately 39% of Navigauge.

Miraxis

     Based in Atlanta, Georgia, Miraxis is a development stage company that has
access to a Ka-band license so long as it implements its business plan to
provide satellite based multi-channel, broadband data and video services in
North America. The assets of Miraxis consist principally of its business plan
and related intellectual property, its access to the Ka-band license subject to
implementing such business plan 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. In 2004, other than $0.1 million of
promissory notes purchased by us, Miraxis has been unsuccessful in raising any
additional capital. As of December 31, 2004, we owned approximately 40% of
Miraxis.

Employees

     As of December 31, 2004, we and our consolidated subsidiaries had 83
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 issued the February 2005 Order permitting the
incorporation of an ATC into mobile satellite services in various frequency
bands, subject to a set of conditions being met. In July 2003, certain
terrestrial wireless providers petitioned the U.S. Court of Appeals for the
District of Columbia to review the FCC's decision to grant ATC. The petition
was held in abeyance until the FCC rules on the request for reconsideration
filed by the MSV Joint Venture. Since the FCC's grant of the MSV Joint
Venture's application to operate a MSS system with an ATC in November 2004 and
the FCC's issuance of its reconsideration order in February 2005, the petition
in the Court of Appeals is expected to proceed. If the Court of Appeals
invalidates the February 2003 ruling, the MSV Joint Venture's ability to
implement its business strategy and compete effectively would be harmed, which
would cause our joint venture interest in the MSV Joint Venture to depreciate
in value and could have a material adverse effect on our financial condition.
See "Risk Factors - The value of our interest in the MSV Joint Venture 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.

     In addition, HNS is subject to regulation in the provision of
international telecommunications. Currently, HNS is required to obtain
approvals from national and local authorities in connection with most of the
services that it provides. As a provider of communications services in the
United States, it is subject to the regulatory authority of the United States,
primarily the FCC. It is also subject to the export control laws, sanctions
and regulations of the United States with respect to the export of
telecommunications equipment and services. In addition, certain aspects of
HNS's business are subject to state and local regulation. HNS is also subject
to regulation by the national communications authorities of other countries in
which HNS, and under certain circumstances its resellers, provide service.

     The governmental approvals for HNS's current business generally have not
been difficult to obtain in a timely manner. However, the failure to obtain
particular approvals has delayed, and in the future may delay, HNS's provision
of current and new services. Moreover, the imposition by a governmental entity
of conditions on HNS's business, or the failure to obtain authorizations
necessary to operate satellites or provide satellite service, could have a
material adverse effect on HNS's ability to generate revenue and conduct its
business as currently planned. Violations of laws or regulations may result in
various sanctions including fines, loss of authorizations and the denial of
applications for new authorizations or the renewal of existing authorizations.

Financial Information

     For additional information regarding the revenues, profits and losses and
assets of the reportable segments of the Company, refer to the consolidated
financial statements and related notes thereto for each of the Company and the
MSV Joint Venture included in Item 15 of this Form 10-K.

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.

Risks Relating to the Businesses of the MSV Joint Venture and HNS

   The value of our interest in the MSV Joint Venture may not appreciate
   further or may decline significantly in the future because the MSV Joint
   Venture has entered 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 interest in the MSV Joint
Venture may not appreciate further or may decline significantly and rapidly in
value in the future. With the FCC's issuance of the February 2003 ATC Order,
the November 2004 Application Approval Order and the February 2005
Reconsideration 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. There can be no assurances that the
MSV Joint Venture will obtain financing or reach an agreement with a strategic
partner on satisfactory terms. In addition, the MSV Joint Venture's business
is subject to a number of other significant risks and uncertainties,
including:

     o    rapid technological change,

     o    intense competition, and

     o    extensive government regulation by the FCC in the United States and
          by Industry Canada in Canada.

   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 February 2003 ATC Order permitted 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. While the MSV Joint Venture is the first to have had such an
application approved, 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 had vigorously opposed the grant of ATC in the
L-band - claiming it would cause unacceptable interference to its satellites -
following the February 2005 Reconsideration Order, Inmarsat reconsidered its
position and has announced that it will seek approval to incorporate an ATC
into its satellite service in the United States. If Inmarsat or any of the
other competitors of the MSV Joint Venture receive more extensive or more
favorable approvals from the FCC, the MSV Joint Venture's ability to implement
its business strategy and compete effectively also could be harmed.

   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 include risk, and launch failures do 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.

   Our ability to acquire a 50% interest in HNS is subject to numerous
   uncertainties.

     On December 3, 2004, we executed an agreement to acquire a 50% interest in
HNS in exchange for $50.0 million of cash and 300,000 shares of our common
stock. The transaction is subject to customary closing conditions, including
regulatory approvals. There can be no assurance that the transaction will
close. For the purposes of all of the risk factors set forth herein other than
this risk factor, we have assumed the successful consummation of our
acquisition of a 50% interest in HNS.

   HNS's business is subject to uncertainties and we may lose our entire
   investment.

     The HNS business involves numerous uncertainties. If we are not successful
in assisting HNS in maintaining or growing its revenues and/or cannot control
its costs, the business could need additional capital which could require
additional indebtedness or the sale of further additional equity of HNS
resulting in dilution of our interest in HNS or require additional capital
contributions by us. If such actions are necessary, there can be no assurances
that they will be on terms favorable to us or that they will result in the
business being successful or financially viable. If we are unable to take such
actions, the value of our interest in HNS will be adversely affected or lost.

   If we or HNS lose key personnel or are unable to attract and retain senior
   operation employees, our operations or those at HNS could be materially and
   adversely affected.

     Our success is dependent to a significant extent upon the continuing
efforts, abilities and business generation capabilities of our executive
management team and certain key employees at HNS. While we have programs in
place, and will implement new programs at HNS, to motivate, reward and retain
those individuals, they may be unwilling or unable to continue in their
present positions. The loss or unavailability of certain of our executive
officers or key employees at HNS could affect our ability to successfully
manage HNS, HNS's client relationships or new business opportunities and could
impede HNS's ability to implement its business strategy. HNS's success and
plans for future growth will also depend on its ability to hire and retain
executives and other senior personnel. If HNS is not successful in this
regard, the value of our interest in HNS will be negatively impacted.

   If HNS is unable to attract, retain and manage its employees, its business
   will suffer.

     HNS's, and our, future performance depends in large part upon HNS's
ability to attract, develop, motivate and retain skilled personnel. Qualified
employees are in demand, and there is significant competition for these
individuals. As a result, HNS may not be able to attract and retain sufficient
numbers of these qualified individuals in the future, which may adversely
affect HNS's future performance. Further, there can be no assurances that the
additional personnel that we or HNS hire will work well together with existing
members of our management team and the management team of HNS.

   The long-term debt obligations of HNS could limit its ability to implement
   its business plan.

     The indebtedness that will be incurred by HNS upon closing of the
transactions will exceed $325 million and will contain restrictions that may
limit HNS's ability to finance future operations, respond to changing business
and economic conditions, secure additional financing, and engage in
opportunistic transactions, such as strategic acquisitions.

     HNS's substantial level of indebtedness could have important consequences
to us and our common stock, including the following:

     o    HNS's ability to obtain additional financing for working capital,
          capital expenditures or general corporate purposes may be impaired;

     o    the portion of HNS's cash flow needed to make debt service payments
          on the debt will reduce the funds available to it for other purposes;
          and

     o    HNS may have a higher level of indebtedness than some of its
          competitors, which may put it at a competitive disadvantage and
          reduce its flexibility in planning for, or responding to, changing
          conditions in our industry, including technological change or
          increased competition.

   HNS's ability to protect proprietary technology is limited and infringement
   claims against HNS could restrict the business.

     HNS's success depends significantly on its ability to protect proprietary
rights to the technologies used in its products and services. If HNS is unable
to protect its proprietary rights adequately, its competitors could use the
intellectual property HNS has developed to enhance their own products and
services, which could materially harm HNS's business and negatively impact the
value of our common stock. HNS currently relies on a combination of patents,
trade secret laws, copyrights, trademarks, service marks and contractual rights
to protect its intellectual property. We cannot assure you the steps HNS has
taken to protect its proprietary rights are adequate. Also, we cannot assure
you that HNS's issued patents will remain valid or that any pending patent
applications will be issued. Additionally, the laws of some foreign countries
in which HNS products are or may be sold do not protect its intellectual
property rights to the same extent as do the laws of the United States.

     Litigation may often be necessary to protect HNS's intellectual property
rights and trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. We believe infringement, invalidity, right to use or ownership
claims by third parties or claims for indemnification resulting from
infringement claims will likely be asserted against HNS in the future. If any
claims or actions are asserted against HNS, it may seek to obtain a license
under a third party's intellectual property rights. We cannot assure you,
however, that a license will be available under reasonable terms or at all.
Litigation of intellectual property claims could be extremely expensive and
time consuming, which could materially harm HNS's business, regardless of the
outcome of the litigation. If HNS's products are found to infringe upon the
rights of third parties, it may be forced to incur substantial costs to develop
alternative products. We cannot assure you that HNS would be able to develop
alternative products or, if these alternative products were developed, they
would perform as required or be accepted in the applicable markets. If HNS is
unable to address any of the risks described above relating to the protection
of its proprietary rights, it could materially harm HNS's business and
negatively impact the value of our common stock.

   Because we will be conducting significantly more business internationally
   through HNS, we will face additional risks related to foreign currency
   fluctuation as well as global political and economic conditions.

     HNS has a significant international operation. HNS's international sales
account for a significant percentage of its revenues. Many of these
international sales may be denominated in foreign currencies. A decrease in the
value of foreign currencies relative to the U.S. dollar could result in losses
from transactions denominated in foreign currencies or the repatriation of
revenues earned outside of the U.S. This decrease in value could also make
HNS's products less price-competitive.

     There are additional risks in conducting business internationally,
including:

     o    unexpected changes in regulatory requirements;

     o    increased cost of localizing systems in foreign countries;

     o    increased sales and marketing and research and development expenses;

     o    availability of suitable export financing;

     o    timing and availability of export licenses;

     o    tariffs and other trade barriers;

     o    political and economic instability;

     o    challenges in staffing and managing foreign operations and ensuring
          compliance with U.S. and foreign regulations, including U.S. laws
          relating to trade, export controls and foreign corrupt practices;

     o    difficulties in managing distributors;

     o    potentially adverse tax consequences;

     o    potential difficulty in making adequate payment arrangements; and

     o    potential difficulty in collecting accounts receivable.

     In addition, some of HNS's customer agreements are governed by foreign
laws, which may differ significantly from U.S. laws. HNS may be limited in its
ability to enforce its rights under these agreements and to collect damages,
if awarded. If HNS is unable to address any of the risks described above, it
could materially harm its business.

Risks Relating to the Industries in Which the MSV Joint Venture and HNS Operate

   Our business is subject to general economic conditions. Future economic
   downturns could have an adverse impact on HNS and 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 HNS or the MSV Joint Venture. A further deterioration in
existing economic conditions could therefore materially and adversely affect
our financial condition, operating results and business.

   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 Communications in Canada, Motient in the
United States, 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 had vigorously
opposed the approval of ATC in the L-band and has announced that it will file
its own ATC application, which may complicate the annual coordination process
for spectrum in the L-band.

     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. The FCC further proposed that any new spectrum that
becomes available in the L-band may be awarded to competing mobile satellite
services providers. If the FCC adopts this proposal, the MSV Joint Venture
could face increased competition in the mobile satellite services marketplace.

     Furthermore, the MSV Joint Venture's ability to operate a satellite
system with an ATC is subject to the February 2003 ATC Order, the November
2004 Application Approval and the February 2005 Order and general FCC
oversight and approval. 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 and negatively impacted.

   If court challenges to the february 2003 atc order and the february 2005
   order are successful, it would likely have negative consequences on the
   nature of the MSV Joint Venture's ATC implementation which could negatively
   impact the value of our interest in the MSV Joint Venture.

     In July 2003, certain terrestrial wireless providers petitioned the U.S.
Court of Appeals for the District of Columbia to review the FCC's decision to
grant the February 2003 ATC Order. The petition was held in abeyance until the
February 2005 Order was released. If the FCC strikes down all or certain
aspects of the February 2003 ATC Order or the February 2005 Order following an
appeal or the Court of Appeals invalidates either order, the ability of the MSV
Joint Venture to execute its business plan and the value of our interest in the
MSV Joint Venture could be materially negatively impacted. While the MSV Joint
Venture along with its members, including us, will continue to deploy our
resources to support the February 2003 ATC Order and the February 2005 Order,
there can be no assurances that we will be successful.

   HNS is subject to significant regulation.

     The provision of international telecommunications is regulated.
Currently, HNS is required to obtain approvals from national and local
authorities in connection with most of the services that it provides. As a
provider of communications services in the United States, it is subject to the
regulatory authority of the United States, primarily the FCC. It is also
subject to the export control laws, sanctions and regulations of the United
States with respect to the export of telecommunications equipment and services.
In addition, certain aspects of HNS's business are subject to state and local
regulation. HNS is also subject to regulation by the national communications
authorities of other countries in which HNS, and under certain circumstances
its resellers, provide service.

     The governmental approvals for HNS's current business generally have not
been difficult to obtain in a timely manner. However, the failure to obtain
particular approvals has delayed, and in the future may delay, HNS's provision
of current and new services. Moreover, the imposition by a governmental entity
of conditions on HNS's business, or the failure to obtain authorizations
necessary to operate satellites or provide satellite service, could have a
material adverse effect on HNS's ability to generate revenue and conduct its
business as currently planned. Violations of laws or regulations may result in
various sanctions including fines, loss of authorizations and the denial of
applications for new authorizations or the renewal of existing authorizations.

     Future changes to the regulations under which HNS operates could increase
its costs or make it easier or less expensive for our competitors to compete
with HNS.

   HNS's international sales and operations are subject to U.S. laws relating
   to trade, export controls and foreign corrupt practices, the violation of
   which could adversely affect HNS's operations.

     HNS must comply with U.S. export control laws and regulations,
specifically the Arms Export Control Act, the International Traffic in Arms
Regulations ("ITAR"), the Export Administration Regulations and the trade
sanctions laws and regulations administered by the Office of Foreign Assets
Control of the US Department of the Treasury ("OFAC") in the operation of HNS's
business. The export of satellite hardware, services and technical information
with military or dual-use applications to non-U.S. persons is regulated by the
U.S. Department of State's Directorate of Defense Trade Controls under ITAR.
The U.S. Department of Commerce's Bureau of Industry and Security also
regulates some of HNS's activities under the Export Administration Regulations.
In addition, HNS is subject to the Foreign Corrupt Practices Act that,
generally, bars bribes to foreign governments or officials. In January 2005,
DIRECTV and HNS entered into a consent agreement with the State Department
regarding violations of the ITAR regulations involving exports of technology
related to the VSAT business primarily to China but also to several other
countries. As part of this agreement, a significant fine was paid, one of HNS's
subsidiaries was debarred from conducting certain international business until
at least May 2005, at which point HNS can seek reinstatement, and HNS is
required to implement a compliance program to avoid future infractions. This
consent agreement supplemented another consent agreement of DIRECTV in March
2003, arising out of separate violations of ITAR. More stringent review and
compliance processes may result in the loss of existing or potential customers
in HNS's international business. Further violations of laws or regulations may
result in significant additional sanctions including fines, more onerous
compliance requirements, more extensive debarments or loss of authorizations
needed to conduct aspects of HNS's international business.

   HNS depends heavily on the VSAT market.

     A material portion of the revenues of HNS are derived from sales of VSAT
communications networks. A significant decline in demand for such services
following closing or the replacement of VSAT technology by an alternative
technology could materially harm HNS's business.

   If commercial wireless communications markets fail to grow as anticipated,
   HNS's business could be materially harmed.

     A number of the commercial markets for HNS in the wireless communications
area, including the market for broadband products, have only recently
developed. Because these markets are relatively new, it is difficult to predict
the rate at which these markets will grow, if at all. If the markets for
commercial wireless communications products fail to grow, or grow more slowly
than anticipated, the HNS business could be materially harmed. Conversely, to
the extent that growth in these markets results in capacity limitations in the
wireless communications area, it could materially harm HNS.

   The success of HNS will depend on the development of new satellite and other
   wireless communications products and acceptance of these products.

     The wireless communications market in general, and the satellite
communications market in particular, are subject to rapid technological change,
frequent new and enhanced product introductions, product obsolescence and
changes in user requirements. The ability of HNS to compete successfully in
these markets depends on its success in anticipating changes in technology and
applying our expertise and new technology to existing and emerging satellite
and other wireless communications markets. The ability of HNS to compete in
these markets therefore depends in large part on HNS's ability to successfully
develop, introduce and sell new products and enhancements on a timely and
cost-effective basis that respond to ever-changing customer requirements. HNS'
ability to successfully introduce new products depends on several factors,
including:

     o    successful integration of various elements of its complex
          technologies and system architectures;

     o    timely completion and introduction of new product designs;

     o    achievement of acceptable product costs;

     o    timely and efficient implementation of its manufacturing and assembly
          processes and cost reduction efforts;

     o    establishment of close working relationships with major customers for
          the design of their new wireless communications systems incorporating
          our products;

     o    development of competitive products by competitors;

     o    marketing and pricing strategies of its competitors with respect to
          competitive products; and

     o    market acceptance of its new products.

     We cannot assure you that HNS's product development efforts for
communications products will be successful or any new products developed in the
future will achieve sufficient market acceptance. HNS may experience
difficulties that could delay or prevent it from successfully selecting,
developing, manufacturing or marketing new products or enhancements. In
addition, defects may be found in HNS products after deliveries commence, which
could result in the delay or loss of market acceptance. If HNS is unable to
design, manufacture, integrate and market profitable new products for existing
or emerging communications markets, it could materially harm the HNS business.

Risks Relating to Our Common Stock Generally

   Fluctuations in our operating results could adversely affect the trading
   price of our common stock.

     Our operating 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    increased competition in the mobile satellite services industry;

     o    risks and uncertainties associated with our agreement to acquire a
          50% interest in HNS;

     o    competition in the VSAT 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.

   We have a history of operating losses.

     We have incurred substantial losses since our inception and have an
accumulated deficit of approximately $539.6 million as of December 31, 2004.
For the years ended December 31, 2004 and 2003, we incurred a loss from
operations of approximately $11.9 million and $6.9 million, respectively. There
can be no assurance that we will not experience losses in the foreseeable
future.

   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 National Market.

   Our common stock is quoted on the OTC Bulletin Board, 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 National Market resulted in a reduction in the
liquidity of our common stock. This lack of liquidity may 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 holders of our preferred stock are entitled to elect a
majority of the members of our board of directors.

   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, 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. In addition, in December 2004, we sold 2,000,000 shares of our
common stock in a private placement. In connection with this sale, we entered
into a registration rights agreement with the investors requiring that we
register the resale of the shares. If we do not meet certain deadlines between
June 30, 2005 and December 31, 2005 with respect to making the registration
effective, then warrants, which were issued to the investors, to purchase up to
an additional 600,000 shares of common stock at an exercise price of $18.25 per
share will vest. The number of warrants that vest, if any, will depend on when
the registration statement becomes effective. The future sale of substantial
amounts of our common stock pursuant to any such registration statements could
have an adverse impact on our stock price.

   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 we believe that our investment securities currently do not
comprise more than 40% of our total assets, this view is dependent upon our
belief that our largest asset, our stake in the MSV Joint Venture, is not an
investment security. Should that interest be deemed to be an investment
security, then unless an exclusion or safe harbor were available to us, in
certain circumstances, we would have to either attempt to purchase operations
or business sufficiently large to offset such treatment or, alternatively,
reduce our ownership of the MSV Joint Venture as a percentage of our total
assets in order to avoid becoming subject to the requirements of the Investment
Company Act of 1940. There can be no assurances that such transactions, to the
extent necessary, could be consummated on satisfactory terms, if at all, and
that such transactions would not have an adverse effect on us and the price of
our common stock. In addition, contractual or legal restrictions could impair
our ability to consummate such a transaction. Moreover, we could incur
significant tax liabilities in connection with any such actions.

   Compliance with changing regulation of corporate governance and public
   disclosure may result in additional expenses.

     Changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002, is creating
uncertainty for companies such as ours. We are committed to maintaining high
standards of corporate governance and public disclosure. As a result, we intend
to invest reasonably necessary resources to comply with evolving standards, and
this investment may result in increased general and administrative expenses and
a diversion of management time and attention from assisting the MSV Joint
Venture and HNS in revenue-generating activities to compliance activities,
which could harm our business prospects.

   The Apollo Stockholders beneficially own a large percentage of our voting
   stock.

     As of December 31, 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 an aggregate of 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 1,199,007 outstanding shares of our preferred stock and all of our
outstanding Series 1-A and Series 2-A warrants. Assuming that all outstanding
shares of our preferred stock are converted and all Series 1-A warrants and
Series 2-A warrants are exercised, as of December 31, 2004, the Apollo
Stockholders beneficially own approximately 65% of our outstanding common stock
and 36% of our outstanding voting power on a fully diluted basis. 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.

     Because of the Apollo Stockholders' large percentage of ownership and
their rights as holders of preferred stock, including being entitled to
975,000 votes with respect to the 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 are entitled to quarterly cash dividends.

     In accordance with the terms of our preferred stock, the Apollo
Stockholders are entitled to receive quarterly cash dividends at an annual rate
of 4.65% of the then current face value to be paid quarterly in arrears
commencing with the three months ended September 30, 2004. While we had cash,
cash equivalents and short-term investments of approximately $94.5 million as
of December 31, 2004, we have committed $50.0 million in connection with our
purchase of a 50% interest in HNS, and 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. Even if we are able to satisfy these obligations, the
effect of such payments on our cash position may adversely affect our ability
to meet our operational payment obligations. We may be required 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.

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 former shareholders filed a complaint
against us, certain of our subsidiaries and certain of the then 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 sought 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.
Following the completion of discovery, we filed a motion for summary judgment
on July 30, 2004. Plaintiffs opposed the motion (the "Plaintiffs' Opposition"),
and we responded.

     On September 14, 2004 and again on November 1, 2004, we notified the
plaintiffs that, upon a final adjudication of the matter, we intended to seek
sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure, based
upon what were believed to be numerous falsehoods contained in the plaintiffs'
complaint and various other filings in the case, including the Plaintiffs'
Opposition. In response, on November 12, 2004, the plaintiffs withdrew certain
of the assertions contained in Plaintiffs' Opposition. We then filed a motion
for sanctions (the "Sanctions Motion") against the plaintiffs seeking
attorney's fees and expenses incurred in connection with the action. The
plaintiffs opposed the sanctions motion on December 17, 2004, and we replied.
On January 13, 2005, the case was dismissed by the Court with prejudice,
subject to reinstatement by either party within 30 days of the order, in light
of an agreement in principle to resolve the matter. On February 11, 2005, the
parties executed a settlement agreement pursuant to which all parties denied
liability relating to all matters, including but not limited to the original
complaint and the Sanctions Motion, exchanged mutual releases, and we agreed to
transfer to the plaintiffs an indirect nominal interest in a former subsidiary
of ours. We did not recognize a charge in connection with this settlement as
the interest in the former subsidiary had no carrying value on the consolidated
balance sheets.

     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.

     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. In February 2005, we reached an agreement in principle with
the plaintiff's counsel pursuant to which the class action will be dismissed
without prejudice. As part of the agreement, we will receive releases from
certain individuals in exchange for an immaterial settlement payment to each
of the individuals. The effectiveness of a settlement agreement will be
subject to court approval. Should the settlement agreement not be finalized,
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, 2003
was held on December 10, 2004. We solicited proxies for the meeting pursuant to
Regulation 14A under the Securities and Exchange Act of 1934 (the "Exchange
Act"). The Company's stockholders voted on the following proposal with the
following results:

     The common stockholders and preferred stockholders, voting as a single
class with the preferred stockholders entitled to only 975,000 votes, elected
Jeffrey M. Killeen to the Board of Directors for a one-year term.

                                           For           Withheld
                                           ---           --------
    Common Stock                         5,838,209         19,224
    Preferred Stock                        975,000              0
                                      -------------    -----------
    Total                                6,813,209         19,224
                                      =============    ===========

     The common stockholders and preferred stockholders, voting as a single
class with the preferred stockholders entitled to only 975,000 votes, elected
William F. Stasior to the Board of Directors for a one-year term.

                                           For           Withheld
                                           ---           --------
    Common Stock                         5,838,046         19,387
    Preferred Stock                        975,000              0
                                      -------------    -----------
    Total                                6,813,046         19,387
                                      =============    ===========

     The common stockholders and preferred stockholders, voting as a single
class with the preferred stockholders entitled to only 975,000 votes, elected
Marc J. Rowan to the Board of Directors for a one-year term.

                                           For           Withheld
                                           ---           --------
    Common Stock                         5,816,546         40,887
    Preferred Stock                        975,000              0
                                      -------------    -----------
    Total                                6,791,546         40,887
                                      =============    ===========

     The preferred stockholders elected Andrew D. Africk and Michael S. Gross
to the Board of Directors for a one-year term.


                                           For           Withheld
                                           ---           --------
    Preferred Stock                      1,199,007              0

     The appointment of KPMG LLP as the independent registered public
accounting firm of the Company for the year ended December 31, 2004 was
ratified by the common stockholders and the preferred stockholders, voting as
a single class with the preferred stockholders entitled to only 975,000 votes.

                                                                       Broker
                          For          Against          Abstain       Non-votes
                          ---          -------          -------       ---------
    Common Stock       5,823,981        18,822           14,630              0
    Preferred Stock      975,000             0                0              0
                      -----------    ----------     ------------    -----------
    Total              6,798,981        18,822           14,630              0
                      ===========    ==========     ============    ===========


                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     On December 23, 2002, our common stock was delisted from the Nasdaq
National Market. Since that time, shares of our 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 common stock also
became listed on the OTC Bulletin Board. Our 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 by the Pink Sheets LLC at
www.pinksheets.com on and after December 23, 2002 and (ii) the high and low
sales prices per share as reported on the OTC Bulletin Board on and after
January 30, 2003:

                                                               High        Low
                                                               ----        ---
     PINK SHEETS
       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

       Year ended December 31, 2004
         First quarter....................................   $  4.80    $  1.50
         Second quarter...................................      7.45       3.05
         Third quarter....................................      8.00       6.05
         Fourth quarter ..................................     27.40       6.95

     The above quotations reported by 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 30, 2005, the last sale price for our common stock as
reported by the OTC Bulletin Board was $38.65 per share.

     As of March 30, 2005, we had approximately 851 recordholders of our common
stock. This number was derived from our stockholder records, and does not
include beneficial owners of our common stock whose shares are held in the
names of various dealers, clearing agencies, banks, brokers, and other
fiduciaries. Holders of our 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 years ended
December 31, 2004 and 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.

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
our consolidated financial statements and related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K. The selected Consolidated
Statements of Operations data for the years ended December 31, 2004, 2003,
2002, 2001 and 2000 and the selected Consolidated Balance Sheet data as of
December 31, 2004, 2003, 2002, 2001 and 2000 are derived from our consolidated
financial statements which have been audited by our independent registered
public accounting firm. The presentation of the data for the years ended
December 31, 2001 and 2000 has been reclassified to reflect the accounting for
discontinued operations in 2001.

