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

                                 FORM 10-Q


/x/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 for the period ended March 31, 2001, or

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

                       Commission file number 0-13865

                          RARE MEDIUM GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>

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


             565 Fifth Avenue, 29th Floor
                New York, New York                                                   10017
         (Address of principal executive offices)                                  (Zip Code)

</TABLE>
       Registrant's telephone number, including area code: (212) 883-6940

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

Number of shares outstanding of the issuer's common stock, as of May 10, 2001

Common Stock, par value $0.01 per share                    63,667,797
---------------------------------------            ----------------------------
                 Class                             Number of shares outstanding

<TABLE>
<CAPTION>
INDEX

                                                                                          Page Number
                                                                                          -----------

Part I.  FINANCIAL INFORMATION

<S>                                                                                                <C>
         Item 1. Consolidated Financial Statements

         Consolidated Balance Sheets as of March 31, 2001 (Unaudited)
         and December 31, 2000......................................................................3

         Unaudited Consolidated Statements of Operations
         Three-months ended March 30, 2001 and 2000.................................................4

         Unaudited Consolidated Statements of Cash Flows
         Three-months ended March 30, 2001 and 2000.................................................5

         Notes to Unaudited Consolidated Financial Statements.......................................6

         Item 2. Management's Discussion and Analysis of Financial Condition
                  and Results of Operations........................................................10

         Item 3. Quantitative and Qualitative Disclosures About Market Risk........................14


Part II.  OTHER INFORMATION

         Item 1.   Legal Proceedings...............................................................15
         Item 2.   Changes in Securities and Use of Proceeds.......................................15
         Item 3.   Defaults Upon Senior Securities.................................................15
         Item 4.   Submission of Matters to a Vote of Security Holders.............................15
         Item 5.   Other Information...............................................................15
         Item 6.   Exhibits and Reports on Form 8-K................................................15

SIGNATURES.........................................................................................16
</TABLE>
                                     2



                                  PART I
                           FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

<TABLE>
<CAPTION>

                           RARE MEDIUM GROUP, INC
                        CONSOLIDATED BALANCE SHEETS
                      (In thousands except share data)

                                                         December 31,         March 31,
                                                            2000                2001
                                                       ----------------    ---------------
                                                                             (Unaudited)
<S>                                                        <C>                 <C>
   Assets
Current assets:
   Cash and cash equivalents                                  $113,018            $86,604
   Short-term investments                                       44,465             47,051
                                                       ----------------    ---------------
     Total cash, cash equivalents,
      and short-term investments                               157,483            133,655
   Accounts receivable, net                                     23,629              9,770
   Work in process                                               7,426              1,243
   Prepaid expenses and other current assets                     5,402              7,114
                                                       ----------------    ---------------
     Total current assets                                      193,940            151,782

Property and equipment, net                                     28,740             23,406
Investments in affiliates                                       48,016             45,423
Goodwill and intangibles, net                                   49,061             34,187
Other assets                                                     1,411              1,096
                                                       ----------------    ---------------
       Total assets                                           $321,168           $255,894
                                                       ================    ===============

   Liabilities and Stockholders' Equity

Current Liabilities:
   Accounts payable                                            $10,740            $10,328
   Accrued liabilities                                          16,876             17,713
   Deferred revenue                                              3,778              3,892
   Other current liabilities                                        --              8,559
                                                       ----------------    ---------------
     Total current liabilities                                  31,394             40,492
Other noncurrent liabilities                                     9,367              2,238
                                                       ----------------    ---------------
       Total liabilities                                        40,761             42,730
                                                       ----------------    ---------------

Series A Convertible Preferred Stock,
  $.01 par value, net of unamortized discount
  of $50,162 and $49,064, respectively                          47,621             50,553
                                                       ----------------    ---------------
Stockholders' equity:

  Preferred stock, $.01 par value.
    Authorized 10,000,000 shares; issued
    977,838 shares as Series A Convertible
    Preferred Stock at December 31, 2000
    and 996,171 at March 31, 2001                                   --                 --

  Common stock, $.01 par value.
    Authorized 200,000,000 shares; issued and
    outstanding 63,676,074 shares at
    December 31, 2000 and 63,663,519 shares
    at March 31, 2001                                              637                637

  Additional paid-in capital                                   528,958            528,822

  Accumulated other comprehensive loss                          (1,127)            (2,698)