<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                             -------------------------------------------------------------------------------
                                                2004             2003            2002             2001             2000
                                             ------------    -------------    ------------    --------------    ------------
                                                                    (in thousands except share data)

<S>                                               <C>                <C>               <C>           <C>             <C>

Consolidated Statements of
   Operations Data:
Revenues                                          $2,127             $699              $-            $1,906          $8,284
Cost of revenues                                   2,072              913               -             1,337           6,102
                                             ------------    -------------    ------------    --------------    ------------
   Gross margin                                       55             (214)              -               569           2,182
                                             ------------    -------------    ------------    --------------    ------------
Expenses:
   Selling, general and administrative            10,987            6,690           6,406            21,186          58,760
   Depreciation and amortization                     168               43             107             3,028           8,187
   Impairment charge                                 755                -               -                 -               -
                                             ------------    -------------    ------------    --------------    ------------
     Total expenses                               11,910            6,733           6,513            24,214          66,947
                                             ------------    -------------    ------------    --------------    ------------
Loss from operations                             (11,855)          (6,947)         (6,513)          (23,645)        (64,765)
Interest income (expense), net                    10,548            6,304           5,602             9,189          10,182
Equity in loss of Mobile Satellite
   Ventures LP                                    (1,020)               -               -                 -               -
Equity in loss and loss on investments
   in affiliates                                  (1,336)            (404)           (385)          (54,633)        (11,102)
Other income (expense), net                       21,045              244         (14,716)          (22,239)           (205)
Minority interest                                   (216)          (1,126)           (998)              (97)              -
                                             ------------    -------------    ------------    --------------    ------------
Income (loss) before taxes and
   discontinued operations                        17,166           (1,929)        (17,010)          (91,425)        (65,890)
Income tax benefit                                     -                -             350                 -               -
                                             ------------    -------------    ------------    --------------    ------------
Income (loss) before discontinued                 17,166           (1,929)        (16,660)          (91,425)        (65,890)
   operations
                                             ------------    -------------    ------------    --------------    ------------
Discontinued operations:
   Loss from discontinued operations                   -                -               -          (116,046)        (62,532)
   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)
                                             ------------    -------------    ------------    --------------    ------------
Net income (loss)                                 17,166             (718)         (4,028)         (210,344)       (128,422)
Cumulative dividends and accretion of
   convertible preferred stock to
   liquidation value                              (9,918)          (9,687)        (10,937)          (11,937)        (22,718)
                                             ------------    -------------    ------------    --------------    ------------
Net income (loss) attributable to
   common stockholders                            $7,248         $(10,405)       $(14,965)        $(222,281)      $(151,140)
                                             ============    =============    ============    ==============    ============
Basic earnings (loss) per share:
   Continuing operations                           $0.48           $(0.76)         $(2.32)          $(16.21)        $(16.57)
   Discontinued operation                              -             0.08            1.06            (18.66)         (11.69)
                                             ------------    -------------    ------------    --------------    ------------
     Net earnings (loss) per share                 $0.48           $(0.68)         $(1.26)          $(34.87)        $(28.26)
                                             ============    =============    ============    ==============    ============
Diluted earnings (loss) per share:
   Continuing operations                           $0.46           $(0.76)         $(2.32)          $(16.21)        $(16.57)
   Discontinued operation                              -             0.08            1.06            (18.66)         (11.69)
                                             ------------    -------------    ------------    --------------    ------------
     Net earnings (loss) per share                 $0.46           $(0.68)         $(1.26)          $(34.87)        $(28.26)
                                             ============    =============    ============    ==============    ============
Weighted average common shares outstanding:
  Basic                                       15,115,895       15,341,518      11,865,291         6,374,020       5,348,895
                                             ============    =============    ============    ==============    ============
  Diluted                                     15,837,370       15,341,518      11,865,291         6,374,020       5,348,895
                                             ============    =============    ============    ==============    ============

                                                                          DECEMBER 31,
                                              ----------------------------------------------------------------------
                                                 2004           2003           2002          2001           2000
                                              -----------    -----------    -----------    ----------    -----------
                                                                         (in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents, and short-term
   investments                                   $94,507        $28,692        $39,492       $16,807       $157,483
Investment in Mobile Satellite
   Ventures LP                                    50,098              -              -             -              -
Investment in XM Satellite Radio                       -              -              -        91,800              -
Notes receivable, net                                  -         65,138         56,823        50,486              -
Investments in and advances to
   affiliates                                      3,361          2,769          2,343         2,600         48,016
Total assets                                     154,570         98,099        100,346       163,716        317,491
Total liabilities                                 10,512          6,066          7,715        24,757         40,761
Series A convertible preferred
   stock, net                                     88,706         80,182         70,495        59,558         47,621
Minority interest                                  9,974         12,467         11,334        10,097              -
Stockholders' equity (deficit)                    45,378           (616)        10,802        69,304        229,109

</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, AfriHUB,
Navigauge (formerly known as IQStat) and Miraxis. Consistent with this
approach, in December 2004, we executed an agreement to acquire a 50% interest
in the business of HNSI, the leading developer, manufacturer, installer and
provider of advanced satellite based networking solutions and services for
businesses, governments and consumers worldwide.

     With the FCC's issuance of the November 2004 Application Approval, the MSV
Joint Venture received the first license to operate an ATC for commercial
service. The February 2005 Order set forth new rules for the deployment and
operation of an ATC and provided the MSV Joint Venture with substantial
additional flexibility in its system implementation. Furthermore, the February
2005 Order allows the MSV Joint Venture to significantly lower the cost of
deploying an ATC and increases the capacity of the MSS/ATC hybrid system. This
additional flexibility provided by the FCC's decision is expected to allow the
MSV Joint Venture to offer users affordable and reliable voice and high-speed
data communications service from virtually anywhere on the North American
continent.

     As a result of the FCC's authorizations, the value of our stake in the MSV
Joint Venture has significantly increased; 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 for the implementation of the next generation satellite
system including ATC or to identify and reach an agreement with one or more
strategic partners. Additional risks include the ability of the MSV Joint
Venture to attract and retain customers, the increased potential competition
from other satellite and wireless service providers, as well as the uncertainty
with respect to the outcome of the court challenges to the FCC's ATC orders.

     During 2003 and 2004, our consolidated revenues were primarily derived
from fees generated from services performed by ESP. During the fourth quarter
of 2004, ESP experienced a significant decline in demand for its services,
including from its existing customers. As a result, ESP's revenues declined in
the fourth quarter, and in January 2005, ESP reduced its workforce from 21
employees to four employees to compensate for the reduced cash inflows. ESP is
still performing services for the MSV Joint Venture and Navigauge; however, it
is no longer seeking new client engagements and is instead focusing on
exploiting its intellectual property portfolio. Beginning in the first quarter
of 2005, ESP's revenues are expected to be primarily comprised of license fees
from that portfolio.

     In April 2004, we acquired an 80% interest in AfriHUB. AfriHUB's plan was
to provide instructor led and distance based technical training and satellite
based broadband Internet access and domestic and international calling services
through exclusive partnerships with certain Nigerian based universities. While
establishing centers which provide these services on two university campuses
during the fourth quarter of 2004, AfriHUB experienced significant
unanticipated delays and costs in opening these facilities, as well as greater
price sensitivity within the university communities. As a result, AfriHUB has
suspended its planned roll out of service to additional campuses and is
actively pursuing other opportunities to provide technical training in the
Nigerian market. As a result of AfriHUB's strategy shift, at December 31, 2004,
we evaluated AfriHUB's long-lived assets for recoverability and determined that
the undiscounted cash flows over the remaining expected life of the two
established centers was less than the carrying value of the assets relating to
those centers. Accordingly, we recognized an impairment loss of approximately
$0.8 million relating to a significant contract and the leasehold improvements
at those facilities.

     During 2004, we evaluated a number of other business opportunities,
including acquiring the assets of Verestar, Inc. ("Verestar") in a bankruptcy
proceeding. Verestar is a provider of integrated satellite and fiber services
which we had originally agreed to acquire in August 2003 before it
filed for bankruptcy protection. We are also 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, AfriHUB and Miraxis.

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 50% of the outstanding voting
shares. Because we own approximately 80% of the voting interests in our MSV
Investors Subsidiary, 78% of the voting interests of ESP and 70% of the voting
interests of AfriHUB, these entities have been included in our consolidated
financial statements as of and for the year ended December 31, 2004.

     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 39% of the voting interests of Navigauge, our proportionate share
of Navigauge's operating results has been included in equity in loss and loss
on investments in affiliates on the accompanying consolidated statements of
operations. Following the conversion of our notes receivable from the MSV Joint
Venture into approximately 23% of the voting interests of the MSV Joint
Venture, we recognized our proportionate share of the MSV Joint Venture's
operating results, subject to certain adjustments, in equity in loss of Mobile
Satellite Ventures LP on the accompanying consolidated statement of operations.
Prior to the conversion of the notes receivable, we did not record our
proportionate share of the MSV Joint Venture's operating results.

     As discussed below in Recently Issued Accounting Standards, we adopted FIN
No. 46R on January 1, 2004. FIN No. 46R requires companies to consolidate
variable interest entities (as defined below) for which we are the primary
beneficiary, irrespective of the voting interest held by us. We have determined
that we meet the definition of the primary beneficiary with respect to Miraxis
and, therefore, have included the accounts of Miraxis in our consolidated
financial statements as of and for the year ended December 31, 2004. Prior to
the adoption of FIN No. 46R, we recognized our proportionate share of Miraxis'
operating results in equity in loss and loss on investment in affiliates on the
accompanying consolidated statement of operations.

   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 note receivable from Motient, we maintained a
reserve for the entire amount of the note and unpaid interest accrued thereon.
During 2004, Motient paid us approximately $23.1 million representing all
outstanding principal and accrued interest due on the note. Accordingly, the
reserve was adjusted resulting in the recognition of $23.1 million of income
which is reflected in the accompanying consolidated statements of operations as
$19.0 million in other income (expense), net and $4.1 million in interest
income, net.

   Revenue Recognition

     Revenues are primarily derived from fees generated from contracts for
product development, consulting and engineering services performed by ESP,
including reimbursable travel and other out-of pocket expenses. These revenues
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 a liability. 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.

     A handling and finance charge is added to materials and equipment
purchased for certain product development engagements. These charges, as well
as those relating to reimbursement of other out-of-pocket expenses billed to
clients, are included in revenues. The costs of these reimbursable items are
included in cost of revenues.

Results of Operations

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

   Revenues

     Revenues for the year ended December 31, 2004 increased to $2.1 million
from $0.7 million for the year ended December 31, 2003, an increase of $1.4
million. This increase was due to the acquisition of ESP on August 25, 2003,
and accordingly, our inclusion of ESP's operating results from that date.
Revenues for the year ended December 31, 2004 were primarily derived from fees
generated from contracts for product development, consulting and engineering
services performed by ESP. As a result of the reduction in ESP's workforce in
January 2005, ESP's future revenues will be derived principally from licensing
the right to use certain of its intellectual property assets.

   Cost of Revenues

     Cost of revenues includes primarily 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, 2004 increased to
$2.1 million from $0.9 million for the year ended December 31, 2003, an
increase of $1.2 million. This increase was due to the acquisition of ESP on
August 25, 2003, and accordingly, our inclusion of ESP's operating results from
that date. As a result of the reduction in ESP's workforce in January 2005,
ESP's cost of revenues will decrease in future periods.

   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, 2004
increased to $11.0 million from $6.7 million for the year ended December 31,
2003, an increase of $4.3 million. This increase relates primarily to the
recognition of non-cash expense in the year ended December 31, 2004 for the
following items:

     o    approximately $2.8 million related to the repricing of certain
          options in 2002 and 2001;

     o    approximately $0.3 million related to an option to purchase our
          common stock issued to an unaffiliated consultant;

     o    approximately $0.3 million related to the issuance of an option to
          purchase a less than one percent ownership interest in our MSV
          Investors Subsidiary to an unaffiliated consultant; and

     o    approximately $0.2 million related to warrants contingently issuable
          to certain employees of AfriHUB if certain operating and financial
          milestones.

For the year ended December 31, 2003, we recognized $0.1 million of non-cash
expense relating to the option repricing.

     Other factors contributing to the increase include the approximately $0.4
million related to incremental costs resulting from the inclusion of a full
year of ESP's operating results for the year ended December 31, 2004 as
compared to only for the period following the August 25, 2003 acquisition in
2003, and approximately $1.5 million related to expenses incurred by AfriHUB
following the April 19, 2004 acquisition (excluding the non-cash expense
related to the contingent issuable warrants described above). Partially
offsetting these increases are the $0.5 million of professional fees related to
the August 2003 Verestar transaction which were expensed in the year ended
December 31, 2003, as well as the approximately $0.7 million charge recognized
in the year ended December 31, 2003 relating to bonuses for certain executive
officers for services provided during the year ended December 31, 2002 and the
severance and benefits for our former Controller and former Treasurer

      As our selling, general and administrative expense relates to our current
operations, including ESP, AfriHUB and Miraxis, we expect these costs,
excluding flucutaions arising from the non-cash items noted above, to decrease
in future periods as ESP has significantly reduced the size of its operations
and AfriHUB has suspended the planned roll out of its service to additional
university campuses.

   Impairment Charge

     As a result of AfriHUB's projected operating losses with respect to its
university initiative, at December 31, 2004, we evaluated AfriHUB's long-lived
assets for recoverability and determined that the undiscounted cash flows over
the remaining expected life of the two established centers was less than the
carrying value of the assets relating to those centers. Accordingly, we
assessed the fair value of these assets by using market prices for recently
purchased computers and equipment and using a discounted cash flow model for
the intangible asset and building improvements for which market prices were not
available. We recognized a non-cash impairment loss relating to the intangible
asset and building improvements as their carrying value exceeded the fair value
by approximately $0.8 million

   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, 2004 increased to $0.2
million from approximately $43,000 for the year ended December 31, 2003, an
increase of approximately $0.1 million. This increase is primarily the result
of the capital expenditures made by AfriHUB to build the network infrastructure
necessary for it to launch its service. Given the reduction in ESP's workforce
and the suspension of AfriHUB's planned roll out to additional university
campuses, we anticipate that our capital expenditures with respect to these two
entities will remain nominal in future periods.

   Interest Income, Net

     Interest income, net is comprised of the interest earned on the notes
receivable from the MSV Joint Venture, Motient and Verestar and on our cash,
cash equivalents, and short-term investments. Interest income, net for the year
ended December 31, 2004 increased to $10.5 million from $6.3 million for the
year ended December 31, 2003, an increase of $4.2 million. This increase
relates primarily to the adjustment of the reserve for the unpaid interest on
the note receivable from Motient in the year ended December 31, 2004. The
reserve was adjusted because Motient paid approximately $0.5 million of
outstanding interest in April 2004 and approximately $22.6 million representing
the entire outstanding principal and remaining interest due under the note
receivable in July 2004. As there was no longer any uncertainty with respect to
the ultimate collection on the principal or interest due, we recognized
approximately $4.1 million in interest income in the year ended December 31,
2004, representing all interest earned from the May 2002 issuance of the note
through the July 2004 repayment.

   Equity in Loss of Mobile Satellite Ventures LP

     In November 2004, our notes receivable from the MSV Joint Venture converted
into approximately 23% of the outstanding limited partnership interests in the
MSV Joint Venture. Following the conversion, we accounted for our interest in
the MSV Joint Venture under the equity method and recorded expense of
approximately $1.0 million relating to our proportionate share of the MSV Joint
Venture's net loss. We do not expect the MSV Joint Venture to be profitable in
the near future. For additional information regarding the MSV Joint Venture,
refer to the consolidated financial statements and related notes thereto of the
MSV Joint Venture included in Item 15 of this Form 10-K.

   Equity in Loss and Loss on Investment in Affiliates

     For the year ended December 31, 2004, we recorded a loss on investments in
affiliates of approximately $1.3 million relating to our proportionate share of
Navigauge's net loss. For the year ended December 31, 2003, we recorded a loss
on investments in affiliates of approximately $0.4 million for our proportionate
share of each of Miraxis' and Navigauge's respective net loss. We will continue
to monitor the carrying value of our remaining investments in affiliates.

   Other Income, Net

     For the year ended December 31, 2004, we recorded other income, net of
approximately $21.0 million relating primarily to one-time items, including the
$19.0 million adjustment to the reserve for the note receivable from Motient,
the $1.5 million settlement with Verestar's parent company in connection with
the termination of the August 2003 securities purchase agreement, and the
approximately $0.4 million representing a break-up fee in connection with the
termination of the March 2004 Verestar asset purchase agreement.

   Minority Interest

     For the year ended December 31, 2004, we recorded minority interest of
approximately $0.2 million relating to the $0.8 million of equity in earnings,
primarily the interest income earned on the convertible notes from the MSV Joint
Venture, which is attributable to the group of unaffiliated third parties who
own approximately 20% of our MSV Investors Subsidiary, partially offset by the
$0.6 million of equity in loss attributable to the other shareholders in
AfriHUB. For the year ended December 31, 2003, we recorded minority interest of
approximately $1.1 million relating to the equity in earnings attributable to
the group of unaffiliated third parties who invested in our MSV Investors
Subsidiary.

   Gain from Discontinued Operations

     At the end of the third quarter of 2001, a decision to discontinue the
operations of Rare Medium, Inc. and its LiveMarket subsidiary was made in light
of their performance and prospects. For the years ended December 31, 2004 and
2003, we recognized a gain of nil and approximately $1.2 million, respectively,
as a result of the settlement of certain Rare Medium, Inc. liabilities at
amounts less than their recorded amounts.

   Net Income (Loss) Attributable to Common Stockholders

     For the year ended December 31, 2004, we recorded net income attributable
to common stockholders of approximately $7.2 million. For the year ended
December 31, 2003, we recorded a net loss attributable to common stockholders
of approximately $10.4 million. Included in net income (loss) attributable to
common stockholders for the years ended December 31, 2004 and 2003 was $9.9
million and $9.7 million, respectively, of dividends and accretion related to
our Series A convertible preferred stock. Dividends were accrued related to
amounts payable quarterly on our 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, 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, and
accordingly, our inclusion of ESP's operating results from that date.

   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, and accordingly,
our inclusion of ESP's operating results from that date.

   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.

   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.

   Interest Income, Net

     Interest income, net is comprised principally of the interest earned on
the notes receivable from the MSV Joint Venture and Verestar and on our cash,
cash equivalents, and short-term investments. Interest income, net for the year
ended December 31, 2003 increased to $6.3 million from $5.6 million for the
year ended December 31, 2002, an increase of $0.7 million. This increase
relates primarily to the approximately $0.6 million increase in the interest
earned on the MSV Joint Venture due to semi-annual compounding, as well as the
approximately $0.1 million of interest earned on the note receivable from
Verestar during the year ended December 31, 2003.

   Equity in Loss and 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 net 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' net loss.

   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 own approximately 20% of 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 certain Rare Medium, Inc.
liabilities at amounts less than their recorded amounts.

   Net Loss Attributable to Common Stockholders

     For the years ended December 31, 2003 and 2002, we recorded a net loss
attributable to common stockholders of approximately $10.4 million and $15.0
million, respectively. Included in net loss attributable to common stockholders
for the years ended December 31, 2003 and 2002 was $9.7 million and $10.9
million, respectively, of dividends and accretion related to our Series A
convertible preferred stock. Dividends were accrued related to the pay-in-kind
dividends payable quarterly on our Series A convertible preferred stock and to
the accretion of the carrying amount of the Series A convertible preferred
stock up to its $100 per share face redemption amount over 13 years.

Liquidity and Capital Resources

     We had approximately $94.5 million in cash, cash equivalents and
short-term investments as of December 31, 2004. Cash provided by operating
activities from continuing operations was approximately $16.2 million for the
year ended December 31, 2004 and resulted primarily from the collection of
approximately $21.5 million of accrued interest on the notes receivable from
the MSV Joint Venture, Motient and Verestar and the approximately $1.9 million
received in connection with the Verestar transactions, partially offset by cash
used for general corporate overhead including payroll and professional fees.
Cash used by discontinued operations was approximately $0.1 million for the
year ended December 31, 2004 and resulted from cash used for settlement of
vendor liabilities and legal and advisory fees.

     For the year ended December 31, 2004, cash provided by investing
activities, excluding purchases and sales of short-term investments, was $18.6
million and resulted primarily from the $21.5 million repayment of the notes
receivable from Motient and Verestar, partially offset by approximately $1.9
million used to purchase investments in affiliates, primarily Navigauge. Other
than the $50.0 million of cash consideration payable in connection with the HNS
transaction, we do not have any future funding commitments with respect to any
of our investments. However, we expect that the MSV Joint Venture, AfriHUB,
Miraxis and Navigauge will require additional funding from time to time, and we
may choose to provide additional funding, subject to our liquidity and capital
resources at the time.

     For the year ended December 31, 2004, cash provided by financing
activities was approximately $31.0 million and resulted primarily from the
issuance of 2,000,000 shares of common stock in a private placement, partially
offset by the distribution to the minority shareholders of our MSV Investors
Subsidiary and the payment of a dividend on our preferred stock, all as
described below. Also, during 2004, AfriHUB sold membership interests to an
unaffiliated third party for approximately $0.5 million. As AfriHUB will
require additional funding, it may sell additional interests to unaffiliated
third parties on terms to be negotiated at the time of the sale.

   Hughes Network System Transaction

     On December 3, 2004, we signed an agreement to acquire a 50% interest in
the business of HNSI, a leading developer, manufacturer, installer and provider
of advanced satellite based networking solutions and services for businesses,
governments and consumers worldwide. Pursuant to the terms of the agreement,
HNSI will contribute to HNS LLC, a newly formed entity, substantially all of the
assets and certain liabilities of its VSAT, mobile satellite and carrier
businesses, as well as the certain portions of its SPACEWAY Ka-band satellite
communications platform that is under development. In consideration for this
contribution, HNS LLC will pay HNSI $201.0 million of cash, for $201.0 million
of cash. This purchase price is subject to adjustment depending principally upon
the closing value of HNSI's working capital (as defined in the agreement). In
order to finance the asset purchase, HNS LLC intends to incur $325.0 million of
term indebtedness and obtain a $50.0 million revolving credit facility which is
expected to be undrawn at closing. Upon the consummation of these transactions,
we will purchase 50% of the equity interests of HNS LLC for $50.0 million in
cash and 300,000 shares of our common stock. Following this purchase, we will
serve as the managing member of HNS LLC. Closing of our purchase is subject to
HNS LLC completing the issuance of the senior notes, regulatory approvals and
other customary closing conditions.

     As of December 31, 2004, we had incurred approximately $5.0 million in
transaction costs, including legal, accounting and other costs directly
related to the transaction. If the transaction closes as expected in April
2004, these costs will be paid by HNS LLC. However, if the transaction does
not close, we expect to negotiate a discount on such amounts owed.

   Interests in MSV Joint Venture

     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 yielded interest at a rate of 10% per year, had a
maturity date of November 26, 2006 and was 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.

     Under the amended MSV Joint Venture Agreement, the convertible notes held
by the MSV Investors Subsidiary would automatically convert into equity
interests in the MSV Joint Venture upon the repayment of (i) the outstanding
principal and accrued interest on certain outstanding debt of the MSV Joint
Venture and (ii) the accrued interest on all outstanding convertible notes of
the MSV Joint Venture, including the convertible notes held by the MSV
Investors Subsidiary. On November 12, 2004, the MSV Joint Venture raised $145.0
million in cash by selling partnership units for $29.45 per unit and exchanged
or converted approximately $84.9 million of debt securities and accrued
interest. In connection with this financing, the convertible notes held by the
MSV Investors Subsidiary converted into approximately 23% of the limited
partnership interests of the MSV Joint Venture on an undiluted basis, at their
original conversion price of $6.45 per unit. As a result of these transactions,
the MSV Investors Subsidiary also received approximately $17.1 million in cash
from the MSV Joint Venture to pay the accrued interest on the convertible
notes. The MSV Investors Subsidiary distributed approximately $13.6 million of
this cash to us and $3.4 million of cash to the unaffiliated third parties who
own the 20% minority interest.

     Our MSV Investors Subsidiary and the other partners of the MSV Joint
Venture have agreed that the acquisition or disposition by the MSV Joint
Venture of its assets, certain acquisitions or dispositions of a limited
partner's interest in the MSV Joint Venture, subsequent investment into the
MSV Joint Venture by any person, and any merger or other business combination
of the MSV Joint Venture, are subject to the control restrictions contained in
the Amended and Restated Limited Partnership Agreement and the Amended and
Restated Stockholders Agreement. The control restrictions include, but are not
limited to, rights of first refusal, tag along rights and drag along rights.
Many of these actions, among others, cannot occur without the consent of the
majority of the ownership interests of the MSV Joint Venture. In addition, our
MSV Investors Subsidiary and two of the three other joint venture partner
groups have entered into a voting agreement pursuant to which three of the
four joint venture partner groups must consent to certain transactions
involving the MSV Joint Venture or the partners or none of the parties to the
voting agreement will support such actions.

     For the year ended December 31, 2004 and 2003, the MSV Joint Venture had
revenues of approximately $29.0 million and $27.1 million and a net loss of
approximately $33.5 million and $28.0 million, respectively. For additional
information regarding the results of operations and financial position of the
MSV Joint Venture, refer to the consolidated financial statements and related
notes thereto of the MSV Joint Venture included in Item 15 of this Form 10-K.
Following the conversion of our notes receivable in November 2004, we accounted
for our interest in the MSV Joint Venture under the equity method and recorded
expense of approximately $1.0 million relating to our proportionate share of
the MSV Joint Venture's net loss.

   Motient Promissory Note

     On May 1, 2002, to mitigate the risk, uncertainties and expenses
associated with Motient's then pending plan of reorganization, we cancelled the
outstanding amounts due under the original promissory notes issued by Motient
in 2001 and accepted a new note in the principal amount of $19.0 million (the
"New Motient Note") 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 was due on May 1, 2005 and yielded interest at a
rate of 9% per annum. Although the New Motient Note was unsecured, there were
material restrictions placed on the use of MSV Holdings Inc.'s assets, and MSV
Holdings Inc. was prohibited from incurring or guarantying any debt in excess
of $21.0 million (including the New Motient Note). Additionally, there were
events of default (e.g., a bankruptcy filing by Motient) that would have
accelerated the due date of the New Motient Note. As a result of the
uncertainty with respect to the ultimate collection on the remaining amounts
due on the New Motient Note, a reserve was maintained for the entire principal
amount of the note and unpaid interest accrued thereon.

     On April 7, 2004, as a result of a payment received by Motient pursuant to
a promissory note from the MSV Joint Venture, Motient paid us approximately
$0.5 million of interest accrued on the New Motient Note. Following several
successful financings by Motient, on July 15, 2004, Motient paid us
approximately $22.6 million representing all outstanding principal and accrued
interest due on the New Motient Note. Accordingly, the reserve was adjusted
resulting in the recognition of $23.1 million of income.

   Verestar Transactions

     On August 29, 2003, we signed a securities purchase agreement to acquire,
through a newly formed subsidiary, approximately 67% (on a fully-diluted basis)
of Verestar. Concurrent with the signing of the securities purchase agreement,
we purchased a 10% senior secured note with a principal balance of $2.5 million
and a due date of August 2007. We terminated the securities purchase agreement
on December 22, 2003. Subsequently, Verestar filed for bankruptcy protection
under Chapter 11 of the United States Bankruptcy Code.