  Accumulated deficit                                         (295,511)          (363,979)

  Treasury stock, at cost, 66,227 shares                          (171)              (171)
                                                         ----------------    ---------------
       Total stockholders' equity                              232,786            162,611
                                                         ----------------    ---------------
       Total liabilities and stockholders' equity             $321,168           $255,894
                                                         ================    ===============

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

                                    3




<TABLE>
<CAPTION>
                          RARE MEDIUM GROUP, INC.
              UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands except share data)

                                                                            Three-Month Period Ended
                                                                                   March 31,
                                                                         -------------------------------
                                                                              2000              2001
                                                                         -------------     -------------
 <S>                                                                        <C>               <C>
Revenues                                                                      $23,816            $8,647
Cost of revenues                                                               13,061            15,239
                                                                         -------------     -------------
    Gross profit (loss)                                                        10,755            (6,592)
                                                                         -------------     -------------
 Expenses:
   Sales and marketing                                                          3,390             3,263
   General and administrative                                                  17,979            17,755
   Depreciation and amortization                                               10,409            12,947
   Restructuring charges                                                           --            15,832
                                                                         -------------     -------------
       Total expenses                                                          31,778            49,797
                                                                         -------------     -------------
Loss from operations                                                          (21,023)          (56,389)
Interest income, net                                                            1,152             1,976
Loss on investments in affiliates                                              (1,371)          (10,946)
Other income (expense)                                                             49              (177)
                                                                         -------------     -------------
Net loss                                                                      (21,193)          (65,536)
   Cumulative dividends and accretion of convertible
      preferred stock to liquidation value                                    (11,828)           (2,932)
                                                                         -------------     -------------
Net loss attributable to common stockholders                                 $(33,021)         $(68,468)
                                                                         =============     =============
Basic and diluted loss per share:
Net loss per share                                                             $(0.74)           $(1.09)
                                                                         =============     =============
Basic weighted average common shares outstanding                           44,910,388        63,094,667
                                                                         =============     =============


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

                                     4

<TABLE>
<CAPTION>

                          RARE MEDIUM GROUP, INC.
              UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In thousands)

                                                                                        Three-Month Period Ended
                                                                                               March 31,
                                                                                     -------------------------------
                                                                                          2000              2001
                                                                                     -------------     -------------
<S>                                                                                     <C>               <C>
Cash flows from operating activities
   Net loss                                                                             $(21,193)         $(65,536)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                        10,409            12,947
     Loss on investments in affiliates                                                     1,371            10,946
     Non-cash restructuring charges                                                           --             8,459
     Changes in assets and liabilities, net of acquisitions:
       Accounts receivable                                                                (6,844)           12,609
       Work in process                                                                    (4,107)            6,184
       Prepaid expenses and other assets                                                  (1,662)           (1,083)
       Deferred revenue                                                                    1,790               114
       Accounts payable, accrued and other liabilities                                       882             1,278
                                                                                     -------------     -----------
           Net cash used in operating activities                                         (19,354)          (14,082)
Cash flows from investing activities:
   Cash paid for acquisitions, net of cash acquired and acquisition costs                     13                --
   Cash paid for investments in affiliates                                               (12,806)           (6,199)
   Purchases of property and equipment, net                                               (5,418)           (3,585)
   Sales of property and equipment, net                                                       --                38
   Purchases of short-term investments, net                                                   --            (2,586)
   Repayment of notes receivable                                                             925                --
                                                                                     -------------     -------------
           Net cash used in investing activities                                         (17,286)          (12,332)
Cash flows from financing activities:
   Proceeds from issuance of common stock, net of costs                                  241,355                --
   Proceeds from issuance of common stock in connection with the exercise of
     warrants and options                                                                  3,207                --
   Repayments of borrowings, net                                                            (168)               --
                                                                                     -------------     -------------
           Net cash provided by financing activities                                     244,394                --
                                                                                     -------------     -------------
 Net increase (decrease) in cash and cash equivalents                                    207,754           (26,414)
Cash and cash equivalents, beginning of period                                            28,540           113,018
                                                                                     -------------     -------------
 Cash and cash equivalents, end of period                                               $236,294           $86,604
                                                                                     =============     =============


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

                                    5


                          RARE MEDIUM GROUP, INC.
            NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1)  Description of the Business

     Rare Medium Group, Inc. (the "Company") conducts its operations
primarily through its subsidiaries, which are organized as two related
lines of business: the Internet services business of Rare Medium, Inc.
("Rare Medium") and the investment business. The Company is headquartered
in New York with offices throughout the United States.