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

     In connection with the Verestar bankruptcy, we entered into a stipulation
with Verestar pursuant to which the parties agreed to, among other things, the
validity and enforcement of the obligation under the senior secured note and
our security interest in Verestar's assets. On April 30, 2004, Verestar repaid
the $2.5 million principal amount of the senior secured note, along with an
additional approximately $0.4 million representing a break-up fee in connection
with the termination of the March 2004 asset purchase agreement.

     On July 9, 2004, we settled our dispute with Verestar's parent company
regarding the break-up fee in connection with the termination of the August
2003 securities purchase agreement. As consideration for the settlement,
Verestar's parent company paid us $1.5 million.

     On July 29, 2004, we entered into a stipulated settlement with Verestar
and its Creditor Committee pursuant to which Verestar agreed to pay us
approximately $0.4 million representing certain amounts owed, including unpaid
accrued interest, in connection with the senior secured note. On August 13,
2004, the Bankruptcy Court approved the stipulated settlement.

   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. The holders of our
preferred stock did not sell any shares of common stock in the tender offer.

   Issuance of Common Stock

     On December 23, 2004, we sold 2,000,000 shares of our common stock for
gross proceeds of $36.5 million (net proceeds of $35.1 million) in a private
placement to a group of institutional investors. In connection with this sale,
we entered into a registration rights agreement with the investors requiring
that, among other things, we register the resale of the shares. If we do not
meet certain deadlines between June 30, 2005 and December 31, 2005 with respect
to making the registration effective, then warrants, which were issued to the
investors in connection with the transaction, to purchase up to an additional
600,000 shares of common stock at an exercise price of $18.25 per share will
vest and be exercisable at any time through December 23, 2009. The number of
warrants that vest, if any, will depend on when the registration statement
becomes effective. If we meet the June 30, 2005 deadline and otherwise comply
with certain registration obligations, none of the warrants will vest. In
connection with the transaction, we also issued a warrant to purchase 110,000
shares at an exercise price of $18.25 per share to the placement agent, which
is exercisable at any time through December 23, 2009.

     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. As part of the rights offering, our
preferred 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 in
July 2002 pursuant to their over subscription privilege.

   Series A Convertible Preferred Stock Dividend

     In accordance with the terms of our preferred stock, the holders are
entitled to receive quarterly cash dividends commencing on July 1, 2004. The
first such quarterly payment of approximately $1.4 million, for the three
months ended September 30, 2004, was declared and paid on October 14, 2004. The
quarterly payment of approximately $1.4 million, for the three months ended
December 31, 2004, was declared and paid on January 13, 2005. The aggregate
annual dividend payment will be approximately $5.6 million through the
mandatory redemption on June 30, 2012 or such earlier time as the terms of the
preferred stock are renegotiated.

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 $3.7 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, 2004, 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               $266             $239             $27              $-               $-
   operations
Operating leases - discontinued
   operations                              1,101            1,101               -               -                -
                                     ------------    -------------    ------------    ------------     ------------
Total                                     $1,367           $1,340             $27              $-               $-
                                     ============    =============    ============    ============     ============
</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>
                                           2003                                               2004
                      -----------------------------------------------    ------------------------------------------------
                         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        $817         $543         $418          $349
Gross margin                 -            -         (23)        (191)         69          (46)          20            12
Net (loss) income        (269)        (189)          59         (319)         36       23,301       (1,033)       (5,138)
Net (loss) income
  attributable to
  common
  stockholders          (2,668)      (2,603)     (2,370)      (2,764)     (2,425)      20,828       (3,525)       (7,630)
Basic (loss) income
  per share              (0.17)       (0.17)      (0.16)       (0.18)      (0.16)        1.38        (0.23)        (0.50)
Diluted (loss)
  income per share       (0.17)       (0.17)      (0.16)       (0.18)      (0.16)        1.33        (0.23)        (0.50)

</TABLE>

Recently Issued Accounting Standards

     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 an impact on our financial position or results of operations.

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

     In December 2003, the staff of the Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition"
("SAB No. 104"), which supersedes SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 104 primarily rescinds the accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements,
which was superseded as a result of the issuance of EITF Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." Additionally,
SAB No. 104 rescinds the SEC's "Revenue Recognition in Financial Statements
Frequently Asked Questions and Answers" issued with SAB No. 101, which had been
codified in SEC Topic 13, "Revenue Recognition." SAB No. 104 was effective upon
issuance. The issuance of SAB No. 104 did not have a material impact on our
financial position or results of operations.

     In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
("SFAS No. 123R"), a revision of SFAS No. 123. SFAS No. 123R requires entities
to recognize compensation expense for all share-based payments to employees,
including stock options, based on the estimated fair value of the instrument
on the date it is granted. The expense will be recognized over the vesting
period of the award. SFAS No. 123R is effective for periods beginning after
June 15, 2005 and provides entities two transition methods. Under the modified
prospective method, compensation expense is recognized beginning with the
effective date for all awards granted to employees prior to the effective date
that are unvested on the effective date. The modified retrospective method is
a variation of the modified prospective method, except entities can restate
all prior periods presented or prior interim period in the year of adoption
using the amounts previously presented in the pro forma disclosure required by
SFAS No. 123. As we currently account for share-based payments using the
intrinsic value method as allowed by Accounting Principles Board ("APB")
Opinion No. 25, the adoption of the fair value method under SFAS No. 123R will
have an impact on our results of operations. However, the extent of the impact
cannot be predicted at this time because it will depend on levels of
share-based payments granted in the future. Had we adopted SFAS No. 123R in
prior periods, the impact of that standard would have approximated the impact
of SFAS No. 123 as described in the disclosure of pro forma net income (loss)
and earnings (loss) per share in Note 1(i) to our consolidated financial
statements.

      In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29" ("SFAS No. 153"). SFAS No. 153
eliminates the exception for nonmonetary exchanges of similar productive assets
of APB Opinion No. 29 and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a
material impact on our financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   Interest Rate Risk

     As of December 31, 2004, we had $94.5 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.

   Foreign Currency Risk

     Through December 31, 2004, our results of operations, financial condition
and cash flows have not been materially affected by changes in the relative
value of non-U.S. currencies to the U.S. dollars. Financial statements of
AfriHUB's Nigerian operations are prepared using the Nigerian Naira as the
functional currency. As we do not use derivative financial instruments to limit
our exposure to fluctuations in the exchange rate with the Naira, we may
experience gains or losses in future periods. The impact of a hypothetical 10%
adverse change in exchange rates on the fair value of Naira denominated assets
and liabilities would be an estimated loss of $0.1 million as of December 31,
2004.

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

   Evaluation of 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 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.

   Changes in Internal Control Over Financial Reporting

     There has been no change in our internal control over financial reporting
during the fourth quarter of 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9B. OTHER INFORMATION

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth information concerning the Company's
directors and executive officers as of March 30, 2005:

<TABLE>
<CAPTION>

      Name                         Age                            Position
--------------------------    ------------  -----------------------------------------------------
<S>                                <C>              <C>
Jeffrey A. Leddy                   49              Chief Executive Officer and President
Robert C. Lewis                    39       Senior Vice President, General Counsel and Secretary
Erik J. Goldman                    44                          Vice President
Keith C. Kammer                    43                          Vice President
Charlene J. King                   44                          Vice President
Craig J. Kaufmann                  29                     Controller and Treasurer
Jeffrey M. Killeen (1)(2)          51                             Director
William F. Stasior (1)             64                             Director
Andrew D. Africk (1)(2)            38                             Director
Marc J. Rowan                      42                             Director
Michael S. Gross                   43                             Director
</TABLE>
___________

(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.

Executives
----------

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.

Charlene J. King - Vice President. Ms. King has been a Vice President of the
Company since July 2004. Prior to joining the company, Ms. King held the
positions of Chief of Corporate Development and Strategy and Executive Vice
President of Marketing and Distribution for Iridium Satellite. From 1999 to
2001, Ms. King served most recently as the North American Senior Vice President
of Business Development and Marketing for SkyBridge, Alcatel's low-earth-orbit
broadband satellite project. Ms. King served as Vice President of Marketing for
SkyTel's international and wholesale divisions from 1994 to 1999 managing
programs in more than 20 countries.

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.


Directors
---------

Jeffrey M. Killeen - Director. Mr. Killeen has been a director of the Company
since October 1998. Since January 1, 2002, Mr. Killeen has been Chairman and
Chief Executive Officer of Globalspec, Inc., an information services company.
Mr. Killeen was the Chief Executive Officer of Forbes.com from August 1999 to
March 2001. Prior to that, from January 1998 to March 1999, Mr. Killeen was the
Chief Operating Officer of barnesandnoble.com. Before joining
barnesandnoble.com, Mr. Killeen served as President and Chief Executive Officer
of Pacific Bell Interactive Media from August 1994 to January 1998.

William F. Stasior - Director. Mr. Stasior joined the Board of Directors in
April 2000. Mr. Stasior was the Chairman and Chief Executive Officer of Booz
Allen & Hamilton Inc., a management and technology consulting firm, from 1991
to 1999. Since October 1999, Mr. Stasior has been the Senior Chairman of Booz
Allen. Mr. Stasior also serves on the Board of Directors of OPNET Technologies,
Inc., a software company that specializes in enhancing network performance for
enterprises and service providers, and Vanu, Inc., a leading developer of
software-defined radio technology.

Andrew D. Africk - Director. Mr. Africk has been a director of the Company
since June 1999. Mr. Africk is a partner of Apollo Advisors, L.P. Mr. Africk is
also a director of Intelsat, Ltd., Superior Essex, Inc. and several private
venture companies.

Marc J. Rowan - Director. Mr. Rowan has been a director of the Company since
June 1999. Mr. Rowan is one of the founding principals of Apollo Advisors,
L.P., a private investment partnership that manages a series of institutional
funds focused on complex equity investments, leveraged buyouts and corporate
reorganizations, including Apollo Investment Fund IV, L.P. Mr. Rowan is also a
director of AMC Entertainment, Inc., National Financial Partners, Inc. and
Wyndham International. Mr. Rowan is active in charitable activities. He is a
founding member and serves on the executive committee of the Youth Renewal Fund
and is a member of the board of directors of the National Jewish Outreach
Program, Riverdale Country School and the Undergraduate Executive Board of The
Wharton School of the University of Pennsylvania. Mr. Rowan holds a B.S. degree
and an M.B.A. degree from The Wharton School of Business at the University of
Pennsylvania.

Michael S. Gross - Director. Mr. Gross has been a director of the Company since
August 1999. Mr. Gross is one of the founding principals of Apollo Advisors,
L.P. Mr. Gross is also a director of Apollo Investment Corporation, Saks
Incorporated, Educate, Inc., Allied Waste Industries, Inc. and United Rentals,
Inc.

Audit Committee

     The Company's Audit Committee is currently composed of two outside
directors, Mr. Killeen and Mr. Stasior, both of whom are independent under Rule
4200(a)(15) of the National Association of Securities Dealers' ("NASD") listing
standards, and Mr. Africk, who continues to serve on the Audit Committee as the
Board of Directors determined that exceptional and limited circumstances exist
pursuant to Rule 4350(d)(2)(B) of the NASD listing standards. The Board of
Directors has determined that Mr. Africk is an "audit committee financial
expert" within the applicable definition of the SEC.

Code of Ethics

     The Company has adopted a Code of Ethics for its Senior Executive and
Senior Financial Officers. A copy of the Code is publicly available on the
Company's website at WWW.SKYTERRACOM.COM. Amendments to the Code or any grant
of a waiver from a provision of the Code requiring disclosure under applicable
SEC rules will also be disclosed on the Company's website.

Section 16(A) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of our common
stock and other equity securities. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.

     To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, the Company believes that during the year
ended December 31, 2004 its officers, directors and greater than 10%
stockholders complied with all Section 16(a) filing requirements.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

     The following Summary Compensation Table sets forth, for the three years
ended December 31, 2004, the compensation for services in all capacities earned
by the Company's Chief Executive Officer and its next most highly compensated
executive officers.

<TABLE>
<CAPTION>
                                                                     Other       Securities
                                                                    Annual       Underlying          LTIP         All Other
 Name and Principal Position      Year    Salary      Bonus(1)    Compensation  Options/SARs(#)    Payouts($)   Compensation (2)
 ---------------------------      ----    ------      --------    ------------  ---------------    ----------   ----------------

<S>                               <C>    <C>          <C>              <C>          <C>                <C>        <C>
Jeffrey A. Leddy                  2004   $309,180     $300,000         $-           70,000             $-         $9,000
   Chief Executive Officer and    2003    232,950      168,750          -          100,000              -              -
   President                      2002    138,462      140,000          -          100,000              -              -

Robert C. Lewis                   2004    203,846      100,000          -           20,000              -          8,823
   Senior Vice President,         2003    187,615       90,000          -           40,000              -          3,304
   General Counsel                2002    196,250       90,000          -           20,000              -              -
   and Secretary

Erik J. Goldman                   2004    148,077       60,000          -           20,000              -          5,951
   Vice President                 2003    105,769       50,000          -           40,000              -          1,060

Keith C. Kammer                   2004    149,615       70,000          -           10,000              -          4,947
   Vice President                 2003     75,288       15,000          -           40,000              -            754

Craig J. Kaufmann                 2004    118,269       50,000          -           25,000              -          4,677
   Controller and Treasurer       2003     94,490       37,500          -           15,000              -          1,465
                                  2002    109,583       25,000          -               --              -              -
</TABLE>

_________________

(1)  Bonuses for services provided in the year ended December 31, 2002 for
     Messrs. Leddy, Lewis and Kaufmann were granted in April 2003 and are
     reflected in 2002. Bonuses for services provided in the year ended
     December 31, 2003 were granted in January 2004 and are reflected in 2003.
     Bonuses for services provided in the year ended December 31, 2004 were
     granted in February 2005 and are reflected in 2004.
(2)  Represents employer matching contributions to retirement accounts.


Option / Sar Grants in the Last Year

     The following table sets forth information concerning grants of stock
options to purchase common stock during the year ended December 31, 2004 to the
named executive officers.

<TABLE>
<CAPTION>
                                        Percent of
                          Number of       Total                                   Potential Realizable Value at
                         Securities    Options/SARs                             Assumed Annual Rates of Stock
                         Underlying     Granted to     Exercise or                  Appreciation for Option Term
                        Options/SARs   Employees in    Base Price    Expiration   ------------------------------
  Name                     Granted      Fiscal Year    ($/Share)        Date          5%                 10%
  ----                     -------      -----------    ---------        ----      ----------          ----------
<S>                        <C>              <C>            <C>         <C>           <C>               <C>

Jeffrey A. Leddy           70,000 (2)       37.8%          $2.15       2/16/14       $94,649           $239,858
Robert C. Lewis            20,000 (1)       10.8%          $2.20       1/26/14       $27,671            $70,125
Erik J. Goldman            20,000 (1)       10.8%          $2.20       1/26/14       $27,671            $70,125
Keith C. Kammer            10,000 (1)        5.4%          $2.20       1/26/14       $13,836            $35,062
Craig J. Kaufmann          25,000 (1)       13.5%          $2.20       1/26/14       $34,589            $87,656
</TABLE>

________________

(1)  These options were granted on January 26, 2004 at an exercise price of
     $2.20, the per share fair market value of the common stock at that time.
     The options have a term of ten years. These options are exercisable
     cumulatively in three equal annual installments, beginning on January 26,
     2005.
(2)  This option was granted on February 16, 2004 at an exercise price of
     $2.15, the per share fair market value of the common stock at that time.
     The option has a term of ten years. The option is exercisable cumulatively
     in three equal annual installments, beginning on February 16, 2005.


Aggregated Option/sar Exercises in the Last Year and Year-end Option/sar Values

     The following table sets forth information concerning the exercise of
options to purchase shares of common stock by the named executive officers
during the year ended December 31, 2004, as well as the number and potential
value of unexercised options (both options which are presently exercisable and
options which are not presently exercisable) as of December 31, 2004.

<TABLE>
<CAPTION>

                                                            Number of
                           Number of                       Securities        Value of Unexercised
                           Securities                      Underlying            In-the-money
                           Underlying                    Options/SARs at         Options/SARs
                          Options/SARs                   Fiscal Y/E (#)       at Fiscal Y/E ($)
                          Acquired on       Value         Exercisable/           Exercisable/
    Name                  Exercise (#)     Realized (1)   Unexercisable         Unexercisable
    ----                  ------------     --------       -------------         -------------
<S>                                                     <C>     <C>         <C>       <C>

Jeffrey A. Leddy                    -            -      108,334/161,666     2,780,101/4,092,149
Robert C. Lewis                 6,300      $21,090        36,668/53,332       897,401/1,352,699
Erik J. Goldman                     -            -        13,334/46,666       344,551/1,180,049
Keith C. Kammer                     -            -        13,334/36,666         336,017/917,483
Craig J. Kaufmann               6,000      $22,350             0/35,000               0/872,150

</TABLE>

(1)  Reflects the difference on the date of exercise between market price and
     exercise price times the number of shares acquired upon such exercise.
     Does not represent a sale by the named executive.

Employment Contracts and Change in Control Arrangements

   Leddy Employment Agreement

     The Company is a party to an amended and restated employment agreement
with Mr. Leddy. 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 Board of Directors.
In addition, Mr. Leddy 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. Under this agreement, if Mr. Leddy is terminated for
other than "cause" as such term is defined in the agreement, then Mr. Leddy is
entitled to receive compensation in a lump sum payment consisting of one year
of his then current salary and the right to exercise all vested stock options
and unvested stock options through the option expiration date for such options.

   Other Executive Employment Agreements

     The Company has an employment agreement with Mr. Lewis. Under this
agreement, if, either (i) after 90 days following a change in control, Mr.
Lewis terminates his employment or (ii) Mr. Lewis is terminated for other than
"cause" as such term is defined in his respective agreement, then Mr. Lewis is
entitled to receive severance compensation and benefits in a lump sum payment
consisting of one year of his then current salary and the right to exercise all
vested stock options and unvested stock options through the option expiration
date for such options. For purposes of this agreement, a change in control
occurs when, among other things, our stockholders approve a merger.

     The Company has an employment agreement with Mr. Kammer. Under the
agreement, if Mr. Kammer is terminated for other than "cause" as such term is
defined in the agreement, then Mr. Kammer is entitled to receive compensation
in a lump sum payment consisting of six months of his then current salary.

Compensation of Directors

     Each non-employee director receives a per meeting fee of $1,000 for each
meeting of the Board of Directors and $500 for each committee meeting attended,
along with expenses incurred in connection with attending each meeting.
Furthermore, from time to time, directors may be granted options to purchase
common stock under our 1998 Long-Term Incentive Plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     The following table and notes thereto set forth certain information, as
of March 30, 2005 (except as noted otherwise), regarding beneficial ownership
of the shares of voting common stock of the Company by (i) each person who is
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of such common stock, (ii) each of the Company's named
executive officers under the Summary Compensation Table under the heading
"Executive Compensation," (iii) each director and nominee for director, and
(iv) all executive officers and directors of the Company as a group. Unless
otherwise indicated, the stockholders listed possess sole voting and
investment power with respect to the shares indicated as owned by them.

<TABLE>
<CAPTION>

                                                                                    Number of Shares of
                                                                                    Voting Common Stock        Percentage
          Name and Address                              Position                    Beneficially Owned(1)       of Class
          ----------------                              --------                    ---------------------       --------

<S>                                        <C>                                             <C>                  <C>
Jeffrey A. Leddy                           Chief Executive Officer and President           165,000              1.9%  (2)
Robert C. Lewis                            Senior Vice President, General Counsel           66,167                 *  (3)
                                             and Secretary
Erik J. Goldman                            Vice President                                   33,334                 *  (4)
Keith C. Kammer                            Vice President                                   16,666                 *  (4)
Craig J. Kaufmann                          Controller and Treasurer                         20,633                 *  (5)
Jeffrey M. Killeen                         Director                                         35,000                 *  (4)
William F. Stasior                         Director                                         33,333                 *  (4)
Andrew D. Africk                           Director                                      5,129,905             43.5%  (6)
   c/o SkyTerra Communications, Inc.
   19 West 44th Street, Suite 507
   New York, New York 10036
Marc J. Rowan                              Director                                      5,129,905             43.5%  (7)
   c/o SkyTerra Communications, Inc.
   19 West 44th Street, Suite 507
   New York, New York 10036
Michael S. Gross                           Director                                      5,129,905             43.5%  (8)
   c/o SkyTerra Communications, Inc.
   19 West 44th Street, Suite 507
   New York, New York 10036
Apollo Investment Fund IV, L.P.                                                          5,099,072             43.3%  (9)
   Two Manhattanville Road
   Purchase, New York 10577
Harbert Distressed Investment                                                              485,500              5.8%  (10)
   Master Fund, Ltd
   c/o International Fund Services
   Third Floor Bishop Square
   Redmonds Hill
   Dublin Ireland L2
OZ Management, LLC                                                                         470,000              5.6%  (11)
   9 West 57th Street, 39th Floor
   New York, NY 10019
All executive officers, directors and                                                    5,561,704             45.5%  (12)
   nominees as a group (10 persons)

</TABLE>
__________________
* Represents beneficial ownership of less than 1%.

(1)    Beneficial ownership has been determined pursuant to Rule 13d-3 under
       the Exchange Act, and therefore excludes 8,990,212 shares of non-voting
       common stock held by the Apollo Stockholders.
(2)    Represents options to purchase shares of common stock that are currently
       exercisable, but does not include options that become exercisable upon a
       change of control and upon termination of employment with the Company.
(3)    Includes 9,500 shares of common stock and options to purchase an
       additional 56,667 shares of common stock that are currently exercisable,
       but does not include options that become exercisable upon a change of
       control of the Company and upon certain other conditions.
(4)    Represents options to purchase shares of common stock that are currently
       exercisable.
(5)    Includes 7,300 shares of common stock and options to purchase an
       additional 13,333 shares of common stock that are currently exercisable.
(6)    Includes an aggregate of (i) 1,270,948 shares of common stock acquired
       through the exercise of Series 1-A warrants, (ii) 474,427 shares of
       common stock acquired in a tender offer and (iii) 3,353,697 shares of
       common stock issuable to Apollo Stockholders upon conversion of the
       Series A Preferred Stock and exercise of the Series 1-A warrants and the
       Series 2-A warrants owned by them. Excludes an aggregate of 8,990,212
       shares of non-voting common stock held by the Apollo Stockholders which
       were acquired pursuant to the rights offering. Mr. Africk is a principal
       of Apollo Advisors IV, L.P, which together with an affiliated investment
       manager, serves as the manager of each of the Apollo Stockholders. Mr.
       Africk disclaims beneficial ownership of such shares. Includes options
       to purchase 30,833 shares of common stock held by Mr. Africk that are
       currently exercisable, but does not include options that become
       exercisable upon a change of control.
(7)    Includes an aggregate of (i) 1,270,948 shares of common stock acquired
       through the exercise of Series 1-A warrants, (ii) 474,427 shares of
       common stock acquired in a tender offer and (iii) 3,353,697 shares of
       common stock issuable to Apollo Stockholders upon conversion of the
       Series A Preferred Stock and exercise of the Series 1-A warrants and the
       Series 2-A warrants owned by them. Excludes an aggregate of 8,990,212
       shares of non-voting common stock held by the Apollo Stockholders which
       were acquired pursuant to the rights offering. Mr. Rowan is a principal
       of Apollo Advisors IV, L.P, which together with an affiliated investment
       manager, serves as the manager of each of the Apollo Stockholders. Mr.
       Rowan disclaims beneficial ownership of such shares. Includes options to
       purchase 30,833 shares of common stock held by Mr. Rowan that are
       currently exercisable, but does not include options that become
       exercisable upon a change of control.
(8)    Includes an aggregate of (i) 1,270,948 shares of common stock acquired
       through the exercise of Series 1-A warrants, (ii) 474,427 shares of
       common stock acquired in a tender offer and (iii) 3,353,697 shares of
       common stock issuable to Apollo Stockholders upon conversion of the
       Series A Preferred Stock and exercise of the Series 1-A warrants and the
       Series 2-A warrants owned by them. Excludes an aggregate of 8,990,212
       shares of non-voting common stock held by the Apollo Stockholders which
       were acquired pursuant to the rights offering. Mr. Gross is a principal
       of Apollo Advisors IV, L.P, which together with an affiliated investment
       manager, serves as the manager of each of the Apollo Stockholders. Mr.
       Gross disclaims beneficial ownership of such shares. Includes options to
       purchase 30,833 shares of common stock held by Mr. Gross that are
       currently exercisable, but does not include options that become
       exercisable upon a change of control.
(9)    Represents the aggregate of (i) 1,270,948 shares of common stock
       acquired through the exercise of Series 1-A warrants, (ii) 474,427
       shares of common stock acquired in a tender offer and (iii) 3,353,697
       shares of common stock issuable upon conversion of the aggregate of
       1,199,007 shares of our Series A Preferred Stock and the exercise of an
       aggregate of 234,633 Series 1-A warrants and 9,810,033 Series 2-A
       warrants held by the Apollo Stockholders. Assuming conversion of all the
       Series A Preferred Stock and the exercise of all the Series 1-A warrants
       and Series 2-A warrants held by the Apollo Stockholders, such 5,099,072
       shares of common stock would consist of 3,541,765 shares of common stock
       beneficially owned by Apollo Investment Fund IV, L.P., 189,929 shares of
       common stock beneficially owned by Apollo Overseas Partners IV, L.P.,
       892,951 shares of common stock beneficially owned by AIF IV/ RRRR LLC
       and 474,427 shares of common stock owned by AP/RM Acquisition, LLC. The
       holders of our Series A Preferred Stock are only entitled to an
       aggregate of 975,000 votes with respect to the Series A Preferred Stock,
       or 0.813 votes per share of Series A Preferred Stock. Excluded from the
       table are 8,990,212 shares of non-voting common stock of which 8,570,598
       shares are held by Apollo Investment Fund IV, L.P. and 419,614 shares
       are held by Apollo Overseas Partners IV, L.P. Messrs. Africk, Rowan and
       Gross, members of our Board of Directors and associated with Apollo
       Advisors IV, L.P., disclaim beneficial ownership of the shares held by
       the Apollo Stockholders.
(10)   Based on Schedule 13G filed on January 13, 2004 by Harbert Distressed
       Investment Master Fund, Ltd. HMC Investors, LLC may be deemed to share
       beneficial ownership of and voting power with respect to 485,800 shares
       of our common stock with Raymond J. Harbert and Michael D. Luce, and
       share beneficial ownership and voting power with Philip Falcone as to
       480,000 of those shares, and with Harbert Distressed Investment Master
       Fund, Ltd. and HMC Distressed Investment Offshore Manager, L.L.C. as to
       469,200 of those shares. Such persons disclaim beneficial ownership in
       the shares except to the extent of their pecuniary interest therein.
(11)   Based on Schedule 13G filed on January 13, 2005 by OZ Management, LLC,
       OZ Management LLC serves as principal investment manager to a number of
       investment funds and discretionary accounts with respect to which it has
       voting and dispositive authority over 470,000 shares of the Company's
       common stock, including an account for OZ Master Fund, Ltd., which holds
       445,441 of the reported shares. Mr. Daniel S. Och is the Senior Managing
       Member of OZ Management, LLC and is the Director of OZ Master Fund, Ltd.
       and, as such, may be deemed to control such entities and therefore may
       be deemed to be the beneficial owner of the reported shares. OZ
       Management, LLC, Mr. Och and Oz Master Fund, Ltd. disclaim beneficial
       ownership of such shares.
(12)   Messrs. Africk, Rowan and Gross, members of the Board of Directors and
       associated with Apollo Advisors IV, L.P., disclaim beneficial ownership
       of shares held by the Apollo Stockholders. See footnote numbers 5, 6 and
       7 above. Includes options to purchase an aggregate of 445,832 shares of
       common stock that are currently exercisable, but does not include
       options that become exercisable upon a change of control.

Securities Authorized for Issuance Under Equity Compensation Plans and
Individual Arrangements

     The following table and notes thereto set forth, as of December 31, 2004,
information with respect to shares of the Company's common stock which may be
issued under existing equity compensation plans and individual arrangements.

<TABLE>
<CAPTION>
                                                                                          Number of Shares
                                                   Number of                               of Common Stock
                                                   Shares of                                Remaining for
                                                Common Stock to                            Future Issuance
                                                 be Issued Upon      Weighted-Average       Under Equity
                                                  Exercise of        Exercise Price         Compensation
                                                  Outstanding        of Outstanding       Plans (Excluding
                                                    Options,            Options,             Securities
                                                  Warrants and        Warrants and          Reflected in
             Plan Category                           Rights              Rights             First Column)
             -------------                           ------              ------             -------------
<S>                                                    <C>                   <C>                 <C>

Equity compensation plans approved by
   stockholders                                        965,393               $8.13               993,554
Equity compensation plans and individual
   arrangements not approved by
   stockholders(1)                                     131,367               18.63                     -
                                                ---------------    ----------------       ---------------
Total                                                1,096,760               $9.39               993,554
                                                ===============    ================       ===============
</TABLE>

(1)    Includes a warrant to purchase 110,000 shares of common stock issued to
       the placement agent in connection with the December 2004 private
       placement, options to purchase 4,700 shares of common stock issued to
       certain former consultants in settlement of various disputes and an
       option to purchase 16,667 shares of common stock issued to a former
       director for services provided.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

   Investment 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 is
striving to provide satellite based multi-channel, broadband data and video
services in North America. The Company entered into a management support
agreement with Miraxis under which the Company's current Chief Executive
Officer and President provided certain services to Miraxis through February
2003 in exchange for additional Series B Preferred Shares and warrants being
issued to the Company. In addition, in December 2002, the Company acquired
Series C Preferred Shares and warrants from Miraxis for approximately $0.1
million.

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

     In April 2003, the Company acquired additional Series C Preferred Shares
and warrants for approximately $40,000. Between June 2003 and September 2003,
the Company purchased promissory notes from Miraxis with an aggregate
principal amount of approximately $0.1 million. In November 2003, the
promissory notes were converted to Series D Preferred Shares. During 2004, the
Company purchased additional promissory notes with an aggregate principal
balance of approximately $0.1 million. Currently, the Company holds
approximately 40% of the ownership interests of Miraxis. The Company's Chief
Executive Officer and President 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, one of which Miraxis has the ability to use so long as it implements
its business plan. Miraxis issued 10% of its outstanding common equity on a
fully diluted basis to MLH as partial consideration for access to that slot.
In addition, Miraxis expects to pay certain royalties to MLH for use of the
slot should it ever launch satellites. Prior to becoming affiliated with the
Company, its current Chief Executive Officer and President acquired a 2%
interest in MLH. In addition, prior to the Company acquiring an interest in
Miraxis, an affiliate of the Company's preferred stockholders acquired an
approximate 70% interest in MLH.

   Employment Agreements

     For a description of the employment agreements between the Company and
certain of its executive officers, please see the descriptions above in Item
11. Executive Compensation under the heading "Employment Contracts and Change
in Control Arrangements."

   Other

     From time to time, the Company designates certain of its directors and
officers to serve on the Board of Directors of an affiliate, including the MSV
Joint Venture and TerreStar. To the extent such affiliate grants or has
granted options to members of its Board of Directors, the Company designees on
such Board receives similar grants for their service.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

     The firm of KPMG LLP ("KPMG"), independent registered public accounting
firm, audited the financial statements of the Company for the years ended
December 31, 2004 and 2003. Pursuant to a pre-approval policy adopted during
2003, the Audit Committee approved all audit services and the payment of audit
and audit related fees during the years ended December 31, 2004 and 2003. In
addition, the Audit Committee approved all (or 100%) of the tax fees paid to
KPMG during the year ended December 31, 2004, and $85,000 (or approximately 92%)
of the tax fees paid to KPMG during the year ended December 31, 2003. Prior to
the adoption of this policy, the Audit Committee only approved the audit fee.
The following table presents the aggregate fees for services provided by the
independent registered public accounting firm to the Company for the years ended
December 31, 2004 and 2003.

                                                    2004              2003
                                                -------------     -------------
Audit fees (1)                                      $382,507          $230,500
Audit related fees (2)                                50,325            25,000
Tax fees (3)                                         220,225            92,200
All other fees                                             -                 -
                                                -------------     -------------
                                                    $653,057          $347,700
                                                =============     =============

(1)  Audit fees consisted of fees billed or expected to be billed for
     professional services rendered for the audit of the Company's consolidated
     annual financial statements included in the Company's Form 10-K, the
     reviews of the Company's consolidated financial statements included in the
     Company's Form 10-Q, or any other services rendered to comply with
     generally accepted auditing standards and include comfort and consent
     letters in connection with SEC filings and financing transactions.
(2)  Audit related fees consisted of fees billed for assurance and related
     services that are reasonably related to the performance of an audit or
     review of the Company's consolidated financial statements, including
     assistance with acquisitions and other accounting and auditing
     consultation services.
(3)  Tax fees consisted of fees paid for assistance related to tax compliance
     and consulting services. The Audit Committee does not believe the
     provision of these tax services is incompatible with maintaining KPMG's
     independence.


                                    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 Registered Public Accounting Firm.
               (ii)   Consolidated Balance Sheets as of December 31, 2004 and
                      2003.
               (iii)  Consolidated Statements of Operations for the years ended
                      December 31, 2004, 2003 and 2002.
               (iv)   Consolidated Statements of Cash Flows for the years
                      ended December 31, 2004, 2003 and 2002.
               (v)    Consolidated Statements of Changes in Stockholders'
                      Equity (Deficit) for the years ended December 31, 2004,
                      2003 and 2002.
               (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) The following sets forth those exhibits filed pursuant to Item 601 of
         Regulation S-K:

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

  2.1     -  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.
  2.2     -  Note Exchange and Conversion Agreement, dated as of November
             12, 2004, by and among MSV Investors, LLC, Mobile Satellite
             Ventures LP, et al. which was filed as Exhibit 2.1 to the
             Company's Current Report on Form 8-K dated November 18, 2004
             and is hereby incorporated herein by reference.
  2.3     -  Contribution and Membership Interest Purchase Agreement,
             dated December 3, 2004, by and among The DIRECTV Group, Inc.,
             Hughes Network Systems, Inc., the Company and Hughes Network
             Systems, LLC which was filed as Exhibit 10.1 to the Company's
             Current Report on Form 8-K dated December 9, 2004 and is hereby
             incorporated herein by reference.
  3.1.1   -  Restated Certificate of Incorporation of the Company, which was
             filed as Exhibit 3.1.1 to the Company's Form 10-K for the year
             ended December 31, 2003.
  3.1.2   -  Certificate of Amendment, dated July 17, 2002, to the Restated
             Certificate of Incorporation of the Company, which was filed as
             Exhibit 3.1.2 to the Company's Form 10-K for the year ended
             December 31, 2003.
  3.1.3   -  Certificate of Ownership and Merger, dated September 23, 2003,
             merging SkyTerra Communications, Inc. into Rare Medium Group,
             Inc., which was filed as Exhibit 3.1.3 to the Company's Form 10-K
             for the year ended December 31, 2003.
  3.2     -  Amended and Restated By-Laws of the Company, which 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    -  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.
  10.2    -  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.
  10.3    -  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.
  10.4    -  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.
  10.5    -  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.
  10.6    -  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.
  10.7    -  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.
  10.8    -  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.
  10.9    -  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.
  10.10   -  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.
  10.11   -  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.
  10.12   -  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.
  10.13   -  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.
  10.14   -  Amended and Restated Employment Agreement, effective as of
             January 1, 2004, between the Company and Jeffrey A. Leddy which
             was filed as Exhibit 10.26 to the Company's Form 10-K for the
             year ended December 31, 2003 and is hereby incorporated by
             reference.
  10.15   -  Amended and Restated Limited Partnership Agreement, dated as
             of November 12, 2004, by and among MSV Investors, LLC, Mobile
             Satellite Ventures LP, et al. which was filed as Exhibit 10.1
             to the Company's Current Report on Form 8-K dated November 18,
             2004 and is hereby incorporated herein by reference.
  10.16   -  Amended and Restated Stockholders Agreement, dated as of
             November 12, 2004, by and among MSV Investors, LLC, Mobile
             Satellite Ventures LP, et al. which was filed as Exhibit 10.2
             to the Company's Current Report on Form 8-K dated November 18,
             2004 and is hereby incorporated herein by reference.
  10.17   -  Second Amended and Restated Parent Transfer/Drag Along
             Agreement by and among the Company, et al. which was filed as
             Exhibit 10.3 to the Company's Current Report on Form 8-K dated
             November 18, 2004 and is hereby incorporated herein by reference.
  10.18   -  Voting Agreement, dated November 12, 2004, by and among MSV
             Investors, LLC, et al.
  10.19   -  Securities Purchase Agreement, dated December 23, 2004, by and
             among the Company and the Purchasers listed on Schedule I
             attached thereto which was filed as Exhibit 10.1 to the Company's
             Current Report on Form 8-K dated December 27, 2004 and is
             hereby incorporated herein by reference.
  10.20   -  Registration Rights Agreement, dated December 23, 2004, by
             and among the Company, each of the Purchasers listed on
             Schedule I attached to the Securities Purchase Agreement and
             Tejas Securities Group, Inc. which was filed as Exhibit 10.2 to
             the Company's Current Report on Form 8-K dated December 27,
             2004 and is hereby incorporated herein by reference.
  10.21   -  Form of Common Stock Purchase Warrant issued by the Company
             to each of the Purchasers listed on Schedule I attached to the
             Securities Purchase Agreement which was filed as Exhibit 10.3
             to the Company's Current Report on Form 8-K dated December 27,
             2004 and is hereby incorporated herein by reference.
  10.22   -  Common Stock Purchase Warrant, dated December 23, 2004,
             issued by the Company to Tejas Securities Group, Inc. which was
             filed as Exhibit 10.4 to the Company's Current Report on Form
             8-K dated December 27, 2004 and is hereby incorporated herein
             by reference.
  21      -  Subsidiaries of the Company are Electronic System Products, Inc.,
             an Illinois corporation; SkyTerra AfriHUB, Inc., a Delaware
             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 Registered Public Accounting Firm.
  23.2    -  Independent Registered Public Accounting Firm's Report on Schedule.
  23.3    -  Consent of Ernst & Young LLP, Independent Auditors.
  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.


     (c) The following is a list of financial statements required by Regulation
         S-X for a 50 percent or less owned person accounted for by the equity
         method:

         (1) Financial Statements of Mobile Satellite Ventures LP.

               (i)   Report of Independent Registered Public Accounting Firm.
               (ii)  Consolidated Balance Sheets as of December 31, 2003 and
                     2004.
               (iii) Consolidated Statements of Operations for the years ended
                     December 31, 2002, 2003 and 2004.
               (iv)  Consolidated Statements of Partners' Equity (Deficit) for
                     the years ended December 31, 2002, 2003 and 2004.
               (v)   Consolidated Statements of Cash Flows for the years ended
                     December 31, 2002, 2003 and 2004.
               (vi)  Notes to Consolidated Financial Statements.

<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2004 and 2003, 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, 2004. 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 of the
Public Company Accounting Oversight Board (United States). 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, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles.


/s/ KPMG LLP

New York, New York
March 31, 2005

<PAGE>
<TABLE>
<CAPTION>


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

                                                                                                   December 31,
                                                                                        -------------------------------
                                                                                            2004              2003
                                                                                        --------------    -------------
<S>                                                                                           <C>               <C>
                                        ASSETS
Current assets:
   Cash and cash equivalents                                                                  $34,759           $6,897
   Short-term investments                                                                      59,748           21,795
                                                                                        --------------    -------------
     Total cash, cash equivalents and short-term investments                                   94,507           28,692
   Accounts receivable, net of allowance for bad debt of $78 and $44, respectively                 29              237
   Note receivable from Verestar, Inc.                                                              -            2,500
   Prepaid expenses                                                                               452              759
   Deferred transaction costs                                                                   4,989                -
   Other current assets                                                                           399              289
                                                                                        --------------    -------------
     Total current assets                                                                     100,376           32,477

Property and equipment, net                                                                       605               57
Notes receivable from the Mobile Satellite Ventures LP, including interest receivable
   of nil and $11,520, respectively                                                                 -           62,638
Notes receivable from Motient Corporation, net of reserve of nil and $22,016,
   respectively                                                                                     -                -
Investment in Mobile Satellite Ventures LP                                                     50,098                -
Investments in and advances to affiliates                                                       3,361            2,769
Other assets                                                                                      130              158
                                                                                        --------------    -------------
       Total assets                                                                          $154,570          $98,099
                                                                                        ==============    =============

                     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                                            $2,210           $1,958
   Accrued liabilities                                                                          8,281            3,950
   Deferred revenue                                                                                21              158
                                                                                        --------------    -------------
     Total current liabilities                                                                 10,512            6,066
                                                                                        --------------    -------------
Series A Convertible Preferred Stock, $.01 par value, net of unamortized
  discount of $32,589 and $36,979, respectively                                                88,706           80,182
                                                                                        --------------    -------------
Minority interest                                                                               9,974           12,467
                                                                                        --------------    -------------
Stockholders' equity (deficit):
   Preferred stock, $.01 par value. Authorized 10,000,000 shares; issued
     1,199,007 shares as Series A Convertible Preferred Stock at December 31,
     2004 and
     1,171,612 shares at December 31, 2003                                                          -                -
   Common stock, $.01 par value.  Authorized 200,000,000 shares; issued and
     outstanding 8,384,809 shares at December 31, 2004 and 6,075,727 shares at
     December 31, 2003                                                                             84               61
   Non-voting common stock, $.01 par value.  Authorized 100,000,000 shares; issued
     and outstanding 8,990,212 shares at December 31, 2004 and 2003                                90               90
   Additional paid-in capital                                                                 584,798          546,243
   Accumulated other comprehensive loss                                                            (3)               -
   Accumulated deficit                                                                       (539,591)        (546,839)
   Treasury stock, at cost, nil shares at December 31, 2004 and 6,622 shares at
     December 31, 2003                                                                              -             (171)
                                                                                        --------------    -------------
       Total stockholders' equity (deficit)                                                    45,378             (616)
                                                                                        --------------    -------------
        Total liabilities and stockholders' equity (deficit)                                 $154,570          $98,099
                                                                                        ==============    =============


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

<PAGE>
<TABLE>
<CAPTION>

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


                                                                             Years Ended December 31,
                                                                 -------------------------------------------------
                                                                     2004             2003              2002
                                                                 -------------    --------------    --------------
<S>                                                                    <C>                 <C>                 <C>

Revenues                                                               $2,127              $699                $-
Cost of revenues                                                        2,072               913                 -
                                                                 -------------    --------------    --------------
   Gross margin                                                            55              (214)                 -
Expenses:
   Selling, general and administrative                                 10,987             6,690             6,406
   Depreciation and amortization                                          168                43               107
   Impairment charge                                                      755                 -                 -
                                                                 -------------    --------------    --------------
     Total expenses                                                    11,910             6,733             6,513
                                                                 -------------    --------------    --------------
Loss from operations                                                  (11,855)           (6,947)           (6,513)
Interest income, net                                                   10,548             6,304             5,602
Equity in loss of Mobile Satellite Ventures LP                         (1,020)                -                 -
Equity in loss and loss on investments in affiliates                   (1,336)             (404)             (385)
Other income (expense), net                                            21,045               244           (14,716)
Minority interest                                                        (216)           (1,126)             (998)
                                                                 -------------    --------------    --------------
Income (loss) before taxes and discontinued operations                 17,166            (1,929)          (17,010)
Income tax benefit                                                          -                 -               350
                                                                 -------------    --------------    --------------
Income (loss) before discontinued operations                           17,166            (1,929)          (16,660)
Gain from wind-down of discontinued operations                              -             1,211            12,632
                                                                 -------------    --------------    --------------
Net income (loss)                                                      17,166              (718)           (4,028)
   Cumulative dividends and accretion of convertible
     preferred stock to liquidation value                              (9,918)           (9,687)          (10,937)
                                                                 -------------    --------------    --------------
Net income (loss) attributable to common stockholders                  $7,248         $ (10,405)         $(14,965)
                                                                 =============    ==============    ==============
Basic earnings (loss) per common share:
  Continuing operations                                                 $0.48           $ (0.76)           $(2.32)
  Discontinued operations                                                   -              0.08              1.06
                                                                 -------------    --------------    --------------
     Net earnings (loss) per share                                      $0.48           $ (0.68)           $(1.26)
                                                                 =============    ==============    ==============
Diluted earnings (loss) per common share:
  Continuing operations                                                 $0.46           $ (0.76)           $(2.32)
  Discontinued operations                                                   -              0.08              1.06
                                                                 -------------    --------------    --------------
     Net earnings (loss) per share                                      $0.46           $ (0.68)           $(1.26)
                                                                 =============    ==============    ==============
Weighted average common shares outstanding:
  Basic                                                            15,115,895        15,341,518        11,865,291
                                                                 =============    ==============    ==============
  Diluted                                                          15,837,370        15,341,518        11,865,291
                                                                 =============    ==============    ==============


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

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                           Years Ended December 31,
                                                                                    ---------------------------------------
                                                                                      2004          2003           2002
                                                                                    ----------    ----------     ----------
<S>                                                                                   <C>            <C>          <C>
Cash flows from operating activities:
   Net income (loss)                                                                  $17,166         $(718)       $(4,028)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Gain from adjustment to reserve for note receivable and accrued interest
      from Motient Corporation                                                        (22,516)            -              -
     Gain from discontinued operations                                                      -        (1,211)       (12,632)
     Depreciation and amortization                                                        168            43            107
     Impairment charge                                                                    755             -              -
     Equity in loss of Mobile Satellite Ventures LP                                     1,020             -              -
     Equity in loss and loss on investments in affiliates                               1,336           404            385
     Minority interest                                                                    216             -              -
     Non-cash compensation charges (benefit)                                            3,095           107           (228)
     Non-cash charge for issuance of option and warrants by consolidated
      subsidiaries                                                                        447            27             56
     Loss on XM Satellite Radio common stock                                                -             -         14,864
     Changes in assets and liabilities, net of acquisitions and sale of
      businesses:
       Accounts receivable, net                                                           208           219              -
       Prepaid expenses, interest receivable, deferred transaction costs and
         other assets                                                                  10,258        (4,339)        (5,158)
       Accounts payable and accrued liabilities                                         4,230          (838)        (1,324)
       Deferred revenue                                                                  (137)          (15)             -
                                                                                    ----------    ----------     ----------
           Net cash provided by (used in) continuing operations                        16,246        (6,321)        (7,958)
           Net cash used in discontinued operations                                       (77)         (427)        (1,940)
                                                                                    ----------    ----------     ----------
           Net cash provided by (used in) operating activities                         16,169        (6,748)        (9,898)
                                                                                    ----------    ----------     ----------
Cash flows from investing activities:
   Repayments (purchases) of notes receivable                                          21,500        (2,500)        (1,118)
   Purchases of short-term investments                                                (68,602)      (23,637)        (8,663)
   Sales of short-term investments                                                     30,649         5,850         13,952
   Cash paid for investments in affiliates                                             (1,928)         (482)          (493)
   Cash received from investments in affiliates                                             -             1            365
   Purchases of property and equipment, net                                              (839)           (7)             -
   Cash paid for acquisitions, net of cash acquired and acquisition costs                (105)          125              -
   Cash received from sale of XM Satellite Radio common stock                               -             -         16,630
                                                                                    ----------    ----------     ----------
           Net cash (used in) provided by continuing operations                       (19,325)      (20,650)        20,673
           Net cash provided by discontinued operations                                     -             -            500
                                                                                    ----------    ----------     ----------
           Net cash (used in) provided by investing activities                        (19,325)      (20,650)        21,173
                                                                                    ----------    ----------     ----------
Cash flows from financing activities:
   Proceeds from contributions to a consolidated subsidiary                               450            48            177
   Distribution to minority interest of consolidated subsidiary                        (3,361)            -              -
   Proceeds from issuance of common stock, net of costs                                35,044             -         16,968
   Proceeds from issuance of common stock in connection with the exercise
    of options                                                                            284             6              3
   Payment of dividend on preferred stock                                              (1,394)            -              -
   Repurchase of common stock of consolidated subsidiary                                   (2)            -              -
   Cash paid in connection with tender offer                                                -        (1,243)             -
                                                                                    ----------    ----------     ----------
           Net cash provided by (used in) financing activities                         31,021        (1,189)        17,148
Effect of exchange rate changes on cash and cash equivalents                               (3)            -              -
                                                                                    ----------    ----------     ----------
Net increase (decrease) in cash and cash equivalents                                   27,862       (28,587)        28,423
Cash and cash equivalents, beginning of period                                          6,897        35,484          7,061
                                                                                    ----------    ----------     ----------
Cash and cash equivalents, end of period                                              $34,759        $6,897        $35,484
                                                                                    ==========    ==========     ==========

Supplemental noncash investing and financing activities:
   Conversion of notes receivable to partnership interests in Mobile
     Satellite Ventures LP                                                            $51,118            $-             $-
                                                                                    ==========    ==========     ==========

Issuance of warrant to placement agent in connection with
   private placement                                                                  $ 2,239            $-             $-
                                                                                    ==========    ==========     ==========

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

<PAGE>
<TABLE>
<CAPTION>

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

                                                                              Voting Common
                                                                                  Stock            Non-Voting        Additional
                                                              Preferred         ($.01 par         Common Stock        Paid-In
                                                                Stock            value)         ($.01 par value)      Capital
                                                             ------------    ----------------   -----------------   -------------
<S>                                                                   <C>               <C>                   <C>       <C>
  Balance, January 1, 2002                                            $-                $653                  $-        $529,955
  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
  Dividends on and accretion of preferred stock                        -                   -                   -               -
  Comprehensive loss:
     Net loss                                                          -                                       -               -
     Net unrealized loss arising during period                         -                   -                   -               -
     Net foreign currency translation adjustments                      -                   -                   -               -

        Total comprehensive income                                     -                   -                   -               -
                                                             ------------    ----------------   -----------------   -------------
  Balance, December 31, 2002                                           -                  67                  90         547,250
  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 option by consolidated
     subsidiary                                                        -                   -                   -              28
  Dividends on and accretion of preferred stock                        -                   -                   -               -
  Comprehensive loss:
     Net loss                                                          -                   -                   -               -

        Total comprehensive loss                                       -                   -                   -               -
                                                             ------------    ----------------   -----------------   -------------
  Balance, December 31, 2003                                           -                  61                  90         546,243
  Issuance of 2,000,000 shares of common stock and certain
     warrants in private placement                                     -                  20                   -          35,024
  Issuance of 321,966 shares of common stock through
     exercise of stock options                                         -                   3                   -             281
  Retirement of 6,262 shares of common stock in connection
     with acquired businesses                                          -                   -                   -               -
  Retirement of 6,622 shares held in treasury                          -                   -                   -           s (171)
  Non-cash compensation charge for option repricing                    -                   -                   -           2,814
  Non-cash charge for issuance of option and warrants by
     consolidated subsidiaries                                         -                   -                   -             343
  Sale of stock by consolidated subsidiary                             -                   -                   -             264
  Dividends on and accretion of preferred stock                        -                   -                   -               -
  Comprehensive income:
     Net income                                                        -                   -                   -               -
     Net foreign currency translation adjustments                      -                   -                   -               -

        Total comprehensive income                                     -                   -                   -               -
                                                             ------------    ----------------   -----------------   -------------
  Balance, December 31, 2004                                          $-                 $84                 $90        $584,798
                                                             ============    ================   =================   =============

[table continued 1]
<CAPTION>

                                                                Accumulated
                                                                   Other                         Treasury
                                                               Comprehensive     Accumulated       Stock
                                                                   Income          Deficit        at Cost
                                                              ---------------   -------------   -----------
<S>                                                                  <C>          <C>               <C>
  Balance, January 1, 2002                                           $60,336      $(521,469)        $(171)
  Issuance of 147,893 shares of voting common stock and
     8,990,212 shares of non-voting common stock in rights
     offering                                                              -               -             -
  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                                             -               -             -
  Non-cash compensation benefit for option repricing                       -               -             -
  Non-cash charge for issuance of warrant by consolidated
     subsidiary                                                            -               -             -
  Dividends on and accretion of preferred stock                            -         (10,937)            -
  Comprehensive loss:
     Net loss                                                              -          (4,028)            -
     Net unrealized loss arising during period                       (60,306)              -             -
     Net foreign currency translation adjustments                        (30)              -             -

        Total comprehensive income                                         -               -             -
                                                              ---------------   -------------   -----------
  Balance, December 31, 2002                                               -        (536,434)         (171)
  Issuance of 357,143 shares of common stock in connection
     with the settlement of the class action lawsuit                       -               -             -
  Issuance of 4,367 shares of common stock through
     exercise of stock options                                             -               -             -
  Retirement of 968,398 shares of common stock in
     connection with the tender offer                                                      -             -
  Non-cash compensation charge for option repricing                        -               -             -
  Non-cash charge for issuance of option by consolidated
     subsidiary                                                            -               -             -
  Dividends on and accretion of preferred stock                            -          (9,687)            -
  Comprehensive loss:
     Net loss                                                              -            (718)            -

        Total comprehensive loss                                           -               -             -
                                                              ---------------   -------------   -----------
  Balance, December 31, 2003                                               -        (546,839)         (171)
  Issuance of 2,000,000 shares of common stock and certain
     warrants in private placement                                         -               -             -
  Issuance of 321,966 shares of common stock through
     exercise of stock options                                             -               -             -
  Retirement of 6,262 shares of common stock in connection
     with acquired businesses                                              -               -             -
  Retirement of 6,622 shares held in treasury                              -               -           171
  Non-cash compensation charge for option repricing                        -               -             -
  Non-cash charge for issuance of option and warrants by
     consolidated subsidiaries                                             -               -             -
  Sale of stock by consolidated subsidiary                                 -               -             -
  Dividends on and accretion of preferred stock                            -          (9,918)            -
  Comprehensive income:
     Net income                                                            -          17,166             -
     Net foreign currency translation adjustments                         (3)              -             -

        Total comprehensive income                                         -               -             -
                                                              ---------------   -------------   -----------
  Balance, December 31, 2004                                            $(3)       $(539,591)           $-
                                                              ===============   =============   ===========

[table continued 2]
<CAPTION>

                                                                  Total
                                                                Stockholders'     Comprehensive
                                                               Equity (Deficit)   (Loss) Income
                                                               ---------------   ---------------
<S>                                                                   <C>         <C>
  Balance, January 1, 2002                                            $69,304
  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
  Dividends on and accretion of preferred stock                       (10,937)
  Comprehensive loss:
     Net loss                                                          (4,028)          $(4,028)
     Net unrealized loss arising during period                        (60,306)          (60,306)
     Net foreign currency translation adjustments                         (30)              (30)
                                                                                 ---------------
        Total comprehensive income                                          -          $(64,364)
                                                                ---------------  ===============
  Balance, December 31, 2002                                           10,802
  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 option by consolidated
     subsidiary                                                            28
  Dividends on and accretion of preferred stock                        (9,687)
  Comprehensive loss:
     Net loss                                                            (718)            $(718)
                                                                                 ---------------
        Total comprehensive loss                                            -             $(718)
                                                               ---------------   ===============
  Balance, December 31, 2003                                             (616)
  Issuance of 2,000,000 shares of common stock and certain
     warrants in private placement                                     35,044
  Issuance of 321,966 shares of common stock through
     exercise of stock options                                            284
  Retirement of 6,262 shares of common stock in connection
     with acquired businesses                                               -
  Retirement of 6,622 shares held in treasury                               -
  Non-cash compensation charge for option repricing                     2,814
  Non-cash charge for issuance of option and warrants by
     consolidated subsidiaries                                            343
  Sale of stock by consolidated subsidiary                                264
  Dividends on and accretion of preferred stock                        (9,918)
  Comprehensive income:
     Net income                                                        17,166           $17,166
     Net foreign currency translation adjustments                          (3)               (3)
                                                                                 ---------------
        Total comprehensive income                                          -           $17,163
                                                               ---------------   ===============
  Balance, December 31, 2004                                          $45,378
                                                               ===============


                          See accompanying notes to consolidated financial statements.