     Rare Medium, a wholly owned subsidiary of the Company, is a provider
of Internet solutions, offering Fortune 1000 companies and others its
services to develop e-commerce Internet strategies, improve business
processes and develop marketing communications, branding strategies and
interactive content using Internet-based technologies and solutions.

     Through its investment business, the Company has historically made
selective venture investments by taking strategic equity positions in other
companies. Additionally, the Company has developed, managed and operated
companies in selected Internet-focused market segments ("Incubator
Companies"). During the first quarter of 2001, the Company has
reduced its focus on the investment business and has
significantly reduced the amount of funding to its Incubator Companies (see
Note 9).

(2)  Basis of Presentation

     The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments, consisting only of those of a normal recurring
nature, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows at the dates and for the
periods indicated. While the Company believes that disclosures presented
are adequate to make the information not misleading, these unaudited
consolidated financial statements should be read in conjunction with the
audited financial statements and related notes for the year ended December
31, 2000 which are contained in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission (the "SEC"). The results
of the three-month period ended March 31, 2001 are not necessarily
indicative of the results to be expected for the full year. Certain prior
year amounts in the consolidated financial statements have been
reclassified to conform with the current year's presentation.

(3)  Investments in Affiliates

     The following is a summary of the carrying value of investments held
by the Company (in thousands):
<TABLE>
<CAPTION>

                                                  December 31,       March 31,
                                                     2000              2001
                                                 -------------     -------------
                                                                    (Unaudited)
<S>                                                 <C>               <C>
Cost investments                                      $37,501           $37,483
Marketable securities                                   7,791             6,299
Equity investments                                      2,724             1,641
                                                 -------------     -------------
                                                      $48,016           $45,423
                                                 =============     =============
</TABLE>

     The Company recognized losses of approximately $191,000 for the
three-month period ended March 31, 2001 representing its proportionate
share of the losses of investee companies, for those investments carried
under the equity method. The Company also recognized losses of
approximately $892,000 for the three-month period ended March 31, 2001
representing the amortization of the net excess of investment over its
proportionate share of the affiliates net assets. Amortization is generally
recorded on a straight-line basis over three years. Also, the Company
recorded a loss of approximately $9.9 million during the three-month period
ended March 31, 2001 for the impairment of investments in affiliates,
including $2.5 million relating to the sale of a portion of its majority
stake in ChangeMusic Network, Inc. ("CMJ") (see Note 9). During the
three-month period ended March 31, 2001, the Company recognized revenue of
approximately $626,000 for services provided to affiliates. Additionally,
during the three-month period ended March 31, 2001, affiliates issued
securities valued at approximately $1.3 million to the Company as payment
for services performed during the year ended December 31, 2000.

                                     6

                          RARE MEDIUM GROUP, INC.
     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(4)  Segment Information

     The Company's operations have been classified into two primary
segments: the Internet services business and the investment business.
Presented below is summarized financial information of the Company's
continuing operations for each segment (in thousands):

<TABLE>
<CAPTION>
                                                                                Three-Month Period Ended
                                                                                        March 31,
                                                                          --------------------------------------
                                                                                2000                 2001
                                                                          -----------------    -----------------
                                                                                       (Unaudited)
Revenues:
<S>                                                                                <C>                  <C>
     Internet services                                                             $23,489              $10,103
     Investment                                                                      1,478                1,922
     Internet services provided to consolidated investments                         (1,151)              (3,378)
                                                                           -----------------    -----------------
                                                                                   $23,816               $8,647
                                                                           =================    =================
Loss before interest, taxes, depreciation, amortization
   and restructuring charges:
     Internet services                                                             $(3,264)            $(16,856)
     Investment and corporate                                                       (7,350)             (10,754)
                                                                          -----------------    -----------------
                                                                                  $(10,614)            $(27,610)
                                                                          =================    =================