</TABLE>

<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") operates its business
  through a group of complementary companies in the telecommunications
  industry. The Company's consolidated financial statements include the results
  of operations and financial position of the Company, its controlled
  majority-owned subsidiaries and variable interest entities ("VIEs"), as
  defined by Financial Accounting Standards Board ("FASB") Interpretation No.
  46R ("FIN 46R"), for which the Company is deemed the primary beneficiary, as
  defined by FIN 46R. As such, the consolidated financial statements of the
  Company include the accounts of Electronic System Products, Inc. ("ESP"),
  AfriHUB, LLC ("AfriHUB"), the Company's 80% owned subsidiary (the "MSV
  Investors Subsidiary") that holds the interest in Mobile Satellite Ventures
  LP (the "MSV Joint Venture"), and Miraxis, LLC ("Miraxis").

       The Company accounts for minority owned subsidiaries in which the
  Company owns greater than 20% of the outstanding voting interests but less
  than 50% and for which the Company possesses significant influence over their
  operations under the equity method of accounting, whereby the Company records
  its proportionate share of the subsidiary's operating results. As such, the
  Company accounts for its interest in the MSV Joint Venture and Navigauge,
  Inc. (formerly known as IQStat, Inc., "Navigauge") under the equity method.

       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.

       At the end of the third quarter of 2001, a decision to discontinue the
  operations of Rare Medium, Inc., along with those of its LiveMarket, Inc.
  Subsidiary ("LiveMarket") 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 (see Note 13). The discontinuance of these businesses represents
  the disposal of a business segment under Statement of Financial Accounting
  Standards ("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.

       All material intercompany balances and transactions have been eliminated.

       (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, 2004 and 2003, Rare Medium, Inc. had cash equivalents in the
  amount of $0.3 million supporting letters of credit issued for certain real
  estate leases (see Note 17).

       (c)  Short-Term Investments

       The Company considers all debt securities with maturities of more than
  three months but less than one year as short-term investments and classifies
  investments in such short-term debt securities as either held to maturity or
  available for sale. These investments are diversified among high credit
  quality securities in accordance with the Company's investment policy.
  Auction rate securities, which were previously classified as either cash
  equivalents or held to maturity securities due to their liquidity and pricing
  reset feature, have been reclassified as available for sale given the
  long-term stated maturities of 20 to 30 years. As of December 31, 2004 and
  2003, the Company had $36.2 million and $3.8 million, respectively, of
  auction rate securities. The remainder of the Company's short-term
  investments are classified as held to maturity as the Company has both the
  intent and ability to hold them 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.

       During the year ended December 31, 2004, the Company sold a debt
  security with a face value of $1.0 million which was previously classified as
  held to maturity. This sale occurred to ensure that all of the Company's debt
  securities had a maturity less than one year in accordance with the Company's
  investment policy and did not have a material impact on the Company's
  financial position, results of operations or cash flow from operations.

       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

       The Company records goodwill when consideration paid in a purchase
  acquisition exceeds the fair value of the net tangible assets and the
  identifiable intangible assets acquired. In accordance with SFAS No. 142,
  "Goodwill and Other Intangible Assets," goodwill and the identified
  intangible assets with an indefinite life are not amortized but are tested
  for impairment at least annually or whenever changes in circumstances
  indicate that the carrying value may not be recoverable. The Company
  amortizes the identified intangible assets with a finite life over their
  respective useful lives on a straight-line basis.

       (f) Impairment of Long-Lived Assets

       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. Assets to be disposed of
  are reported at the lower of the carrying amount or fair value less costs to
  sell. 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.

       As a result of AfriHUB's projected operating losses with respect to its
  university initiative (see Note 3(c)), at December 31, 2004, the Company
  evaluated AfriHUB's long-lived assets for recoverability and determined that
  the undiscounted cash flows over the remaining expected life of the two
  established centers was less than the carrying value of the long-lived assets
  relating to those centers. Accordingly, the Company assessed the fair value
  of these assets by using market prices for recently purchased computers and
  equipment and using a discounted cash flow model for the intangible asset and
  building improvements for which market prices were not available. The Company
  recognized an impairment loss relating to the intangible asset and building
  improvements as their carrying value exceeded the fair value by approximately
  $0.8 million

       (g) 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 represent time and costs incurred on projects in process in
  excess of amounts billed and are recorded as other current assets 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.

       A handling and finance charge is added to materials and equipment
  purchased for certain product development engagements. These charges, as well
  as those relating to reimbursement of other out-of-pocket expenses billed to
  clients, are included in revenues. The costs of these reimbursable items are
  included in cost of revenues.

       (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. As a result of the
  re-pricing of certain stock options in 2001 and 2002, for the years ended
  December 31, 2004 and 2003, the Company recognized compensation expense of
  approximately $2.8 million and $0.1 million, respectively. As a result of the
  re-pricing of those certain stock options, for the year ended December 31,
  2002, the Company recognized compensation contra-expense of approximately
  $0.2 million.

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

<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                               -------------------------------------------------
                                                                   2004              2003             2002
                                                               --------------    -------------    --------------
                                                                      (in thousands, except share data)
<S>                                                                  <C>               <C>             <C>

Net income (loss), as reported                                       $17,166            $(718)         $(4,028)
Add (Deduct):  Stock-based compensation expense
   (contra-expense), as reported                                       3,095              107             (228)
Deduct:  Total stock-based compensation expense determined
   under fair value based method for all awards                         (596)            (415)            (576)
                                                               --------------    -------------    --------------
Pro forma net income (loss)                                          $19,665          $(1,026)         $(4,832)
                                                               ==============    =============    ==============

Basic earnings (loss) per common share:
   As reported                                                         $0.48           $(0.68)          $(1.26)
   Pro forma                                                           $0.64           $(0.70)          $(1.33)

Diluted earnings (loss) per common share:
   As reported                                                         $0.46           $(0.68)          $(1.26)
   Pro forma                                                           $0.61           $(0.70)          $(1.33)
</TABLE>

     The per share weighted average fair value of stock options granted during
2004, 2003 and 2002 was $2.70, $1.02 and $0.62, 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 1.2% to 3.2% in 2004,
1.1% to 4.0% in 2003 and 1.6% to 5.4% in 2002, (2) an expected life of three
years in 2004, 2003 and 2002, (3) volatility of approximately 172% in 2004,
175% in 2003 and 164% in 2002, and (4) an annual dividend yield of 0% for all
years.

     (j) Foreign Currency Translation

     Financial statements of AfriHUB's Nigerian operations are prepared using
the Nigerian Naira as the functional currency. Consequently, revenues and
expenses of the Nigerian operations are translated into United States dollars
using weighted average exchange rates, while assets and liabilities are
translated using period end exchange rates. Translations adjustments are
included in stockholders' equity as accumulated other comprehensive loss in the
accompanying consolidated balance sheets. Gains and losses from foreign
currency transactions are reflected in other income (expense), net on the
accompanying consolidated statements of operations. During the year ended
December 31, 2004, the Company recorded a gain of approximately $15,000
resulting from foreign currency transactions. The Company did not have any
foreign operations during the years ended December 31, 2003 or 2002.

     (k) Comprehensive Income

     Comprehensive income is defined as the change in equity during a period
from non-owner sources. Comprehensive income for the years ended December 31,
2004, 2003 and 2002 have been disclosed within the accompanying consolidated
statements of changes in stockholders' equity (deficit). As of December 31,
2004, accumulated other comprehensive loss was comprised of approximately
$3,000 of accumulated foreign currency translation adjustments. As of December
31, 2003 and 2002, the Company did not have any items of accumulated other
comprehensive income (loss).

     (l) Use of Estimates

     The preparation of these consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires the
use of management estimates and assumptions that affect reported amounts and
related disclosures. These estimates are based on historical experience and
information that is available to management about current events and actions
the Company may take in the future. Significant items subject to estimates and
assumptions include the carrying value of long-lived assets (including the
impairment charge), valuation allowances for accounts and notes receivable and
deferred income tax assets, accrued restructuring charges and other contingent
obligations. Actual results could differ from those estimates and assumptions.

     (m) Earnings (Loss) Per Common Share

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

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

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                          ---------------------------------------------
                                                             2004             2003            2002
                                                          ------------    -------------    ------------
<S>                                                        <C>              <C>             <C>
Weighted average common shares outstanding - basic         15,115,895       15,341,518      11,865,291
Common shares issuable upon exercise of stock options         721,475                -               -
                                                          ------------    -------------    ------------
Weighted average common shares outstanding - diluted       15,837,370       15,341,518      11,865,291
                                                          ============    =============    ============
</TABLE>

     During all periods presented, the Company had certain stock options and
warrants outstanding, which could potentially dilute basic earnings (loss) per
common share in the future, but were excluded in the computation of diluted
earnings (loss) per common share in such periods, as their effect would have
been antidilutive. For the years ended December 31, 2004, 2003 and 2002, stock
options and warrants exercisable for 1,722,976, 2,405,168 and 2,139,190 shares
of common stock, respectively, were excluded from the computation of diluted
earnings per common share, as they were antidilutive.

     During all periods presented, the conversion of the preferred stock could
potentially dilute basic earnings (loss) per common share in the future, but
the shares issuable upon the conversion were excluded from the computation of
diluted earnings (loss) per common share in such periods, as their effect would
have been antidilutive. For the years ended December 31, 2004, 2003 and 2002,
there were 1,912,484, 1,710,423 and 1,633,147 shares of common stock,
respectively, issuable upon the conversion of the preferred stock were excluded
from the computation of diluted earnings per common share, as they were
antidilutive.

     (n) Fair Value of Financial Instruments

     The Company's financial instruments include cash, cash equivalents,
short-term investments, accounts receivable, notes receivable, accounts payable
and a letter of credit. The fair value of these instruments, other than the
notes receivable, approximates book value due to their short-term duration. As
of December 31, 2003, the fair value of the convertible notes receivable from
the MSV Joint Venture approximated book value based on the equity value of the
MSV Joint Venture's 2002 and 2003 funding transactions (see Note 2). As of
December 31, 2003, the fair value of the promissory note from Motient
Corporation ("Motient") approximated book value due to the uncertainty with
respect to the collection (see Note 4). As of December 31, 2003, the fair value
of the senior secured notes from Verestar, Inc. ("Verestar") approximated book
value due to the sufficiency of Verestar's assets in which the Company held a
security interest despite Verestar having filed for bankruptcy protection (see
Note 3(f)).

     (o) Concentration of Credit Risk

     Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and short-term
investments. Although the Company maintains cash balances at financial
institutions that exceed federally insured limits, these balances are placed
with various high credit quality financial institutions. Further, in accordance
with an investment policy, the Company diversifies its short-term investments
among debt instruments that are believed to be low risk.

     ESP's revenues are generated principally from customers located in the
United States. AfriHUB's revenues are generated principally from customers
located in Nigeria. For the year ended December 31, 2004 and for the period
from the August 25, 2003 acquisition of ESP through December 31, 2003, three
and two customers, respectively, individually accounted for more than 10% of
the Company's consolidated revenues. Combined, these customers account for
approximately $1.1 million of consolidated revenues for the year ended December
31, 2004 and $0.4 million for the period from the August 25, 2003 acquisition
of ESP through December 31, 2003. As of December 31, 2004 and 2003, accounts
receivable from these significant customers was approximately $14,000 and $0.1
million, respectively.

     (p) Sales of Stock by a Subsidiary

     The Company accounts for the sale of stock by a consolidated subsidiary as
a capital transaction whereby the change in the Company's proportionate share
of the subsidiary equity resulting from the additional equity raised by the
subsidiary is reflected in stockholders' equity on the accompanying
consolidated balance sheets.

     In October 2004, AfriHUB agreed to sell membership interests to an
unaffiliated third party for approximately $0.5 million in cash (see Note
3(c)). The Company increased additional paid in capital on the accompanying
consolidated balance sheets by approximately $0.3 million related to this
transaction.

     (q) Recently Issued Accounting Standards

     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 an impact on the Company's financial position or results of
operations.

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

     In December 2003, the staff of the Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition"
("SAB No. 104"), which supersedes SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 104 primarily rescinds the accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements,
which was superseded as a result of the issuance of EITF Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." Additionally,
SAB No. 104 rescinds the SEC's "Revenue Recognition in Financial Statements
Frequently Asked Questions and Answers" issued with SAB No. 101, which had been
codified in SEC Topic 13, "Revenue Recognition." SAB No. 104 was effective upon
issuance. The issuance of SAB No. 104 did not have a material impact on our
financial position or results of operations.

     In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
("SFAS No. 123R"), a revision of SFAS No. 123. SFAS No. 123R requires entities
to recognize compensation expense for all share-based payments to employees,
including stock options, based on the estimated fair value of the instrument
on the date it is granted. The expense will be recognized over the vesting
period of the award. SFAS No. 123R is effective for periods beginning after
June 15, 2005 and provides entities two transition methods. Under the modified
prospective method, compensation expense is recognized beginning with the
effective date for all awards granted to employees prior to the effective date
that are unvested on the effective date. The modified retrospective method is
a variation of the modified prospective method, except entities can restate
all prior periods presented or prior interim period in the year of adoption
using the amounts previously presented in the pro forma disclosure required by
SFAS No. 123. As the Company currently accounts for share-based payments using
the intrinsic value method as allowed by APB Opinion No. 25, the adoption of
the fair value method under SFAS No. 123R will have an impact on the Company's
results of operations. However, the extent of the impact cannot be predicted
at this time because it will depend on levels of share-based payments granted
in the future. Had the Company adopted SFAS No. 123R in prior periods, the
impact of that standard would have approximated the impact of SFAS No. 123 as
described in the disclosure of pro forma net income (loss) and earnings (loss)
per share described above in Note 1(i).

      In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29" ("SFAS No. 153"). SFAS No. 153
eliminates the exception for nonmonetary exchanges of similar productive assets
of APB Opinion No. 29 and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a
material impact on the Company's financial position or results of operations.

     (r) Reclassifications

     Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year's presentation. Auction
rate securities totaling $36.2 million, $3.0 million and $2.0 million as of
December 31, 2004, 2003 and 2002, respectively, which were previously reported
on the accompanying consolidated balance sheets and consolidated statements of
cash flows as cash equivalents, have been reclassified as short-term
investments. These reclassifications had no impact on the Company's results of
operations, total assets or changes in shareholders' equity.

     The following is a summary of the impact of the reclassification of the
auction rate securities on the accompanying consolidated balance sheets and
consolidated statements of cash flows:

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                      ---------------------------------
                                                                                           2003               2002
                                                                                      --------------     --------------
                                                                                               (IN THOUSANDS)
<S>                                                                                             <C>                <C>
Impact on consolidated balance sheets:
   Cash and cash equivalents, as previously reported                                         $9,897            $37,484
   Cash and cash equivalents, as reclassified                                                 6,897             35,484
                                                                                      --------------     --------------
     Net change                                                                             $(3,000)           $(2,000)
                                                                                      ==============     ==============
   Short-term investments, as previously reported                                           $18,795             $2,008
   Short-term investments, as reclassified                                                   21,795              4,008
                                                                                      --------------     --------------
     Net change                                                                              $3,000             $2,000
                                                                                      ==============     ==============
Impact on consolidated cash flow statements:
   Net cash (used in) provided by investing activities, as previously reported             $(19,650)           $23,173
   Net cash (used in) provided by investing activities, as reclassified                     (20,650)            21,173
                                                                                      --------------     --------------
     Net change                                                                             $(1,000)            $2,000
                                                                                      ==============     ==============
   Net (decrease) increase in cash and cash equivalents, as previously reported            $(27,587)           $30,423
   Net (decrease) increase in cash and cash equivalents, as reclassified                    (28,587)            28,423
                                                                                      --------------     --------------
     Net change                                                                             $(1,000)            $2,000
                                                                                      ==============     ==============
</TABLE>

(2)  Interest in the MSV Joint Venture

     On November 26, 2001, through its 80% owned MSV Investors, LLC subsidiary
("MSV Investors Subsidiary"), the Company purchased an interest in the MSV
Joint Venture in the form of a convertible note with a principal amount of
$50.0 million. Immediately prior to the purchase of the convertible note, the
Company contributed $40.0 million to the MSV Investors Subsidiary and a group
of unaffiliated third parties collectively contributed $10.0 million. The note
yielded interest at a rate of 10% per year, had a maturity date of November 26,
2006, and was 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.

     Under the joint venture agreement among the partners of the MSV Joint
Venture, the convertible notes held by the MSV Investors Subsidiary would
automatically convert into equity interests in the MSV Joint Venture upon the
repayment of (i) the outstanding principal and accrued interest on certain
outstanding debt of the MSV Joint Venture and (ii) the accrued interest on all
outstanding convertible notes of the MSV Joint Venture, including the
convertible notes held by the MSV Investors Subsidiary. On November 12, 2004,
the MSV Joint Venture raised $145.0 million in cash by selling partnership
units for $29.45 per unit and exchanged or converted approximately $84.9
million of debt securities and accrued interest. In connection with this
financing, the convertible notes held by the MSV Investors Subsidiary converted
into approximately 23% of the limited partnership interests of the MSV Joint
Venture on an undiluted basis, at their original conversion price of $6.45 per
unit. As a result of these transactions, the MSV Investors Subsidiary also
received approximately $17.1 million in cash from the MSV Joint Venture to pay
the accrued interest on the convertible notes. The MSV Investors Subsidiary
distributed approximately $13.6 million of this cash to the Company and $3.4
million of cash to the unaffiliated third parties who own the 20% minority
interest.

     Following the November 12, 2004 conversion of its notes receivable into
limited partnership interests, the Company accounts for its interest in the MSV
Joint Venture under the equity method. Accordingly, on the date of conversion,
the remaining $51.1 million carrying amount of the notes receivable was
reclassified to investment in Mobile Satellite Venture LP and will be adjusted
thereafter for the Company's proportionate share of the net income (loss) of
the MSV Joint Venture, subject to certain adjustments. These adjustments relate
primarily to the amortization of the excess of the Company's $51.1 million
carrying amount over the Company's proportionate share of the MSV Joint
Venture's net assets on the date of conversion. This excess will be amortized
over the remaining useful life of certain MSV Joint Venture long-lived assets
on a straight line basis. As of December 31, 2004, the Company's book
investment exceeded its proportionate share of the MSV Joint Venture's net
assets by approximately $1.6 million.

     The following table presents summarized consolidated financial information
for the MSV Joint Venture as of and for the year ended December 31, 2004 and
are derived from the MSV Joint Venture's audited consolidated financial
statements (in thousands):

Consolidated balance sheet:
     Current assets                                             $139,978
     Noncurrent assets                                           106,245
     Current liabilities                                          11,772
     Noncurrent liabilities                                       21,386
     Minority interest                                               101
     Partners' equity                                            212,964
Consolidated statement of operations:
     Revenues                                                    $29,007
     Loss from operations                                        (28,692)
     Net loss                                                    (33,455)

     The MSV Investors Subsidiary and the other partners of the MSV Joint
Venture have agreed that the acquisition or disposition by the MSV Joint
Venture of its assets, certain acquisitions or dispositions of a limited
partner's interest in the MSV Joint Venture, subsequent investment into the
MSV Joint Venture by any person, and any merger or other business combination
of the MSV Joint Venture, are subject to the control restrictions contained in
the Amended and Restated Limited Partnership Agreement and the Amended and
Restated Stockholders Agreement. The control restrictions include, but are not
limited to, rights of first refusal, tag along rights and drag along rights.
Many of these actions, among others, cannot occur without the consent of the
majority of the ownership interests of the MSV Joint Venture. In addition, the
MSV Investors Subsidiary and two of the three other joint venture partner
groups have entered into a voting agreement pursuant to which three of the
four joint venture partner groups must consent to certain transactions
involving the MSV Joint Venture or the partners or none of the parties to the
voting agreement will support such actions.

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

     On December 20, 2004, the MSV Joint Venture issued rights to receive all
of the shares of common stock of TerreStar Networks Inc. ("TerreStar"), a
wholly-owned subsidiary of the MSV Joint Venture, to the limited partners of
the MSV Joint Venture, pro rata in accordance with each limited partner's
percentage ownership. TerreStar was formed by the MSV Joint Venture to develop
business opportunities related to the proposed receipt of certain licenses in
the 2 GHz band. The rights will be exchanged into shares of TerreStar common
stock automatically on May 20, 2005. In connection with the distribution of
the rights, TerreStar issued warrants to purchase shares of TerreStar common
stock representing 3% of the outstanding equity to one of the Other MSV
Investors. These warrants have an exercise price of $0.21491 per share and
expire on December 20, 2006. Following the exchange of the rights and
considering this warrant, the MSV Investors Subsidiary would own approximately
22% of TerreStar on an undiluted basis.

(3)  Business Transactions

     (a)  Interest in Hughes Network Systems

     On December 3, 2004, the Company signed an agreement to acquire a 50%
interest in the business of Hughes Network Systems, Inc. ("HNSI"), a leading
developer, manufacturer, installer and provider of advanced satellite based
networking solutions and services for businesses, governments and consumers
worldwide. Pursuant to the terms of the agreement, HNSI will contribute to
Hughes Network Systems, LLC ("HNS LLC"), a newly formed entity, substantially
all of the assets and certain liabilities of its very small aperture terminal
("VSAT"), mobile satellite and carrier businesses, as well as the certain
portions of its SPACEWAY Ka-band satellite communications platform that is under
development. In consideration for this contribution, HNS LLC will pay HNSI
$201.0 million of cash, subject to adjustment depending principally upon the
closing value of HNSI's working capital (as defined in the agreement). In order
to finance the asset purchase, HNS LLC intends to incur $325.0 million of term
indebtedness and obtain a $50.0 million revolving credit facility which is
expected to be undrawn at closing.

     Upon the consummation of the foregoing transactions, the Company will
purchase 50% of the equity interests of HNS LLC for $50.0 million in cash and
300,000 shares of the Company's common stock. Following this purchase, the
Company will serve as the managing member of HNS LLC. Closing of the Company's
purchase is subject to HNS LLC completing the issuance of the senior notes,
regulatory approvals and other customary closing conditions.

     As of December 31, 2004, the Company has incurred approximately $5.0
million in transaction costs, including legal, accounting and other costs
directly related to the transaction. These costs are included in deferred
transaction costs on the accompanying consolidated balance sheets. If the
transaction closes as expected in April 2004, these costs will be paid by HNS
LLC. However, if the transaction does not close, the Company expects to
negotiate a discount on such amounts owed.

     (b) Interest in Electronic System Products

     On August 25, 2003, for nominal consideration, the Company acquired all
of the outstanding common stock of ESP, a product development and engineering
services firm that has historically created products for and provided
consulting and engineering services to the telecommunications, broadband,
satellite communications, and wireless industries. ESP is currently focused on
exploiting its existing intellectual property portfolio. 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%. In
October 2004, ESP repurchased shares of its common stock from terminated
employees for an aggregate of approximately $2,000, raising the Company's
ownership to approximately 78%.

     The following table summarizes the estimated fair value of the
identifiable assets acquired and liabilities assumed at the date of
acquisition:

                                                 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>

     (c) Interest in AfriHUB

     On April 19, 2004, the Company signed an agreement to acquire 80% of the
outstanding membership interests of AfriHUB for an aggregate purchase price of
$1.5 million in cash. AfriHUB planned to provide instructor led and distance
based technical training and satellite based broadband Internet access and
domestic and international calling services through exclusive partnerships with
certain Nigerian based universities. While establishing centers which provide
these services on two university campuses during the fourth quarter of 2004,
AfriHUB experienced significant unanticipated delays and costs in opening these
facilities, as well as greater price sensitivity within the university
communities. As a result, AfriHUB has suspended its planned roll out of service
to additional campuses and is actively pursuing other opportunities to provide
technical training in the Nigerian market.

     In connection with the allocation of the purchase price to the fair value
of the identifiable net assets acquired, the Company ascribed approximately
$0.6 million to a significant contract. This intangible asset was being
amortized over the approximate five-year minimum life of the contract, and for
the year ended December 31, 2004, such amortization was approximately $34,000.
As a result of AfriHUB's strategy shift, the Company recognized an impairment
loss of approximately $0.8 million relating to this intangible asset and
certain building improvements (see Note 1(f)).

      In accordance with their employment contracts, certain employees will be
issued warrants to purchase ownership interests of AfriHUB if AfriHUB meets any
five operating and financial milestones. Pursuant to APB Opinion No. 25, the
warrants qualify for variable accounting, as the number of shares to be issued
has not been determined yet. As such, in accordance with FASB Interpretation
No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock
Option or Award Plans," compensation expense equal to the intrinsic value of
the number warrants expected to be issued will be recorded over the service
period, which the Company has determined to be the period through which the
milestone must be achieved. Until the date the milestone is achieved,
compensation expense shall be adjusted for changes (either increases or
decreases) in the fair market value of the underlying units. If circumstances
indicate that a milestone is not expected to be achieved, compensation
contra-expense will be recognized in the period such circumstance occurs. As of
December 31, 2004, the Company determined that two of the five milestones were
not likely to be achieved, and the compensation expense associated with the
warrants underlying these milestones was reversed. For the year ended December
31, 2004, the Company recognized non-cash expense totaling approximately $0.2
million relating to the remaining warrants. The Company will continue
monitoring the likelihood as to whether the remaining three milestones will be
achieved.

     On October 8, 2004, AfriHUB agreed to sell membership interests to an
unaffiliated third party for approximately $0.5 million in cash (see Note
1(p)). As a result of this sale of membership units, the Company's ownership of
AfriHUB's outstanding membership interests decreased to approximately 70%.
Including the effect of the warrants underlying the remaining milestones, the
Company held approximately 62% of the ownership interests of AfriHUB as of
December 31, 2004.