Loss before interest, taxes, depreciation, amortization
   and restructuring charges                                                      $(10,614)            $(27,610)
Depreciation and amortization                                                      (10,409)             (12,947)
Interest income, net                                                                 1,152                1,976
Loss on investments in affiliates                                                   (1,371)             (10,946)
Restructuring charges                                                                   --              (15,832)
Other income                                                                            49                 (177)
                                                                          -----------------    -----------------
     Net loss                                                                     $(21,193)            $(65,536)
                                                                          =================    =================


                                                                            December 31,           March 31,
                                                                                2000                 2001
                                                                          -----------------    -----------------
                                                                                                  (Unaudited)
Total assets:
     Internet services                                                             $65,016              $35,883
     Investment and corporate                                                      256,152              220,011
                                                                          -----------------    -----------------
                                                                                  $321,168             $255,894
                                                                          =================    =================
</TABLE>

(5)  Restructuring Charges

     During the first quarter of 2001, the Company recognized restructuring
charges of approximately $15.8 million primarily related to its Internet
services business, consisting of $10.8 million for the consolidation of
facilities and the disposition of property and equipment, $2.0 million for
the impairment of unamortized goodwill, $1.8 million for severance and
benefits related to headcount reductions and $1.2 million for other office
shutdown costs. These restructuring charges were aimed at aligning the
Company's cost structure with changing market conditions and decreased
demand for the Company's services and were primarily related to office
closures in Canada, Australia, Singapore, England and Michigan and other
office consolidations.

     The total cash outlay and non-cash charges for the restructuring
activities will be approximately $7.3 million and $8.5 million,
respectively. As of March 31, 2001, approximately $1.6 million of cash was
used, $2.5 million is expected to be used in the second quarter of 2001,
and the remaining cash outlay of approximately $3.2 million, primarily
related to the present value of the net future minimum lease payments for
certain real estate lease obligations, is expected to be used over the next
seven years.

                                     7


                          RARE MEDIUM GROUP, INC.
     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 (5) Restructuring Charges--(Continued)

     Restructuring activities as of March 31, 2001 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                    Restructuring           Amount            Balance
                                                       Charges             Utilized        March 31, 2001
                                                       -------             --------        --------------
<S>                                                     <C>                  <C>                  <C>
Facilities and property and equipment                   $10,836              $6,476               $4,360
Goodwill                                                  2,028               2,028                   --
Severance and benefits                                    1,826               1,070                  756
Other office shutdown costs                               1,142                 588                  554
                                                ----------------     ---------------       --------------
Total                                                   $15,832             $10,162               $5,670
                                                ================     ===============       ==============
</TABLE>

(6)  Employee Stock Options

     In the third quarter of 2000, employee holders of stock options with
exercise prices at or above $30.00 per share were allowed to exchange
either all or 50% of their existing stock options for an agreement by the
Company to issue new options at a date in excess of six months thereafter.
The Company's obligation to issue new stock options was contingent on each
participant's continued full-time employment with the Company through such
period. On March 12, 2001, the Company issued 1,426,313 stock options at an
exercise price of $1.66, the fair market value of the underlying common
stock on the date of issuance of the new options, to those employees who
had elected to participate under this agreement. These transactions did not
result in the recognition of compensation expense.

(7)      Strategic Alliance

     In 2000, the Company entered into a strategic alliance agreement, as
amended, with a software company (the "Partner") to assist in the
development, delivery and training of the Company's LiveMarket e-commerce
solutions built utilizing the Partner's technology. Rare CSP, Inc., d/b/a
LiveMarket, Inc., a wholly owned subsidiary of the Company, develops and
deploys solutions that facilitate and manage electronic transactions
between businesses and enables businesses to establish their own trading
network with other businesses or consumers. Under the terms of the
alliance, the Partner will provide the Company with refundable advances of
approximately $17.1 million, on an interest free basis, to be paid to the
Company over the term of the two-year agreement, subject to the Company's
compliance with certain requirements set forth in the agreement. The amount
and timing of the repayment of the advances may be adjusted based on
LiveMarket's achievement of certain milestones in accordance with the terms
of the agreement. The Partner has expressed an interest in renegotiating a
revised payment schedule and revised milestones with the Company with
respect to the Company's obligations. Absent a successful renegotiation,
the Partner may seek accelerated repayment of all outstanding amounts.
Therefore, the Company has reclassified approximately $8.6 million,
representing the total amount advanced by the Partner, from other
non-current liabilities to other current liabilities on the accompanying
consolidated balance sheet at March 31, 2001. Under the current agreement,
subject to certain conditions including the Company's compliance with
certain requirements, such amounts are presently not required to be paid
until June 30, 2002. However, if the agreement were to be terminated, the
Company would be required to currently repay the advanced amounts to the
Partner. While the Company does not believe that the agreement is presently
terminable in accordance with its terms, there can be no assurance that the
Company and the Partner will agree on renegotiated terms or that
accelerated repayment will not be required.