     (d) Interest in Miraxis

     On May 28, 2002, the Company acquired Series B Preferred Shares and a
warrant from Miraxis for approximately $0.4 million, representing an ownership
of approximately 30%. Miraxis is a development stage telecommunications company
that has access to a Ka-band license with which it is striving to provide
satellite based multi-channel, broadband data and video services in North
America. The Company has the right to appoint two of the five directors of the
manager of Miraxis. Additionally, the Company entered into a management support
agreement with Miraxis under which the Company's current Chief Executive
Officer and President provided certain services to Miraxis through February
2003 in exchange for additional Series B Preferred Shares and warrants being
issued to the Company. In addition, on December 20, 2002, the Company acquired
Series C Preferred Shares and warrants from Miraxis for approximately $0.1
million.

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

     In April 2003, the Company acquired additional Series C Preferred Shares
and warrants for approximately $40,000. Between June 2003 and September 2003,
the Company purchased promissory notes from Miraxis with an aggregate principal
amount of approximately $0.1 million. In November 2003, the promissory notes
were converted to Series D Preferred Shares. During 2004, the Company purchased
additional promissory notes with an aggregate principal balance of
approximately $0.1 million. As of December 31, 2004, the Company held
approximately 40% of the ownership interests of Miraxis. The Company's
President and Chief Executive Officer currently holds an approximate 1%
interest in Miraxis.

     In accordance with FIN No. 46R, beginning January 1, 2004, the operating
results and financial position of Miraxis have been included in the consolidated
financial statements. Prior to January 1, 2004, this investment was included in
investments in affiliates on the accompanying consolidated balance sheets and
was accounted for under the equity method with the Company's share of Miraxis'
loss being recorded in equity in loss and loss on investments in affiliates on
the accompanying consolidated statements of operations. The consolidation of
Miraxis did not have a material impact on the Company's operating results or
financial position.

     (e) Interest in Navigauge

     On April 21, 2003, the Company acquired Series B Preferred Shares from
Navigauge, formerly known as IQStat, for approximately $0.3 million,
representing an ownership interest of approximately 5%. Navigauge is a
privately held media and marketing research firm that collects data on in-car
radio usage and driving habits of consumers and markets the aggregate data to
radio broadcasters, advertisers and advertising agencies in the United States.

     In connection with the acquisition of ESP in August 2003, the Company
obtained indirect ownership of Series A Preferred Shares representing an
additional 16% ownership interest in Navigauge. In December 2003, the Company
acquired additional Series B Preferred Shares and warrants for approximately
$0.1 million. From January 2004 through April 2004, the Company acquired
additional Series B Preferred Shares and warrants from Navigauge for
approximately $0.5 million. Furthermore, from April 2004 through June 2004, the
Company purchased short-term promissory notes from Navigauge with an aggregate
principal amount of approximately $0.4 million.

     On June 14, 2004, Navigauge completed a recapitalization in which all
outstanding Series A Preferred Shares and Series B Preferred Shares were
converted to new Series A Preferred Shares with substantially similar rights as
the old Series B Preferred Shares. Following the exchange, the Company
converted the outstanding short-term promissory notes into new Series A
Preferred Shares and purchased additional Series A Preferred Shares for
approximately $0.4 million. The Company also obtained direct ownership of the
old Series A Preferred Shares held by ESP in exchange for the forgiveness of
intercompany promissory notes.

     On August 16, 2004, the Company purchased additional Series A Preferred
Shares for approximately $0.2 million. Furthermore, from October 2004 through
December 2004, the Company purchased short-term promissory notes from Navigauge
with an aggregate principal amount of $0.5 million. As of December 31, 2004,
the Company owned approximately 39% of the outstanding equity of Navigauge on
an undiluted basis.

     Although Navigauge is a variable interest entity as defined by FIN 46R, the
Company is not the primary beneficiary. Accordingly, 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 equity in loss and loss on investments in
affiliates on the accompanying consolidated statements of operations.

     (f) Verestar Transactions

     On August 29, 2003, the Company signed a securities purchase agreement to
acquire, through a newly formed subsidiary, approximately 67% (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.

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

     In connection with the Verestar bankruptcy, the Company entered into a
stipulation with Verestar pursuant to which the parties agreed to, among other
things, the validity and enforcement of the obligation under the senior secured
note and the Company's security interest in Verestar's assets. On April 30,
2004, Verestar paid the Company approximately $2.9 million representing the
$2.5 million outstanding principal amount of the senior secured note and
approximately $0.4 million as a break-up fee in connection with the termination
of the March 2004 asset purchase agreement.

     On July 9, 2004, the Company settled its dispute with Verestar's parent
company regarding the break-up fee in connection with the termination of the
August 2003 securities purchase agreement. As consideration for the settlement,
Verestar's parent company paid the Company $1.5 million. This amount is
included in other income (expense), net on the accompanying consolidated
statements of operations.

     On July 29, 2004, the Company entered into a stipulated settlement with
Verestar and its Creditor Committee pursuant to which Verestar agreed to pay
the Company approximately $0.4 million representing certain amounts owed,
including unpaid accrued interest, in connection with the senior secured note.
On August 13, 2004, the Bankruptcy Court approved the stipulated settlement.
This settlement amount is included in interest income, net on the accompanying
consolidated statements of operations.

(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 had any obligation to the other party with
respect to the merger, 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 income (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. The New Motient
Note was due on May 1, 2005 and yielded interest at a rate of 9% per annum. As
a result of the uncertainty with respect to the ultimate collection on the
remaining amounts due on the New Motient Note, a reserve was maintained for the
entire principal amount of the note and unpaid interest accrued thereon.

     On April 7, 2004, as a result of a payment received by Motient pursuant
to a promissory note from the MSV Joint Venture, Motient paid the Company
approximately $0.5 million of interest accrued on the New Motient Note.
Following several financings by Motient, on July 15, 2004, Motient paid the
Company approximately $22.6 million representing all outstanding principal and
accrued interest due on the New Motient Note. Accordingly, the reserve was
adjusted resulting in the recognition of $23.1 million of income which is
reflected in the accompanying consolidated statements of operations as $19.0
million in other income (expense), net and $4.1 million in interest income,
net.

 (5) Investments in and Advances to Affiliates

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

                                                    2004              2003
                                                -------------     -------------
                                                        (in thousands)
Cost method investments                               $2,280            $2,250
Equity method investments                              1,081               519
                                                -------------     -------------
                                                      $3,361            $2,769
                                                =============     =============

     For the years ended December 31, 2004, 2003 and 2002, the Company
recognized losses on investments in affiliates of approximately $1.3 million,
$0.4 million and $0.4 million, respectively, consisting primarily of its
proportionate share of affiliates' operating losses for those affiliates
accounted for under the equity method.

     The aggregate carrying value of the Company's cost method investments
totaled approximately $2.3 million as of December 31, 2004. Cost method
investments with an aggregate cost of approximately $1.9 million were not
evaluated for impairment because (i) the Company did not identify any events or
changes in circumstances that may have had a significant adverse effect on the
fair value of those investments and (ii) the Company did not estimate the fair
value of those investments in accordance with SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The Company estimated that the fair value
approximated or exceeded the carrying amount of the remaining $0.4 million of
cost method investments.

(6)  Sale of 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 income (expense), net on the accompanying consolidated statements of
operations.

(7)  Short-term Investments

     Short-term investments consisted of the following debt securities:

                                                         December 31,
                                                -------------------------------
                                                    2004              2003
                                                -------------     -------------
                                                        (in thousands)
Auction rate securities                              $36,150            $3,800
Government agencies securities                        19,356            17,995
Municipal bonds                                        4,242                 -
                                                -------------     -------------
                                                     $59,748           $21,795
                                                =============     =============

     The government agencies securities and municipal bonds are classified as
held to maturity. The amortized cost of these securities approximated fair
value as of December 31, 2004 and 2003. Auction rate securities are classified
as available for sale. As of December 31, 2004 and 2003, there were no
unrealized gains or losses associated with these investments and the adjusted
fair market value equaled the adjusted costs. Auction rate securities, which
were previously recorded in cash and cash equivalents due to their liquidity
and pricing reset feature, have been included as short-term investments in the
accompanying consolidated balance sheets. Prior period information was
reclassified to conform to the current year presentation. There was no impact
on the Company's results of operations or cash flow from operations as a result
of the reclassification (see Note 1(c)).

(8)  Property and Equipment

     Property and equipment is stated at cost less accumulated depreciation and
consisted of the following:

                                                         December 31,
                                                -------------------------------
                                                    2004              2003
                                                -------------     -------------
                                                        (in thousands)
Computer equipment and software                         $817              $247
Furniture and fixtures                                    54                29
Machinery and equipment                                   21                 4
Leasehold improvements                                    21                21
                                                -------------     -------------
                                                         913               301
Less accumulated depreciation                           (308)             (244)
                                                -------------     -------------
Property and equipment, net                             $605               $57
                                                =============     =============

     Depreciation expense for the years ended December 31, 2004, 2003 and 2002
was approximately $0.1 million, $28,000 and $0.1 million, respectively. During
the year ended December 31, 2004, $0.2 million of the AfriHUB impairment charge
was allocated to leasehold improvements relating to AfriHUB's two service
centers.

(9)  Accrued Liabilities

     Accrued liabilities consisted of the following:

                                                          December 31,
                                                 -------------------------------
                                                     2004              2003
                                                 -------------     -------------
                                                         (in thousands)
Accrued transaction costs                              $4,647                $-
Accrued restructuring charges                           1,550             1,580
Accrued professional fees                               1,231             1,461
Accrued compensation                                      662               402
Other accrued liabilities                                 191               507
                                                 -------------     -------------
                                                       $8,281            $3,950
                                                 =============     =============

(10)   Stockholders' Equity

     On December 23, 2004, the Company sold 2,000,000 shares of its common
stock for gross proceeds of $36.5 million (net proceeds of $35.1 million) in a
private placement to a group of institutional investors. In connection with
this sale, the Company entered into a registration rights agreement with the
investors requiring that, among other things, the Company register the resale
of the shares. If the Company does not meet certain deadlines between June 30,
2005 and December 31, 2005 with respect to making the registration effective,
then warrants, which were issued to the investors in connection with the
transaction, to purchase up to an additional 600,000 shares of common stock at
an exercise price of $18.25 per share will vest and be exercisable at any time
through December 23, 2009. The number of warrants that vest, if any, will
depend on when the registration statement becomes effective. If the Company
meets the June 30, 2005 deadline and otherwise complies with certain
registration obligations, none of the warrants will vest. As part of the
placement fees incurred in connection with the transaction, the Company also
issued a warrant to purchase 110,000 shares at an exercise price of $18.25 per
share to the placement agent. This warrant is exercisable at any time through
December 23, 2009 and had an estimated fair value of approximately $2.2 million
using the Black-Scholes option valuation model with the following assumptions:
$21.50 price per share on date of grant, an expected life of five years, a risk
free interest rate of 3.6%, volatility of 166% and an annual dividend yield of
0%.

     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
(as defined in Note 11) 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 in July 2002 pursuant to their over subscription privilege.

     Pursuant to an April 2002 investment agreement, the Apollo Stockholders
may exchange shares of non-voting common stock that for an equal number of
shares of common stock if, after giving effect to such exchange, they
collectively will own no more than 29.9% of the outstanding voting power of
the Company. Following the issuance of common stock in the December 2004
private placement, the Apollo Stockholders' voting power declined below 29.9%.
Accordingly, as of December 31, 2004, the Apollo Stockholders may exchange
552,634 shares of non-voting common stock for an equal number of shares of
common stock.

     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, 1,336 shares of the Company's common stock delivered to these
shareholders, included as part of the consideration, remain in escrow at
December 31, 2004, 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, 2004, the Company retired
6,262 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
(the "Series 1-A Warrants"), 1,916,994 Series 2-A Warrants (the "Series 2-A
Warrants"), 744,000 shares of the Company's Series B Preferred Stock (the
"Series B Preferred Stock"), 744,000 Series 1-B Warrants (the "Series 1-B
Warrants") and 10,345,548 Series 2-B Warrants (the "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 July 2002 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.
As a result of the December 2004 private placement, the conversion price of the
Series A Preferred Stock was further adjusted to $62.69 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 was based on a rate of 4.65% per annum and was 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 quarterly in arrears in cash. The first such
payment, for the three months ended September 30, 2004, of approximately $1.4
million was declared by the Company's board of directors and paid on October
14, 2004. The quarterly payment of approximately $1.4 million, for the three
months ended December 31, 2004, was declared and paid on January 13, 2005 and
is reflected in the accompanying consolidated financial statements in the
carrying amount of the Series A Preferred Stock and in net loss attributable to
common stockholders.

     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 warrants 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. Pursuant to the original terms of the Series 1-A warrants, each
warrant was exercisable into 1.35 shares of the Company's common stock, and the
exercise price was dependent on the trading price of the Company's common
stock. The exercise price ranged from $0.10, if the trading price is equal to
or greater than $70.00 per share, to $42.00 if the trading price is equal to or
less than $40.00 per share. Pursuant to their original terms, each Series 2-A
warrant was exercisable into 0.1 share of the Company's common stock at an
exercise price of $70.00.

     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 July 2002 rights offering
to shareholders other than the Apollo Stockholders at a price below the
exercise price of the warrants at the time of the offering, the highest
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 became a range dependent on the trading
price of the Company's common stock. The number of shares issuable upon the
exercise of each Series 1-A warrant ranged from 1.35 shares, if the trading
price is equal to or greater than $70.00 per share to 1.379 shares if the
trading price was less than or equal to $40.00 per share. 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.

     As a result of the December 2004 private placement in which additional
shares of common stock were sold at a price below the exercise price of the
warrants at the time of the placement, the highest exercise price of the Series
1-A warrants was adjusted from $41.12 to $38.48, and the highest number of
shares of the Company's common stock issuable upon the exercise of each Series
1-A warrant was adjusted from 1.379 shares to 1.4737 shares. The exercise price
of the Series 2-A warrants was adjusted from $68.50 to $62.69, and the number
of shares of the Company's common stock issuable upon the exercise of each
Series 2-A warrant was further adjusted to 0.111665 shares.

     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. As of December 31, 2004, the 1,199,007 shares of Series A Preferred
Stock are convertible into 1,912,485 shares of common stock, and the 234,633
Series 1-A warrants and the 9,810,033 Series 2-A warrants are exercisable for
345,776 shares and 1,095,436 shares of common stock, respectively. Assuming all
the Series A securities are either converted or exercised, as of December 31,
2004, the Apollo Stockholders would own approximately 65% of the Company's
outstanding common stock and 36% of the Company's outstanding voting power on a
fully diluted basis.

     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)   Segment Information

     The segment information is reported along the same lines that our chief
operating decision maker reviews the operating results in assessing performance
and allocating resources. Accordingly, the Company's consolidated operations
have been classified into four reportable segments: the MSV Joint Venture, ESP,
AfriHUB and Parent and other. The MSV Joint Venture, which became a reportable
segment following the November 2004 conversion of the notes receivable into
limited partnership interests of the MSV Joint Venture, provides mobile digital
voice and data communications services via satellite. ESP, which became a
reportable segment following the August 2003 acquisition by the Company, is an
engineering services firm with expertise in the design and manufacturing of
electronic products and systems across many disciplines of electrical
engineering. AfriHUB, which became a reportable segment following the April
2004 acquisition by the Company, provides a limited amount of satellite based
Internet access and domestic and international calling services through
exclusive partnerships with certain Nigerian based universities while it
explores opportunities to provide technical training in the Nigerian market.
Parent and other includes the Company, other consolidated entities other than
ESP and AfriHUB and eliminations.

     The following table presents certain financial information on the Company's
reportable segments as of or for the year ended December 31, 2004. Although the
MSV Joint Venture became a reportable segment in November 2004 following the
conversion of the notes receivable, the MSV Joint Venture column represents the
results of operations for the full year ended December 31, 2004. Since our 23%
share of the results MSV Joint Venture's operations for the period following the
conversion is already included in the Parent and Other column, the MSV Joint
Venture Elimination column removes the full year results of the MSV Joint
Venture shown in the MSV Joint Venture column.

<TABLE>
<CAPTION>
                                                                                                   Eliminate
                                      MSV Joint                                    Parent and      MSV Joint
                                       Venture          ESP          AfriHUB         Other          Venture      Consolidated
                                     ------------    -----------    -----------    -----------    -----------    -------------
                                                                          (in thousands)
<S>                                      <C>             <C>               <C>             <C>     <C>                 <C>
Revenues                                 $29,007         $2,117            $10             $-       $(29,007)          $2,127
Operating expenses                       (57,699)        (2,932)        (2,475)        (8,575)        57,699          (13,982)
                                     ------------    -----------    -----------    -----------    -----------    -------------
Loss from operations                     (28,692)          (815)        (2,465)        (8,575)        28,692          (11,855)
Interest (expense) income, net            (8,112)           (56)            (7)        10,611          8,112           10,548
Equity in loss of Mobile Satellite
Ventures LP                                    -              -              -         (1,020)             -           (1,020)
Equity in loss and loss on
  investments in affiliates                 (275)          (164)             -         (1,172)           275           (1,336)
Other income (expense), net                3,624            866             15         20,164         (3,624)          21,045
Minority interest                              -              -            594           (810)             -             (216)
                                     ------------    -----------    -----------    -----------    -----------    -------------
Net (loss) income before taxes
   and discontinued operations          $(33,455)         $(169)       $(1,863)       $19,198        $33,455          $17,166
                                     ============    ===========    ===========    ===========    ===========    =============

Total assets                            $246,223           $268           $646       $153,656      $(246,223)        $154,570
                                     ============    ===========    ===========    ===========    ===========    =============
</TABLE>

     The following table presents certain financial information on the
Company's reportable segments as of or for the year ended December 31, 2003:

<TABLE>
<CAPTION>
                                                                       Parent
                                                         ESP         and Other      Consolidated
                                                      -----------    -----------    -------------
<S>                                                         <C>              <C>            <C>
Revenues                                                    $699             $-             $699
Operating expenses                                        (1,412)        (6,234)          (7,646)
                                                      -----------    -----------    -------------
Loss from operations                                        (713)        (6,234)          (6,947)
Interest (expense) income, net                               (11)         6,315            6,304
Loss on investments in affiliates                           (112)          (292)            (404)
Equity in loss and other income (expense), net                24            220              244
Minority interest                                              -         (1,126)          (1,126)
                                                      -----------    -----------    -------------
Net loss before taxes and discontinued operations          $(812)       $(1,117)         $(1,929)
                                                      ===========    ===========    =============

Total assets                                                $555        $97,544          $98,099
                                                      ===========    ===========    =============
</TABLE>

     For the year ended December 31, 2002, the Company operated in only the
Parent and other segment. As of December 31, 2004 and 2003, all of the
Company's long-lived assets were located in the United States, excluding $0.5
million located in Nigeria as of December 31, 2004.

(13)   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. As of December 31, 2004 and 2003, the
remaining assets of Rare Medium, Inc. and LiveMarket totaled approximately
$15,000 and $0.1 million, respectively, consisting of cash (excluding the $0.3
million of cash collateralizing a letter of credit) and other assets. As of
December 31, 2004 and 2003, the liabilities of these subsidiaries totaled
approximately $2.3 million and $2.4 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 $3.7 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, 2004 and 2003, the Company
recognized a gain of approximately nil and $1.2 million, respectively, as a
result of the settlement of Rare Medium, Inc. liabilities at amounts less than
their recorded amounts.

     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.

 (14)  Stock-based 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, but
no new grants are being made under this plan. 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, 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 was permitted to be greater or less than the fair market value of the
common stock as of the date of the grant, and the options were 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.

     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, 2004 and 2003
of approximately $2.8 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:

                                                 Weighted
                                                  Average
                                                 Exercise           Number of
                                                  Prices             Shares
                                               --------------    --------------
Outstanding at January 1, 2002                        $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
     Granted                                            3.35           220,000
     Forfeited                                         62.01           (28,081)
     Exercised                                          0.88          (321,966)
                                                                 --------------
Outstanding at December 31, 2004                       $8.40           986,760
                                                                 ==============

     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, 2004           Life          Price          31, 2004         Price
-------------------------    --------------     ----------    ----------    ---------------    ---------
<S>  <C>                           <C>            <C>             <C>              <C>            <C>
     $0.85 - $0.85                 310,000        7.22            $0.85            231,670        $0.85
     $0.91 - $1.55                 232,500        8.25            $1.02             75,836        $1.04
     $1.80 - $4.50                 205,000        8.95            $2.53             25,000        $1.80
     $6.00 - $51.10                229,910        4.66           $27.82            189,910       $32.29
    $72.50 - $95.00                  9,350        4.50           $93.56              9,350       $93.56
                             --------------                                 ---------------
                                   986,760        7.20            $8.40            531,766       $13.78
                             ==============                                 ===============
</TABLE>

(15)   Income Taxes

     The difference between the statutory federal income tax rate and the
Company's effective tax rate for the years ended December 31, 2004 and 2003 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 $210.0 million expiring in 2008 through
2024, including various foreign subsidiaries, and a capital loss of
approximately $85.5 million expiring in 2006 through 2009. As a result of
various equity transactions, the Company may have experienced at least one
"ownership change" as defined by Section 382 of the Internal Revenue Code
("Section 382") since 1999. If the Company has experienced an ownership change
as defined by Section 382, then 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 are as follows:

                                                           December 31,
                                                    ----------------------------
                                                      2004             2003
                                                    -----------    -------------
                                                           (in thousands)
Deferred tax assets:
   Net operating loss carryforwards                    $79,804          $76,487
   Capital loss carryforwards                           32,475           29,900
   Impairment loss on investments in affiliates          9,639           11,455
   Reserve for notes receivable from Motient                 -            8,366
   Other assets                                          1,035              605
                                                    -----------    -------------
     Total gross deferred tax assets                   122,953          126,813
Less valuation allowance                              (122,953)        (126,813)
                                                    -----------    -------------
     Total deferred tax assets                              $-               $-
                                                    ===========    =============

     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 the year ended
December 31, 2004, the valuation allowance decreased by approximately $3.9
million, and during the year ended December 31, 2003, the valuation allowance
increased by approximately $4.0 million. Of the total valuation allowance of
$123.0 million, subsequently recognized tax benefits, if any, in the amount of
approximately $7.4 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.

 (16)  Related Party Transactions

     During the year ended December 31, 2004 and from the August 25, 2003
acquisition through December 31, 2003, ESP recognized revenues totaling
approximately $0.6 million and $0.3 million, respectively, for certain services
provided to Navigauge and the MSV Joint Venture.

     In May 2002, the Company acquired ownership interests in Miraxis (see Note
3(d)). 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 ("MLH"), an entity unaffiliated with
Miraxis, other than as described herein, holds the rights to certain orbital
slots, one of which Miraxis has the ability to use so long as it implements its
business plan. Miraxis issued 10% of its outstanding common equity on a fully
diluted basis to MLH as partial consideration for access to that slot. In
addition, Miraxis expects to pay certain royalties to MLH for use of the slot
should it ever launch satellites. Prior to becoming affiliated with the
Company, its Chief Executive Officer and President acquired a 2% interest in
MLH. In addition, prior to the Company acquiring an interest in Miraxis, an
affiliate of the Company's preferred stockholders acquired an approximate 70%
interest in MLH.

     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.

     From time to time, the Company designates certain of its directors and
officers to serve on the Board of Directors of an affiliate, including the MSV
Joint Venture and TerreStar. To the extent such affiliate grants or has granted
options to members of its Board of Directors, the Company designees on such
Board receives similar grants for their service.

(17)   Contingencies and Commitments

   Leases

     The Company has non-cancelable operating 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, 2004 (in thousands):

Year Ending December 31:
   2005                                                        $1,340
   2006                                                            27
   2007                                                             -
   2008                                                             -
   2009                                                             -
   Thereafter                                                       -
                                                        --------------
   Total minimum lease payments                                $1,367
                                                        ==============

     Of the total commitment, approximately $0.2 million in 2005 and $27,000 in
2006 relate to leases for the Company's continuing operations. Also included in
the total commitment is approximately $0.8 million, net of secured letters of
credit, which is guaranteed by the Company (see Note 13). Excluded from total
commitments is $1.8 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. Rare Medium, Inc. is
holding funds in a certificate of deposit which is maintained under an
agreement to assure future credit availability relating to one of these leases.
As of December 31, 2004 and 2003, these restricted funds amounted to
approximately $0.3 million which is included in cash and cash equivalents.

     Total expense under operating leases amounted to $0.3 million, $0.2
million and $0.1 million for 2004, 2003 and 2002, respectively.

   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 target 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 employment agreements with two of its other
executive officers. Under one 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
through the option expiration date for such options. The other agreement
provides that the executive is entitled to a lump sum payment consisting of six
months of his then current salary if his terminated for other than "for cause,"
as such term is defined in his agreement.

   Litigation

     On November 19, 2001, five of the Company's former shareholders filed a
complaint against the Company, certain of its subsidiaries and certain of the
then 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
sought 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 the amended complaint. On March 7,
2003, the Court denied the motion to dismiss, and discovery commenced.
Following the completion of discovery, the Company filed a motion for summary
judgment on July 30, 2004. Plaintiffs opposed the motion (the "Plaintiffs'
Opposition"), and the Company responded.

     On September 14, 2004 and again on November 1, 2004, the Company notified
the plaintiffs that, upon a final adjudication of the matter, it intended to
seek sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure,
based upon what were believed to be numerous falsehoods contained in the
plaintiffs' complaint and various other filings in the case, including the
Plaintiffs' Opposition. In response, on November 12, 2004, the plaintiffs
withdrew certain of the assertions contained in Plaintiffs' Opposition. The
Company then filed the motion for sanctions (the "Sanctions Motion") against
the plaintiffs seeking attorney's fees and expenses incurred in connection with
the action. The plaintiffs opposed the sanctions motion on December 17, 2004
and the Company replied. On January 13, 2005, the case was dismissed by the
Court with prejudice, subject to reinstatement by either party within 30 days
of the order, in light of an agreement in principle to resolve the matter. On
February 11, 2005, the parties executed a settlement agreement pursuant to
which all parties denied liability relating to all matters, including but not
limited to the original complaint and the Sanctions Motion, exchanged mutual
releases, and the Company agreed to transfer to the plaintiffs an indirect
nominal interest in a former subsidiary of the Company. The Company did not
recognize a charge in connection with this settlement as the interest in the
former subsidiary had no carrying value on the accompanying consolidated
balance sheets.

     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.

     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. The 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 the plaintiff must arbitrate his
individual claims. In February 2005, the Company and Rare Medium, Inc. reached
an agreement in principle with the plaintiff pursuant to which the class
action will be dismissed without prejudice. As part of the agreement, the
Company and Rare Medium, Inc. will receive releases from certain individuals
and the certain individuals will each receive an immaterial settlement
payment. Should the settlement agreement not be finalized, the Company and
Rare Medium, Inc. intend to vigorously dispute this action.

     Though it intends to continue to vigorously contest each of the
aforementioned cases to the extent not settled, 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.