(8)  Contingency

     The Company has been in settlement discussions with its former
financial public relations firm with respect to the Company's failure to
deliver options covering approximately 124,000 shares of the Company's
stock that are allegedly owed relating to past services allegedly rendered.
The Company has not accepted the most recent settlement offer and has recently
been notified that the claimant intends to file a claim asserting its
entitlement to damages of approximately $12.8 million. As a claim has not
yet been filed, the ultimate outcome with respect to this unasserted claim
cannot be reasonably determined at this time.

     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 legal
matters will not have a material adverse effect on the financial position
or results of operations of the Company.

                                     8

                          RARE MEDIUM GROUP, INC.
     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(9)      Subsequent Events

     On April 2, 2001, the Company agreed to purchase from Motient
Corporation ("Motient") 12.5% secured promissory notes (the "Notes"),
issuable in two tranches, in the aggregate amount of $50.0 million. The
Notes are collateralized by up to 5,000,000 shares of XM Satellite Radio,
Inc. ("XM Radio") common stock owned by Motient. The first tranche in the
amount of $25.0 million was purchased on April 4, 2001. The amount of the
second tranche is dependent on the trading price of XM Radio shares on the
date of issuance but is not to exceed $25.0 million. The principal and
accrued interest of the Notes are payable October 1, 2001 in either cash,
shares of XM Radio, or any combination thereof at Motient's option, as
defined by the agreement. At the option of the Company, the Notes can be
exchanged for a number of XM Radio shares equivalent to the principal of
the Notes and any accrued interest thereon, as defined by the agreement.

     On May 14, 2001, the Company entered into an agreement to merge with a
subsidiary of Motient. Under the terms of the agreement, which is subject
to customary conditions including the approval of both companies'
shareholders, each share of the Company's outstanding common stock will be
exchanged for one-tenth of a share of a new class of Motient preferred
stock. Each share of the newly issued preferred stock will have a
liquidation preference of $20.00 and be convertible into 6.4 shares of
Motient common stock at the shareholder's option, subject to certain
mandatory conversion provisions. A portion of Motient's XM Radio shares and
other consideration will be issued in exchange for the Company's Series A
convertible preferred stock. The Notes will be cancelled upon the closing
of the merger, which is expected to occur during the third quarter of 2001.

     On April 12, 2001, the Company agreed to sell a portion of its
majority stake in CMJ, which provides music consumers and music business
professionals with information on emerging artists via its consumer and
industry print properties, business data products, music festival and web
sites. At the date of the sale, the Company received a promissory note for
approximately $509,000 and retained a 15% equity interest in CMJ.
Additionally, the Company recognized a loss of approximately $2.5 million
during the first quarter of 2001 relating to the impairment of goodwill
arising from the acquisition of CMJ by the Company in November 1999.

     On April 30, 2001, the Company agreed to sell a portion of its
majority stake in ePrize, Inc., an online sweepstakes, direct marketing and
promotions company that offers end-to-end solutions for customer
acquisition and retention. At the date of the sale, the Company received a
cash payment of $850,000 and retained a 5% equity interest in ePrize.
Additionally, the Company will recognize a gain of approximately $1.3
million in the second quarter of 2001 relating to the transaction.

                                     9


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

     This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties, including statements regarding our capital needs, business
strategy, expectations and intentions. We urge you to consider that
statements that use the terms "believe," "do not believe," "anticipate,"
"expect," "plan," "estimate," "intend" and similar expressions are intended
to identify forward-looking statements. These statements reflect our
current views with respect to future events and because our business is
subject to numerous risks, uncertainties and risk factors, our actual
results could differ materially from those anticipated in the
forward-looking statements, including those set forth below under this
"Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this report. Actual results will
most likely differ from those reflected in these statements, and the
differences could be substantial. We disclaim any obligation to publicly
update these statements, or disclose any difference between our actual
results and those reflected in these statements. The information
constitutes forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.