(18)   Subsequent Events

     The terms of the Company's Series A convertible preferred stock provide
for dividends of 4.65% of the then current face value to be paid quarterly in
arrears. The payment of approximately $1.4 million, for the three months ended
December 31, 2004, was declared by the Company's board of directors and paid on
January 13, 2005 and is reflected in the accompanying consolidated financial
statements in the carrying amount of the Series A Preferred Stock and in net
loss attributable to common stockholders.

<PAGE>


                                                                   Exhibit 99.1


                          INDEPENDENT AUDITORS' REPORT


General Partner and Unit Holders
Mobile Satellite Ventures LP

We have audited the accompanying consolidated balance sheets of Mobile
Satellite Ventures LP (a Delaware limited partnership) and subsidiaries
(collectively, the Company) as of December 31, 2003 and 2004, and the related
consolidated statements of operations, partners' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mobile Satellite
Ventures LP and subsidiaries at December 31, 2003 and 2004, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States.


/s/ Ernst & Young

February 18, 2005
McLean, Virginia

<PAGE>

<TABLE>
<CAPTION>

                                      MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
                                               CONSOLIDATED BALANCE SHEETS

                                                                                              December 31,
                                                                                   ------------------------------------
                                                                                        2003                2004
                                                                                   ---------------     ----------------
                                     Assets

<S>                                                                                  <C>                   <C>

Current assets:
   Cash and cash equivalents                                                           $3,981,625         $130,077,509
   Restricted cash                                                                         74,246            5,075,974
   Accounts receivable, net of allowance of $71,687 and $69,908
     as of December 31, 2003 and 2004, respectively                                     4,156,416            3,343,769
   Inventory                                                                            1,406,604              698,279
   Prepaid expenses and other current assets                                            1,058,942              782,761
                                                                                   ---------------     ----------------
     Total current assets                                                              10,677,833          139,978,292
                                                                                   ---------------     ----------------

Property and equipment, net                                                            23,598,573           16,458,416
Intangible assets, net                                                                 80,673,205           71,706,319
Goodwill                                                                               15,784,572           16,495,324
Other assets                                                                               84,779            1,584,779
                                                                                   ---------------     ----------------
     Total assets                                                                    $130,818,962         $246,223,130
                                                                                   ===============     ================

          Liabilities, Minority Interest and Partners' Equity (Deficit)
Current liabilities:
   Accounts payable and accrued expenses                                               $4,246,544           $6,619,064
   Vendor note payable, current portion                                                   127,211              205,846
   Deferred revenue, current portion                                                    5,887,381            4,882,189
   Other current liabilities                                                              110,766               64,979
                                                                                   ---------------     ----------------
     Total current liabilities                                                         10,371,902           11,772,078

Deferred revenue, net of current portion                                               20,865,511           20,690,599
Accrued interest, net of current portion                                               16,725,057                    -
Vendor note payable, net of current portion                                               915,785              695,714
Notes payable to investors                                                             82,924,667                    -
                                                                                   ---------------     ----------------
     Total liabilities                                                                131,802,922           33,158,391
                                                                                   ---------------     ----------------

Commitments and contingencies
Minority interest                                                                               -              100,723

Partners' equity (deficit):
   MSV general partner                                                                          -                    -
   MSV limited partners                                                                (1,041,013)         217,643,300
   Deferred compensation                                                                        -           (4,185,223)
   Accumulated other comprehensive income (loss)                                           57,053             (494,061)
                                                                                   ---------------     ----------------
     Total partners' equity (deficit)                                                    (983,960)         212,964,016
                                                                                   ---------------     ----------------
       Total liabilities, minority interest and partners' equity (deficit)           $130,818,962         $246,223,130
                                                                                   ===============     ================


                                                  See accompanying notes.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                      MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                               Year Ended December 31,
                                                                -------------------------------------------------------
                                                                     2002                2003                2004
                                                                ----------------    ---------------     ---------------

<S>                                                                <C>                  <C>               <C>

Revenues:
   Services and related revenues                                    $24,389,482        $25,536,096         $26,664,328
   Equipment sales and other revenues                                   464,833          1,588,294           2,342,592
                                                                ----------------    ---------------     ---------------
Total revenues                                                       24,854,315         27,124,390          29,006,920
                                                                ----------------    ---------------     ---------------

Operating expenses:
   Satellite operations and cost of services                         11,477,095         10,781,525          10,855,071
   Satellite capacity purchased from MSV Canada                       4,647,224          4,858,305           5,768,970
   Next-generation research and development expenditures              3,532,487          4,267,991           8,593,001
   Sales and marketing                                                2,416,050          1,973,381           4,762,461
   General and administrative                                         5,343,643          6,632,172           9,264,436
   Depreciation and amortization                                     18,235,030         17,942,672          18,454,690
                                                                ----------------    ---------------     ---------------
Total operating expenses                                             45,651,529         46,456,046          57,698,629
                                                                ----------------    ---------------     ---------------

Loss from operations                                                (20,797,214)       (19,331,656)        (28,691,709)

Other income (expense):
   Management fee from MSV Canada                                     3,100,847          3,199,974           3,568,013
   Equity in losses of MSV Canada                                      (373,738)        (1,030,119)           (275,000)
   Interest income                                                       55,538             40,355             441,791
   Interest expense                                                  (8,577,407)        (9,616,235)         (8,553,987)
   Write-off of investment in joint venture                                   -         (2,000,000)                  -
   Other income, net                                                    424,490            737,211              55,996
                                                                ----------------    ---------------     ---------------
Net loss                                                           $(26,167,484)      $(28,000,470)       $(33,454,896)
                                                                ================    ===============     ===============


                                      See accompanying notes.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                      MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
                                  FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004


                                                    General Partner              Limited Partners
                                                ------------------------   ------------------------------
                                                Number                      Number of                        Deferred
                                                of Units       Amount         Units           Amount       Compensation
                                                ----------   -----------   ------------   ---------------  -------------
<S>                                               <C>             <C>        <C>              <C>                     <C>
Balance at December 31, 2001                            -            $-     16,642,732       $49,426,941             $-
   Net loss                                             -             -              -       (26,167,484)             -
   Translation adjustment                               -             -              -                 -              -
                                                ----------   -----------   ------------   ---------------  -------------
Balance, year ended December 31, 2002                   -             -     16,642,732        23,259,457              -
Total, December 31, 2002

   Issuance of MSV Class A Preferred Units              -             -        573,951         3,700,000              -
   Net loss                                             -             -              -       (28,000,470)             -
   Change in market value of derivative
    instruments                                         -             -              -                 -              -
   Translation adjustment                               -             -              -                 -              -
                                                ----------   -----------   ------------   ---------------  -------------
Balance, year ended December 31, 2003                   -             -     17,216,683       (1,041,013)              -
Total, December 31, 2003

   Issuance of MSV Class A Preferred Units              -             -      2,735,317        17,633,333              -
   Conversion of Notes                                  -             -      9,911,234        84,922,011              -
   Issuance of MSV Common Units                         -             -      4,923,599       145,000,000              -
   Issuance of stock options                            -             -              -         4,680,376     (4,680,376)
   Amortization of deferred compensation                -             -              -                 -        495,153
   Distribution of warrant in subsidiary                -             -              -           (96,511)             -
   Net loss                                             -             -              -       (33,454,896)             -
   Change in market value of derivative
    instruments                                         -             -              -                 -              -
   Translation adjustment                               -             -              -                 -              -
                                                ----------   -----------   ------------   ---------------  -------------
Balance, year ended December 31, 2004                   -            $-     34,786,833      $217,643,300    $(4,185,223)
                                                ==========   ===========   ============   ===============  =============
Total, December 31, 2004


[TABLE CONTINUED)
<CAPTION>

                                                Accumulated        Total
                                                   Other         Partners'
                                               Comprehensive       Equity         Comprehensive
                                                  Income         (Deficit)            Loss
                                               --------------  ---------------   ---------------
<S>                                                   <C>       <C>               <C>
Balance at December 31, 2001                              $-    $  49,426,941
   Net loss                                                -      (26,167,484)     $(26,167,484)
   Translation adjustment                              6,867            6,867             6,867
                                               --------------  ---------------   ---------------
Balance, year ended December 31, 2002                  6,867       23,266,324
Total, December 31, 2002                                                          $ (26,160,617)
                                                                                 ===============
   Issuance of MSV Class A Preferred Units                 -        3,700,000
   Net loss                                                -      (28,000,470)    $ (28,000,470)
   Change in market value of derivative
    instruments                                       81,712           81,712            81,712
   Translation adjustment                            (31,526)         (31,526)          (31,526)
                                               --------------  ---------------   ---------------
Balance, year ended December 31, 2003                 57,053         (983,960)
Total, December 31, 2003                                                          $ (27,950,284)
                                                                                 ===============
   Issuance of MSV Class A Preferred Units                 -       17,633,333
   Conversion of Notes                                     -       84,922,011
   Issuance of MSV Common Units                            -      145,000,000
   Issuance of stock options                               -                -
   Amortization of deferred compensation                   -          495,153
   Distribution of warrant in subsidiary                   -          (96,511)
   Net loss                                                -      (33,454,896)     $(33,454,896)
   Change in market value of derivative
    instruments                                      (45,407)         (45,407)          (45,407)
   Translation adjustment                           (505,707)        (505,707)         (505,707)
                                               --------------  ---------------   ---------------
Balance, year ended December 31, 2004              $(494,061)    $212,964,016
                                               ==============  ===============
Total, December 31, 2004                                                          $ (34,006,010)
                                                                                 ===============


                                          See accompanying notes.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                      MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                  Year Ended December 31,
                                                                    -----------------------------------------------------
                                                                         2002               2003              2004
                                                                    ---------------    ---------------   ----------------
<S>                                                                   <C>                <C>               <C>
Operating activities
Net loss                                                              $(26,167,484)      $(28,000,470)      $(33,454,896)
Adjustments to reconcile net loss to net cash provided by (used
 in) operating activities:
   Depreciation and amortization                                        18,235,030         17,942,672         18,454,690
   Equity in losses of MSV Canada                                          373,738          1,030,119            275,000
   Write-off of investment in joint venture                                      -          2,000,000                  -
   Amortization of deferred compensation                                         -                  -            495,153
   Changes in operating assets and liabilities:
      Restricted cash                                                    3,355,184            578,614         (5,001,728)
      Accounts receivable                                                  471,009         (1,061,933)           916,694
      Inventory                                                            811,197            711,979            708,325
      Prepaid expenses and other current assets                           (353,808)          (941,512)           336,164
      Accounts payable and accrued expenses                              1,076,582            290,671          2,451,337
      Other current liabilities                                         (4,138,827)          (751,514)          (119,672)
      Accrued interest                                                   8,571,854          7,384,721        (12,589,396)
      Deferred revenue                                                     723,136          1,274,075         (2,677,326)
                                                                    ---------------    ---------------   ----------------
Net cash provided by (used in) operating activities                      2,957,611            457,422        (30,205,655)
                                                                    ---------------    ---------------   ----------------

Investing activities
Purchase of Motient Satellite business, net of cash acquired            (2,200,000)        (2,200,000)                 -
Purchase of property and equipment                                        (840,328)        (1,316,512)        (1,899,224)
Purchase of option to form joint venture                                (1,000,000)        (1,000,000)                 -
Purchase of intangible assets and other assets                                   -                  -         (2,000,000)
                                                                    ---------------    ---------------   ----------------
Net cash used in investing activities                                   (4,040,328)        (4,516,512)        (3,899,224)
                                                                    ---------------    ---------------   ----------------

Financing activities
Proceeds from issuance of Class A Preferred Units                                -          3,700,000         17,633,333
Proceeds from issuance of Common Units                                           -                  -        145,000,000
Principal payments on notes payable                                              -         (1,575,333)        (2,370,583)
Proceeds from issuance of notes payable to investors                     3,000,000                  -                  -
Proceeds from exercise of stock option in subsidiary                             -                  -              4,261
                                                                    ---------------    ---------------   ----------------
Net cash provided by financing activities                                3,000,000          2,124,667        160,267,011
Effect of exchange rates on cash and cash equivalents                      235,076            134,374            (66,248)
                                                                    ---------------    ---------------   ----------------
Net increase (decrease) in cash and cash equivalents                     2,152,359         (1,800,049)       126,095,884
Cash and cash equivalents, beginning of period                           3,629,315          5,781,674          3,981,625
                                                                    ---------------    ---------------   ----------------
Cash and cash equivalents, end of period                                $5,781,674         $3,981,625       $130,077,509
                                                                    ===============    ===============   ================

Supplemental information:
Cash paid for interest                                                      $5,553         $2,124,667       $ 21,394,806
                                                                    ===============    ===============   ================

Non-cash financing information
Equipment obtained through issuance of notes to vendor                          $-         $1,028,771                 $-
                                                                    ===============    ===============   ================
Conversion of Notes                                                             $-                 $-        $84,922,011
                                                                    ===============    ===============   ================

                                     See accompanying notes.

</TABLE>
<PAGE>


                 MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Organization and Business

Mobile Satellite Venture LP's predecessor company, Motient Satellite Ventures
LLC, was organized as a limited liability company pursuant to the Delaware
Limited Liability Company Act on June 16, 2000 by Motient Corporation
(Motient). On December 19, 2000, Motient Satellite Ventures LLC changed its
name to Mobile Satellite Ventures LLC (MSV LLC). On November 26, 2001, MSV LLC
was converted into a limited partnership, Mobile Satellite Ventures LP (MSV or
the Company), subject to the laws of the state of Delaware. Concurrent with
such conversion, the Company acquired certain assets and liabilities of the
Motient and TMI Communications LP (TMI) satellite businesses. In connection
with its purchase of TMI's satellite business, the Company acquired a 20%
equity interest in Mobile Satellite Ventures (Canada) Inc. (MSV Canada) and
33-1/3% equity interest in Mobile Satellite Ventures Holdings (Canada) Inc.
(MSV Holdings). In February 2002, the Company established TerreStar Networks,
Inc. (TerreStar), a wholly owned subsidiary, to develop business opportunities
related to the planned receipt of certain licenses in the 2 GHz band (see Note
10).

The Company provides mobile satellite and communications services to individual
and corporate customers in the United States and Canada via its own satellite
and leased satellite capacity. The Company's operations are subject to
significant risks and uncertainties including technological, competitive,
financial, operational, and regulatory risks associated with the wireless
communications business. Uncertainties also exist regarding the Company's
ability to raise additional debt and equity financing and the ultimate
profitability of the Company's proposed next-generation wireless system. The
Company will require substantial additional capital resources to construct its
next-generation wireless system.

The Company's current operating assumptions and projections, which reflect
management's best estimate of future revenue and operating expenses, indicate
that anticipated operating expenditures through 2005 can be met by cash flows
from operations and available working capital; however, the Company's ability
to meet its projections is subject to uncertainties, and there can be no
assurance that the Company's current projections will be accurate. If the
Company's cash requirements are more than projected, the Company may require
additional financing. In addition, a wholly owned subsidiary of the Company
entered into a satellite construction contract (see Note 10) during 2002 and
assumed certain obligations under another system development contract in 2004
(see Note 3) that may require the Company to obtain additional funding to
finance the required payments unless one or both of the contracts are either
amended or terminated by the Company prior to certain payment due dates. The
Company is not planning to terminate the contracts, and there can be no
assurance that the Company will be able to enter into amendments that will
defer payments in a manner consistent with the Company's next-generation
business plans. The type, timing, and terms of financing, if required, selected
by the Company will be dependent upon the Company's cash needs, the
availability of financing sources, and the prevailing conditions in the
financial markets. There can be no assurance that such financing will be
available to the Company at any given time or available on favorable terms.

2.       Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries prepared in accordance with accounting principles
generally accepted in the United States. All significant intercompany accounts
are eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates affecting the consolidated
financial statements include management's judgments regarding the allowance for
doubtful accounts, reserves for inventory, future cash flows expected from
long-lived assets, and accrued expenses for probable losses. Actual results
could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include investments such as money market accounts
with an original maturity of three months or less.

Restricted Cash

In connection with the purchase of the Motient satellite business, the Company
retained a portion of the purchase price, which was restricted to pay Motient's
rent obligation to the Company for the lease of office space in the Company's
headquarters and to ensure the provision of certain services to the Company by
Motient under a transition services agreement. During the year ended December
31, 2002, the agreement was amended, $1,104,708 was released to Motient, and
$336,060 was released to MSV. During 2003, $530,742 was used to satisfy
Motient's obligations under its sublease with the Company, and $50,708 was
remitted to Motient for services provided to MSV. As of December 31, 2003 and
2004 the restricted cash balance for this purpose was $74,246 and $74,823
respectively.

In September 2004, the Company entered into an escrow agreement to provide for
payments under TerreStar's satellite construction contract (see Note 10). As of
December 31, 2004, the amount in escrow was $5.0 million. If TerreStar
terminates the satellite construction contract, the escrow funds may be
returned to the TerreStar, subject to the termination liability under the
contract. The cash in escrow as of December 31, 2004 is reflected as restricted
cash on the accompanying consolidated balance sheet.

Inventory

Inventories consist of finished goods that are communication devices and are
stated at the lower of cost or market, average cost method. The Company
periodically assesses the market value of its inventory, based on sales trends
and forecasts and technological changes, and records a charge to current-period
income when such factors indicate that a reduction in net realizable value is
appropriate.

Property and Equipment

Property and equipment acquired in business combinations are recorded at their
estimated fair value on the date of acquisition. Purchases of property and
equipment are recorded at cost. Depreciation is computed using the
straight-line method over estimated useful lives, ranging from three to five
years. Leasehold improvements are amortized over the shorter of the estimated
useful life of the asset or the remaining lease term.

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived assets including property and equipment and intangible
assets other than goodwill, whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable.
To determine the recoverability of its long-lived assets, the Company evaluates
the probability that future estimated undiscounted net cash flows will be less
than the carrying amount of the assets. If such estimated cash flows are less
than the carrying amount of the long-lived assets, then such assets are written
down to their fair value. No impairment charges were recorded in the years
ended December 31, 2002, 2003, or 2004. The Company's estimates of anticipated
cash flows and the remaining estimated useful lives of long-lived assets could
be reduced significantly in the future. As a result, the carrying amount of
long-lived assets may be reduced in the future.

Goodwill

SFAS No. 142, Goodwill and Other Intangible Assets, requires the use of a
non-amortization approach to account for purchased goodwill. Under a
non-amortization approach, goodwill is not amortized into results of
operations, but instead is reviewed for impairment and written down and charged
to results of operations only in the periods in which the recorded value of
goodwill is determined to be more than its estimated fair value. The Company
performs its annual impairment test on December 31 or when certain triggering
events occur. No impairment charges were recorded in the years ended December
31, 2002, 2003, or 2004.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintained cash balances at financial institutions that
exceeded federally insured limits as of December 31, 2004. The Company
maintains its cash and cash equivalents at high-credit-quality institutions,
and as a result, management believes that credit risk related to its cash is
not significant.

The Company generally grants credit to customers on an unsecured basis. The
Company performs ongoing evaluations of probability of collection of amounts
owed to the Company. The Company records an allowance for doubtful accounts
equal to the amount estimated to be potentially uncollectible.

The Company's significant customers, as measured by percentage of total
revenues, were as follows:

                                       Year Ended December 31,
                           ------------------------------------------------
                               2002             2003              2004
                           -------------    --------------    -------------

Customer A                     13%               12%               *
Customer B                     13%                *                *
Customer C                      *                11%               *
Customer D                      *                13%              14%

The Company's significant customers, as measured by percentage of total
accounts receivable, were as follows:

                                               December 31,
                                      -------------------------------
                                          2003             2004
                                      -------------    --------------

Customer C                                 *                12%
Customer D                                 *                12%
Customer E                                14%                *
Customer F                                12%               11%

     *  Customer did not represent more than 10% for the period presented.

Fair Value of Financial Instruments

SFAS No. 107, Disclosure about Fair Value of Financial Instruments, requires
disclosures regarding the fair value of certain financial instruments. The
carrying amount of the Company's cash and cash equivalents, restricted cash,
accounts receivables, and accounts payable, accrued expenses approximates their
fair value because of the short-term maturity of these instruments. The Company
estimated the fair value of its notes payable using estimated market prices
based upon the current interest rate environment and the remaining term to
maturity. The Company believes the fair value of these liabilities approximates
their carrying value.

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans using the fair value method. The Company has chosen to
account for employee stock-based compensation using the intrinsic value method
as prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and its related interpretations.

The following illustrates the effect on net loss if the Company had applied the
fair value method of SFAS No. 123:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                ----------------------------------------------------
                                                                     2002              2003               2004
                                                                ---------------    --------------    ---------------
<S>                                                              <C>               <C>                <C>

Net loss, as reported                                            $(26,167,484)     $(28,000,470)      $(33,454,896)
Add stock-based employee compensation included in reported
  net loss                                                                  -                 -            495,153
Additional stock-based employee compensation expense
  determined under fair value method                                 (621,148)       (1,080,385)        (1,952,382)
                                                                ---------------    --------------    ---------------
Pro forma net loss                                               $(26,788,632)     $(29,080,855)      $(34,912,125)
                                                                ===============    ==============    ===============
</TABLE>

In accordance with SFAS No. 123, the fair value of the options granted was
estimated at the grant date using an option-pricing model with the following
weighted-average assumptions: risk-free interest rates ranging from 2.7% to
4.6%, no dividends, expected life of the options of five years, and no
volatility.

Income Taxes

As a limited partnership, the Company is not subject to income tax directly.
Rather, each unit holder is subject to income taxation based on the unit
holder's portion of the Company's income or loss as defined in the limited
partnership agreement.

Revenue Recognition

The Company generates revenue primarily through the sale of wireless airtime
service and equipment. The Company recognizes revenue when the services are
performed or delivery has occurred, evidence of an arrangement exists, the fee
is fixed and determinable, and collectibility is probable. The Company receives
activation fees related to initial registration for retail customers. Revenue
from activation fees is deferred and recognized ratably over the customer's
contractual service period, generally one year. The Company records equipment
sales upon transfer of title and accordingly recognizes revenue upon shipment
to the customer.

Derivatives

The Company accounts for derivatives in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, which
requires the recognition of all derivatives as either assets or liabilities
measured at fair value with changes in fair value of derivatives other than
hedges reflected as current-period income (loss) unless the derivatives qualify
as hedges of future cash flows. For derivatives qualifying as hedges of future
cash flows, the effective portion of changes in fair value is recorded
temporarily in equity and then recognized in earnings along with the related
effects of the hedged items. Any ineffective portion of hedges is reported in
earnings as it occurs.

In the normal course of business, the Company is exposed to the impact of
fluctuations in the exchange rate with the Canadian dollar. The Company limits
this risk by following an established foreign currency financial management
policy. This policy provides for the use of forward and option contracts, which
limit the effects of exchange rate fluctuations of the Canadian dollar on
financial results. The Company does not use derivatives for trading or
speculative purposes.

As of December 31, 2003 and 2004, the Company hedged aggregate exposures of
$2.8 million and $2.2 million, respectively, by entering into forward contracts
and option contracts, respectively. In general, these contracts have varying
maturities up to, but not exceeding, one year with cash settlements made at
maturity based upon rates agreed to at contract inception. All derivatives held
by the Company satisfy the hedge criteria of SFAS No. 133, and therefore, the
Company recorded unrealized gains on these contracts of $81,712 and $36,305 for
the years ended December 31, 2003 and 2004, respectively, which are reflected
as a component of accumulated other comprehensive income and an asset within
prepaid expenses and other current assets on the accompanying consolidated
balance sheets.

Equity Method Investments

The Company accounts for its equity investments in MSV Canada and MSV Holdings
pursuant to the equity method of accounting. The carrying value of these
investments was $0 at each balance sheet date presented. Because the Company is
obligated to provide working capital financial support to MSV Canada through a
management agreement, the Company records losses related to such funding as
equity in losses of MSV Canada in the accompanying consolidated statements of
operations.

Foreign Currency and International Operations

The functional currency of one of the Company's subsidiaries is the Canadian
dollar. The financial statements of this subsidiary are translated to U.S.
dollars using period-end rates for assets and liabilities, which is included as
a component of accumulated other comprehensive income in the accompanying
consolidated balance sheets. In addition, the Company realized foreign exchange
transaction (losses) gains, which are a component of other income in the
accompanying consolidated statements of operations. For the years ended
December 31, 2002, 2003, and 2004, foreign exchange transaction (losses) gains
were $(266,507), $444,753, and $40,858, respectively.

Comprehensive Income (Loss)

The Company reports comprehensive income (loss) in accordance with SFAS No.
130, Reporting Comprehensive Income, which establishes rules for the reporting
and display of comprehensive income and its components. SFAS No. 130 requires
foreign currency translation adjustments and the change in market value of
effective derivative instruments to be included in other comprehensive income.

Recent Pronouncements

In January 2003, the FASB issued Financial Interpretation No. 46 (FIN),
Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51, which requires the consolidation of an entity in
which an enterprise absorbs a majority of the entity's expected losses,
receives a majority of the entity's expected residual returns, or both, as a
result of ownership or contractual or other financial interests in the entity.
Generally, an entity is generally consolidated by an enterprise when the
enterprise has a controlling financial interest in the entity through ownership
of a majority voting interest in the entity. The Company is currently
evaluating the impact of adoption of FIN 46, with respect to its investment and
related obligations in MSV Canada. Adoption of this standard will be required
for the first annual period beginning after December 15, 2004. MSV Canada's net
(loss) income for the years ended December 31, 2003 and 2004 were approximately
$(696,000) and $1.4 million (unaudited), respectively.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which
is a revision of SFAS No. 123, supersedes APB Opinion No. 25, and amends SFAS
No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is
similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. The new standard will
be effective for the Company for the year ending December 31, 2006. The impact
of the adoption of SFAS No. 123(R) cannot be predicted at this time because it
will depend on levels of share-based payments granted in the future. However,
had we adopted SFAS No. 123(R) in prior periods, the impact of that standard
would have approximated the impact of SFAS No. 123 as described in the
disclosure of pro forma net loss.

Reclassifications

Certain prior-year amounts have been reclassified to conform to the
current-year presentation.

3.       Intangible Assets and Goodwill

The Company's intangible assets and goodwill arose primarily as a result of the
Company's 2001 acquisitions of the Motient and TMI satellite businesses. These
transactions were accounted for using the purchase method of accounting. At the
time of the acquisitions, the Company allocated the purchase price to the
assets acquired and liabilities assumed on a preliminary basis based on their
respective estimated fair values. During 2002, the Company revised its purchase
price allocation based upon changes in estimates related primarily to certain
liabilities assumed in the acquisition. In addition, under the terms of the
agreement, the Company paid a total of $6.6 million through December 31, 2003,
of which $2.2 million was paid in each of the years ended December 31, 2002 and
2003, in contingent consideration to Motient for the provision of services to a
customer under a contract assumed by the Company. These payments were accounted
for as contingent consideration and were included in the determination of the
purchase price when paid to Motient. As of December 31, 2003, there were no
contingent purchase payments remaining.

In July 2004, MSV purchased certain intangible assets including intellectual
property and rights, or rights to acquire spectrum access and rights, or rights
to acquire related assets from third parties. At the time of these
transactions, MSV paid $2.0 million in cash, of which $1.5 million is included
in other assets and $500,000 is included in intangible assets as of December
31, 2004 in the accompanying consolidated balance sheet. Future payments under
these agreements total $2.0 million payable in two equal annual installments in
January 2005 and 2006. As the payments are due only upon the achievement of
certain milestones, the future obligations have not been accrued as of December
31, 2004.

In connection with these transactions, MSV also acquired rights related to a
system development contract in exchange for MSV's assumption of certain
payments through January 2005. As of December 31, 2004, payments on this
contract totaled $1.1 million with additional payments of $50,000 committed
through January 2005. MSV may continue payments on this contract at its sole
discretion following these initial payments. Payments made through December 31,
2004 have been capitalized as system under construction in property and
equipment in the accompanying consolidated balance sheet.

The Company's identifiable intangible assets for acquisitions consist of the
following:

                                                    December 31,
                                          ---------------------------------
                                               2003              2004
                                          ---------------    --------------

Customer contracts                           $18,092,565        18,177,727
Next-generation intellectual property         82,350,000        82,850,000
                                          ---------------    --------------
                                             100,442,565       101,027,727
Accumulated amortization                     (19,769,360)      (29,321,408)
                                          ---------------    --------------
Intangible assets, net                       $80,673,205       $71,706,319
                                          ===============    ==============

Customer contracts are amortized over a period ranging from 4.5 to 5 years.
Next-generation intellectual property is amortized over periods ranging from
4.5 to 15 years. During the years ended December 31, 2002, 2003, and 2004, the
Company recorded approximately $9,401,000, $9,427,000, and $9,494,000,
respectively, of amortization expense related to these intangible assets. The
Company's next-generation intellectual property consists of a combination of
licenses and contractual rights to various authorizations, various
applications, certain technology, and certain other rights, which resulted
primarily from the 2001 acquisitions.

Future amortization of intangible assets is as follows as of December 31, 2004:

                 2005                                      $9,571,931
                 2006                                       7,520,535
                 2007                                       5,601,111
                 2008                                       5,601,111
                 2009                                       5,490,000
                 Thereafter                                37,921,631
                                                      ----------------
                                                          $71,706,319
                                                      ================

The increase in goodwill from December 31, 2003 to December 31, 2004 is
primarily a result of the fluctuation of the exchange rate between the U.S.
dollar and Canadian dollar.

4.       Balance Sheet Detail

Property and Equipment

Property and equipment consisted of the following:

                                                    December 31,
                                          ---------------------------------
                                               2003              2004
                                          ---------------    --------------

Space and ground segments                    $39,771,813       $40,577,825
System under construction                        850,000         2,405,261
Office equipment and furniture                   836,961           927,112
Leasehold improvements                           300,000           434,832
                                          ---------------    --------------
                                              41,758,774        44,345,030
Accumulated depreciation                     (18,160,201)      (27,886,614)
                                          ---------------    --------------
Property and equipment, net                  $23,598,573       $16,458,416
                                          ===============    ==============


Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

                                                        December 31,
                                              ---------------------------------
                                                   2003              2004
                                              ---------------    --------------

Accounts payable                                  $1,006,375        $2,557,232
Accrued expenses                                   1,276,208         1,487,783
Accrued compensation and benefits                  1,680,210         2,230,936
Accrued interest                                     283,749           343,113
                                              ---------------    --------------
Total accounts payable and accrued expenses       $4,246,542        $6,619,064
                                              ===============    ==============


5.       Long-Term Debt

Notes Payable

In November 2001, the Company issued $55.0 million of Convertible Notes and
$26.5 million of Non-Convertible Notes, (collectively, the Notes) to finance
the acquisitions of the Motient and TMI satellite businesses. In August 2002,
the Company issued an additional $3.0 million of Convertible Notes. The Notes
were scheduled to mature on November 26, 2006 and bore interest at 10% per
annum, compounded semiannually and payable at maturity.

The Convertible Notes were convertible, at any time, into a number of the
Company's Class A Preferred Units (Preferred Units) determined by dividing the
principal being converted by $6.45. The terms of the Convertible Notes were
amended during 2003 to automatically convert into Preferred Units upon the
Company's payment in full of the principal and accrued interest on the
Non-Convertible Notes and the accrued interest on the Convertible Notes.

In August 2003, the Company repaid approximately $1.6 million of the principal,
and all of the accrued interest of approximately $2.1 million, on one of the
Non-Convertible Notes.

Long-term debt at December 31, 2003 consisted of the following:

                 Convertible Notes                            $58,000,000
                 Non-Convertible Notes                         24,924,667
                                                            --------------
                 Notes payable                                $82,924,667
                                                            ==============

In April 2004, the Company made payments totaling approximately $2.4 million
for principal and $2.6 million for accrued interest, on the Non-Convertible
Notes. In November 2004, $25.9 million of Non-Convertible Notes and accrued
interest were exchanged for 878,115 Common Units of MSV. The principal balance
of $22.6 million and accrued interest of $3.3 million were converted into
765,843 and 112,272 Common Units, respectively, and approximately $56,000 of
accrued interest was paid in cash. Additionally, $58.0 million of Convertible
Notes was converted to 8,997,073 Class A Preferred Units in accordance with
their terms. At the date of the transaction, accrued interest on the
Convertible Notes was approximately $19.2 million, of which $18.2 million was
paid in cash and $1.0 million was exchanged for 36,045 Common Units (see Note
6). At the completion of this transaction, all outstanding principal and
interest obligations on the Notes were extinguished.

Vendor Notes Payable

In February 2003, the Company entered into an agreement with a satellite
communications provider that is a related party (the Vendor) for the
construction and procurement of a ground station. The Vendor provided financing
for this project totaling approximately $1.0 million at an interest rate of
9.5%.

Future payments on the Vendor note payable as of December 31, 2004 are as
follows:

2005                                                        279,523
2006                                                        279,523
2007                                                        279,523
2008                                                        232,936
                                                      --------------
Total future payments                                     1,071,505
Less: interest                                             (169,945)
                                                      --------------
rincipal portion                                            901,560
Less: current portion                                      (205,846)
                                                      --------------
Long-term portion of vendor note payable                   $695,714
                                                      ==============

6.       Partners' Equity

Effective November 26, 2001, pursuant to the Limited Partnership Agreement of
the Company, the partners' interests in the Company were either MSV Common
Units or MSV Class A Preferred Units. The Company's general partner, Mobile
Satellite Ventures GP Inc., a Delaware corporation, has no economic interest in
the Company and is owned by the Company's limited partners in proportion to
their fully diluted interests in the Company.

The Class A Preferred Units and Common Units had many of the same rights and
privileges, except the Class A Preferred Units had preference over the Common
Units in receiving proceeds resulting from a distribution of assets in certain
circumstances. The general partner did not hold any units as of December 31,
2002, 2003, and 2004. As of December 31, 2002, 2003, and 2004, there were
14,642,732, 14,642,732, and 34,786,823 Common Units, respectively, held by
limited partners. As of December 31, 2002 and 2003, there were 2,000,000 and
2,573,951 Class A Preferred Units, respectively, held by limited partners. In
November 2004, the Company's limited partnership agreement was amended to
eliminate the distinction between Preferred and Common Units, and all Preferred
Units were converted to Common Units.

Effective November 26, 2001, profits and losses are allocated to the partners
in proportion to their economic interests. Losses allocated to any partner for
any fiscal year will not exceed the maximum amount of losses that may be
allocated to such partner without causing such partner to have an adjusted
capital account deficit at the end of such fiscal year. Any losses in excess of
this limitation shall be specially allocated solely to the other partners.
Thereafter, subsequent profits shall be allocated to reverse any such losses
specially allocated pursuant to the preceding sentence. Except for certain
capital proceeds and upon liquidation, the Company shall make distributions as
determined by the Board of Directors to the partners in proportion to their
respective percentage interests. Upon dissolution of the Company, a liquidating
trustee shall be appointed by the Board, or under certain circumstances, the
required investor majority, as defined, who shall immediately commence to wind
up the Company's affairs. The proceeds of liquidation shall be distributed in
the following order:

o        First, to creditors of the Company, including partners, in the order
         provided by law

o        Thereafter, to the partners in the same order as other distributions

Issuance of Class A Preferred Units

In August 2003, the Company received $3.7 million in exchange for the issuance
of 573,951 Class A Preferred Units at $6.45 per unit. The Company used these
funds to repay approximately $1.6 million of the principal and approximately
$2.1 million of accrued interest on one of the Non-Convertible Notes (see Note
5). In April 2004, the Company received $17.6 million in exchange for the
issuance of 2,735,317 of Class A Preferred Units. The Company used a portion of
the proceeds to repay approximately $2.4 million of the principal balance and
approximately $2.6 million of accrued interest on Non-Convertible Notes (see
Note 5).

Issuance of Common Units

In November 2004, the Company received $145.0 million in proceeds from its
existing investors in exchange for the issuance of 4,923,599 Common Units.
Concurrently, $25.9 million of Non-Convertible Notes and accrued interest was
exchanged for 878,115 Common Units. The principal balance of $22.6 million and
accrued interest of $3.3 million were converted into 765,843 and 112,272 Common
Units, respectively and approximately $56,000 was paid in cash. Additionally,
$58.0 million of Convertible Notes was converted to 8,997,073 Class A Preferred
Units in accordance with their terms. At the date of the transaction, accrued
interest on the Convertible Notes was approximately $19.2 million, of which
$18.2 million was paid in cash and $1.0 million was exchanged for 36,045 Common
Units.

7.       Unit Option Plans

MSV Option Plan

In December 2001, the Company adopted a unit option incentive plan (Unit Option
Incentive Plan). Under the Unit Option Incentive Plan, the Company reserved for
issuance and may grant up to 5,000,000 options to acquire units to employees
and directors upon approval by the Board of Directors. Options to acquire units
generally vest over a 3-year period and have a 10-year life.

During 2004, the Company granted options at less than the estimated fair market
value of the related units on the option's grant date. As a result, the Company
recorded $4,680,375 in deferred compensation during the year ended December 31,
2004. The deferred compensation is being amortized over the options' vesting
period. For the year ended December 31, 2004, the Company recognized
compensation expense of $495,153.

The Company has promised to grant an additional 285,000 options during the year
ended December 31, 2005 to certain executives of the Company, of which 200,000
will have an exercise price of the lower of $6.45 or the price at which the
most recent financing transaction has occurred, and 85,000 will have an
exercise price of $6.45.

At December 31, 2003 and 2004, 885,333 and 1,807,167 options, respectively,
were exercisable. At December 31, 2003 and 2004, the weighted-average remaining
contractual life for outstanding options was 7.9 years and 8.1 years,
respectively. The weighted-average fair value of unit options granted during
the years ended December 31, 2002, 2003, and 2004 was $0.80, $0.91, and $4.61
per unit, respectively. At December 31, 2004, the outstanding options had
exercise prices ranging from $6.45 to $29.45.

The following summarizes activity in the Unit Incentive Option Plan:

                                                                     Weighted
                                                                      Average
                                                  Options to         Exercise
                                                Acquire Units         Prices
                                                ---------------    ------------

Options outstanding at December 31, 2001             1,297,500          $6.45
     Granted                                            91,000           6.45
                                                ---------------
Options outstanding at December 31, 2002             1,388,500           6.45
     Granted                                         1,648,500           6.45
     Canceled                                         (117,166)          6.45
                                                ---------------
Options outstanding at December 31, 2003             2,919,834           6.45
     Granted                                         1,491,250           6.94
     Canceled                                         (105,001)          6.45
                                                ---------------
Options outstanding at December 31, 2004             4,306,083          $6.58
                                                ===============



TerreStar Option Plan

In July 2002, the Board of Directors of TerreStar approved the 2002 TerreStar
Stock Incentive Plan. The plan terms are similar to the Unit Option Incentive
Plan. Options to acquire shares generally vest over a 3-year period, and the
options to acquire units have a 10-year life. At December 31, 2003 and 2004,
568,304 and 1,157,664 options, respectively, were exercisable. At December 31,
2003 and 2004, the weighted-average remaining contractual life for outstanding
options was 8.6 and 8.0 years, respectively. The weighted-average fair value of
unit options granted during the years ended December 31, 2002, 2003, and 2004
was $0.10, $0.10, and $0.00 per unit, respectively.

As part of the TerreStar Rights transaction (see Note 10), the Board of
Directors of TerreStar authorized a grant of additional options to employee
option holders of record at December 20, 2004 of approximately 50% of the
options outstanding on that date. These options are expected to be granted in
2005.

The following summarizes activity in the TerreStar Option Plan:

                                                                    Weighted
                                                                     Average
                                                    Options to      Exercise
                                                  Acquire Units      Prices
                                                  ---------------   ------------

Options outstanding at December 31, 2001                       -           $-
     Granted                                           1,781,596         0.70
                                                  ---------------
Options outstanding at December 31, 2002               1,781,596         0.70
     Granted                                             125,980         0.70
     Canceled                                            (36,517)        0.70
                                                  ---------------
Options outstanding at December 31, 2003               1,871,059         0.70
     Granted                                             533,817         0.66
     Canceled                                            (19,477)        0.70
     Exercised                                            (6,086)        0.70
                                                  ---------------
Options outstanding at December 31, 2004               2,379,313        $0.69
                                                  ===============

8.       Related Party Transactions

During the years ended December 31, 2002, 2003, and 2004, the Company incurred
$1,441,673, $150,966, and $1,180 of administrative expenses related primarily
to services provided by Motient. In addition, the Company provided
facilities-related services to Motient of $133,729 during the year ended
December 31, 2003.

The Company has an arrangement with MSV Canada, under which the Company
provides management services to MSV Canada and purchases satellite capacity
from MSV Canada. MSV Canada owns the satellite formerly owned by TMI. The
Company earns revenues under the management agreement by providing certain
services to MSV Canada such as allowing access to its intellectual property;
providing voice- and data-switching capabilities; providing backup, restoral,
and emergency spectrum and satellite capacity and providing accounting,
customer service, and billing services. The Company recognizes the related
management fee income in the month in which the services are provided.

The Company leases satellite capacity from MSV Canada pursuant to a lease
agreement. The term of the lease extends for 25 years and may be terminated by
the Company with one year's notice or by either party in certain circumstances.
The amount of the lease payments is determined by the parties periodically
based upon the amount of capacity usage by the Company and market rates.
Payments due under the lease may be offset against amounts owed to the Company.

During the years ended December 31, 2002, 2003, and 2004, the Company incurred
$117,000, $36,025, and $188,682, respectively, of consulting expenses for
services provided by a company controlled by one of the Company's investors,
which is included in legal, regulatory, and consulting expenses in the
accompanying consolidated statements of operations.

The Company leases office space from an affiliate of TMI (see Note 9). The
Company has also entered into an agreement with this company to obtain
telemetry, tracking, and control services. The agreement ends April 30, 2006,
with automatic extension for three successive additional renewal periods of one
year each. The agreement may be terminated at any time, provided that the
Company makes a payment equal to the lesser of 12 months of service or the
remaining service fee. Under its services agreement, the Company paid $378,462,
$360,819, and $428,867, during the years ended December 31, 2002, 2003, and
2004, respectively.

9.       Commitments and Contingencies

Leases

As of December 31, 2004, the Company has noncancelable operating leases,
expiring through August 2008. Rental expense, net of sublease income, for the
years ended December 31, 2002, 2003, and 2004, was approximately $1,800,000,
$1,100,000, and $1,200,000, respectively.

Future minimum lease payments under noncancelable operating leases with initial
terms of one year or more are as follows for the years ended December 31:

                 2005                                         1,289,236
                 2006                                         1,282,417
                 2007                                         1,282,417
                 2008                                           936,757
                                                        ----------------
                                                             $4,790,827
                                                        ================

Office facility leases may provide for periodic escalations of rent, rent
abatements during specified periods of the lease, and payment of pro rata
portions of building operating expenses, as defined. The Company records rent
expense for operating leases using the straight-line method over the term of
the lease agreement.

Litigation and Claims

The Company is periodically a party to lawsuits and claims in the normal course
of business. While the outcome of the lawsuits and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of the matters will not have a material adverse effect on the
financial position or results of operations of the Company.

Contingencies

From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company recognizes
a liability for these contingencies when it is probable that future
expenditures will be made and such expenditures can be reasonably estimated.

Regulatory Matters

During 2001, Motient applied to the FCC to transfer licenses and authorizations
related to its L-Band mobile satellite service (MSS) system to MSV. Such
transfer was approved in November 2001. In connection with this application,
Motient sought FCC authority to launch and operate a next-generation MSS system
that will include the deployment of satellites and terrestrial base stations
operating in the same frequencies as an integrated network. In February 2003,
the FCC adopted general rules based on the Company's proposal to develop an
integrated satellite-terrestrial system, subject to the requirement that the
Company file an additional application for a specific terrestrial component
consistent with the broader guidelines issued in the February 2003 ruling.
These broad guidelines govern issues such as aggregate system interference to
other MSS operators, the level of integration between satellite and terrestrial
service offerings, and specific requirements of the satellite component that
the Company currently meets by virtue of its existing satellite system. While
the Company's current satellite assets satisfy these requirements, the Company
anticipates the future need to construct and deploy more powerful satellites.

The Company believes that the ruling allows for significant commercial
opportunity related to the Company's next-generation system. Both proponents
and opponents of the Ancillary Terrestrial Component (ATC), including the
Company, asked the FCC to reconsider the rules adopted in the February 2003
order. Opponents of the ruling advocated changes that could adversely impact
the Company's business plans. The Company also sought certain corrections and
relaxations of technical standards that would further enhance the commercial
viability of the next-generation system. Moreover, one terrestrial wireless
carrier has filed an appeal of the FCC's decision with the United States Court
of Appeals, which has been held in abeyance until the FCC rules on the
reconsideration requests.

In November 2003, the Company applied for authority to operate ATC in
conjunction with the current and next-generation satellites of MSV and MSV
Canada. The FCC's International Bureau granted this authorization, in part, in
November 2004 and deferred certain issues to the FCC's rulemaking proceeding,
which, as noted above, is in its reconsideration phase. One opponent of the
Company's application has asked the FCC to review the Company's ATC
authorization.

The FCC adopted a decision on reconsideration in the rulemaking phase in
February 2005, but the decision has not been released to the public. Based on
public statements made by the FCC commissioners and staff, the Company believes
that the FCC has granted some of the corrections and relaxations of technical
standards the Company has advocated and has rejected the requests for changes
advocated by opponents of the FCC's February 2003 ruling. The appeal by a
terrestrial wireless carrier of the February 2003 ruling is still pending
before the U.S. Court of Appeals.

There can be no assurance that, following the conclusion of the rulemaking and
the other legal challenges, the Company will have authority to operate a
commercially viable next-generation network.

10.      TerreStar Networks

In February 2002, the Company established TerreStar, a wholly owned subsidiary,
to develop business opportunities related to the proposed receipt of certain
licenses in the 2 GHz band.

Regulatory Matters

TMI holds the approval issued by Industry Canada for a 2 GHz space station
authorization and related spectrum licenses for the provision of MSS in the 2
GHz band as well as an authorization from the FCC for the provision of MSS in
the 2 GHz band (MSS authorization). These authorizations are subject to FCC and
Industry Canada milestones relating to construction, launch, and operational
date of the system. TMI plans to transfer the Canadian authorizations to an
entity that is eligible to hold the Canadian authorizations and in which
TerreStar and/or TMI will have an interest, subject to obtaining the necessary
Canadian regulatory approvals. In order to satisfy the milestone requirements
included within the authorizations, TerreStar and TMI entered into an agreement
in which TerreStar agreed to enter into a non-contingent satellite procurement
contract for the construction and delivery to TMI of a satellite that is
consistent with the Canadian and FCC authorizations. Further, TMI agreed that
at TerreStar's election, TMI will transfer the 2 GHz assets to the entities
described above, subject to any necessary Canadian and U.S. regulatory
approvals. In December 2002, TMI and TerreStar jointly applied to the FCC for
authority to transfer TMI's MSS authorization to TerreStar.

In August 2002, Industry Canada advised the Company that this arrangement met
the requirement that TMI demonstrate that it is bound to a contractual
agreement for the construction of the proposed satellite. However, certain
wireless carriers had urged the FCC to cancel TMI's MSS authorization. A
similar group also filed a petition in January 2003 asking the FCC to dismiss
the application to transfer TMI's MSS authorization to TerreStar. In February
2003, the FCC's International Bureau adopted an order canceling TMI's MSS
authorization due to an alleged failure to enter into a non-contingent
satellite construction contract before the specified first milestone date and
dismissing the application for TMI to transfer its MSS authorization to
TerreStar. Also in February 2003, the FCC adopted an order allowing MSS
carriers, including those in the 2 GHz band, to provide ATC. A number of
parties, principally wireless carriers, have challenged the validity of that
order (see Note 9).

In June 2004, upon review of the International Bureau's decision, the FCC
agreed to waive aspects of the first milestone requirement applicable to TMI's
MSS authorization and, therefore, also reinstated that authorization, along
with the application to transfer TMI's MSS authorization to TerreStar. The FCC
also modified the milestone schedule applicable to TMI's MSS authorization. TMI
recently certified to the FCC its compliance with the second milestone under
its MSS authorization. In March 2005, TMI will be required to certify
compliance with the third milestone under its MSS authorization. The FCC is
currently reviewing that certification for compliance with the requirements of
TMI's MSS authorization. The application to transfer TMI's MSS authorization to
TerreStar is still pending before the FCC.

In September 2004, the FCC issued an order allowing PCS operation in the
1995-2000 MHz band, which may be adjacent to the 2 GHz frequencies ultimately
assigned to TMI. TerreStar has commented in the proceedings to establish
service rules for the 1995-2000 MHz band. There can be no assurance that the
FCC will not adopt service rules that will create interference to MSS operators
in the 2 GHz band, including TerreStar.

Joint Venture Option

During 2002, TerreStar acquired an option to establish a joint venture with a
third party to develop certain opportunities in the 2 GHz band. The FCC
licensed the third party to construct, launch, and operate a communications
system consisting of two geostationary satellites in the 2 GHz band, a
communications network, and user terminals. Consideration for the option
consisted of nonrefundable payments made by TerreStar of $1.0 million during
2002 and $500,000 during 2003. In January 2003, TerreStar exercised its option
to form the joint venture. Under the terms of the memorandum of agreement,
TerreStar contributed an additional $500,000 to the joint venture upon signing
of the joint venture agreements. However, as a result of the February 2003 FCC
order canceling TMI's 2 GHz license described above, in July 2003 TerreStar and
the third party mutually agreed to terminate the option agreement and the joint
venture and any remaining obligations or liabilities related to these
agreements. As a result, TerreStar wrote off its $2.0 million investment in the
joint venture during the year ended December 31, 2003.

Satellite Construction Contract

During 2002 and in connection with its contractual obligations to TMI,
TerreStar entered into a contract to purchase a satellite system, including
certain ground infrastructure for use with the 2 GHz band. TerreStar continues
to make payments according to a milestone payment plan. TerreStar made payments
of $500,000 and $350,000 during the years ended December 31, 2002 and 2003,
respectively. Following the reinstatement of the TMI license in July 2004, the
contract was amended resulting in a reduced milestone payment plan. TerreStar
made payments of $400,000 during the year ended December 31, 2004 related to
this contract. Such payments have been capitalized as system under construction
in property and equipment in the accompanying consolidated balance sheets. The
satellite manufacturer may also be entitled to certain incentive payments based
upon the performance of the satellite once in operation. If TerreStar
terminates the contract, the manufacturer shall be entitled to payment of a
termination liability as prescribed in the contract. Beginning in 2005, the
termination liability will be equal to amounts that would have otherwise been
due on milestones scheduled within 30 days following notice of termination by
TerreStar. The satellite represents one component of a communications system
that would include ground-switching infrastructure, launch costs, and
insurance. Total cost of this system could exceed $500 million. In order to
finance future payments, TerreStar will be required to obtain additional debt
or equity financing, or may enter into various joint ventures to share the cost
of development. There can be no assurance that such financing or joint venture
opportunities will be available to TerreStar or available on terms acceptable
to TerreStar.

TerreStar Rights Transaction

On December 20, 2004, the Company issued rights (the Rights) to receive an
aggregate of 23,265,428 shares of common stock of TerreStar representing all of
the shares of TerreStar common stock (the TerreStar Stock), owned by the
Company, to the limited partners of the Company, pro rata in accordance with
each limited partner's percentage ownership in the Company. The Rights will be
exchanged into shares of TerreStar Stock automatically on May 20, 2005. The
Rights will be accounted for as a distribution on the date of the exchange. In
addition, in connection with this transaction, TerreStar issued warrants (the
Warrants) to purchase an aggregate of 666,972 shares of TerreStar Stock to one
of the Company's limited partners. The Warrants have an exercise price of
$0.21491 per share and may be exercised until the second anniversary of the
date of their issuance. The Company recognized as minority interest the fair
value of the Warrants using an option-pricing model with the following
assumptions: risk-free interest rate of 2.5%, expected life of the warrant of
two years, and volatility of 141%.

Concurrent with these transactions, the Board of Directors of TerreStar
authorized a grant of additional options to employee option holders of record
at December 20, 2004 of approximately 50% of the options outstanding on that
date, which are expected to be granted in 2005.

11.      Subsequent Events

In January 2005, the Company purchased certain intangible assets including
intellectual property and rights, rights to acquire spectrum access and rights,
or rights to acquire related assets from third parties for $3.0 million. The
terms of the agreement allow the parties to renegotiate the form of payment to
exchange up to $2.0 million of the cash consideration for equity interests in
the Company.

On January 10, 2005 the FCC's International Bureau authorized MSV to launch and
operate an L-Band MSS system. The International Bureau requires all new grants
for systems to be supported by a performance bond. In accordance with this
requirement, the Company secured a five-year, $3.0 million bond. The bond was
fully collateralized by a $3.0 million letter of credit secured by cash on
deposit.




<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
            -------------------------                  ----         --------       --------        ----------       -----------
<S>                                                   <C>             <C>               <C>        <C>               <C>

Reserves and allowances deducted asset accounts:

Allowances for uncollectible accounts receivable

Year ended December 31, 2002                            $649,961              -           -         $(649,961)                -
Year ended December 31, 2003                                   -        $43,672           -                 -           $43,672
Year ended December 31, 2004                             $43,672        $38,093           -           $(3,915)          $77,850

Allowances for uncollectible notes receivable

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
Year ended December 31, 2004                         $22,016,066              -           -      $(22,016,066)(1)             -

</TABLE>

(1)  Relates to adjustment to reserve for note receivable from Motient
     Corporation as a result of repayment of amounts owed thereunder.

sss

<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 31, 2005               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>

 /s/ JEFFREY A. LEDDY             Chief Executive Officer and President          March 31, 2005
---------------------------         (Principal Executive Officer and
   Jeffrey A. Leddy                  Principal Financial Officer)


/s/ CRAIG J. KAUFMANN             Controller and Treasurer (Principal            March 31, 2005
---------------------------           Accounting Officer)
  Craig J. Kaufmann


/s/ ANDREW D. AFRICK              Director                                       March 31, 2005
---------------------------
   Andrew D. Africk


/s/ MICHAEL S. GROSS              Director                                       March 31, 2005
---------------------------
   Michael S. Gross


/s/ JEFFREY M. KILLEEN            Director                                       March 31, 2005
---------------------------
  Jeffrey M. Killeen


 /s/ MARC. ROWAN                  Director                                       March 31, 2005
---------------------------
    Marc J. Rowan


 /s/ WILLIAM F. STASIOR           Director                                       March 31, 2005
---------------------------
  William F. Stasior

</TABLE>