Overview

     We are an Internet-focused company that:

o      provides Internet professional services to companies;

o      has developed, managed and operated companies in selected
       Internet-focused market segments; and

o      selectively invests in companies in which we have previously taken
       strategic equity positions or that we believe possess superior
       business models and are strategic to our business.

     Our end-to-end Internet professional services offering encompasses a
wide range of the Internet services spectrum, ranging from strategic and
creative consulting to applications development, implementation and
hosting. We assist in shaping our clients' strategies and adapt Internet
technologies to deliver the best possible solutions for our clients. Our
customers include companies in the retail/manufacturing, finance/banking,
hospitality/travel, media/entertainment and communications/utilities
industries. Our customers include Corporate Express, Cablevision, Furniture
Brands, West Publishing Group, Wyndham International, General Mills, Fox,
Paramount, Microsoft, Epson, Interstate Batteries and Ritz Carlton.

     In the past, we have internally developed, managed and operated
companies in selected Internet-focused market segments. During that time,
we have provided our incubator companies with a comprehensive suite of
strategic and infrastructure services as well as financial support. These
services included Internet services and financial, legal and accounting
advisory services. We believe that by providing these services we have
enabled our incubator companies to focus on their core competencies and
accelerate the time-to-market of their products and services.

     In addition, we have made minority investments in independently
managed companies that we believe possess superior business models. We have
co-invested in these companies with well-known financial and industry
partners such as Brentwood Associates, Compaq Computer Corp., Constellation
Ventures, GE Capital Corp., Hicks, Muse, Tate & Furst, Mayfield Partners
and Omnicom. In certain instances, we have selectively continued to invest
in these companies and seek to invest limited amounts of capital in other
companies that we believe possess sound business models and are strategic
to our business.

     During the first quarter of 2001, we have reduced our focus on the
investment business and have significantly reduced the amount of funding to
our incubator companies. In addition, we sold a majority of our stake in
two of our incubator companies, ChangeMusic Network, Inc. ("CMJ") and
ePrize, in April 2001. The carrying value of our portfolio companies at
March 31, 2001 amounted to $53.1 million of which $45.4 million is
reflected in our balance sheet as "investments in affiliates" and $7.7
million is included in "goodwill and intangibles, net" for our incubators
that are accounted for as consolidated subsidiaries.

     Our operating results are primarily driven by the Internet services
business. We evaluate the performance of this business as a separate
segment. Revenue and income (loss) before interest, taxes, depreciation,
amortization and restructuring charges are used to measure and evaluate our
financial results and make relative comparisons to other entities that
operate within the Internet services industry. Over the last few quarters,
demand for Internet services has decreased as the weakening of general
economic conditions has caused many companies to reduce spending on
Internet-focused business solutions. During the fourth quarter of 2000 and
the first quarter of 2001, we took actions to adapt our business to the
changing environment. Although this restructuring led to a charge of $15.8
million in the first quarter of 2001, we were able to reduce our operating
expenses at a higher rate in the first quarter of 2001 than the

                                    10

decline in our revenue from the fourth quarter of 2000. Our Internet
service business revenue, including revenue from services provided to our
consolidated subsidiaries, decreased to $10.1 million in the three-month
period ended March 31, 2001 from $33.7 million in the three-month period
ended December 31, 2000. Although our revenue decreased $23.6 million from
the fourth quarter of 2000 to the first quarter of 2001, our earnings
(loss) before interest, taxes, depreciation and amortization decreased only
$17.8 million from earnings of $0.9 million in the fourth quarter to a loss
of $16.9 million in the first quarter. We will continue to evaluate the
market for Internet professional services and will take other steps, if
necessary, aimed at ensuring that our cost structure remains aligned with
changes in market conditions and demand for our services.

     Many of our Internet service contracts are currently on a fixed price
basis, rather than a time and materials basis. We recognize revenues from
fixed price contracts based on our estimate of the percentage of each
project completed in a reporting period. To the extent our estimates are
inaccurate, the revenues and operating profits, if any, we report for
periods during which we are working on a project may not accurately reflect
the final results of the project, and we would be required to make
adjustments to such estimates in a subsequent period.

     Our Internet services clients generally retain us on a
project-by-project basis, rather than under long-term contracts. As a
result, a client may or may not engage us for further services once a
project is completed. Establishment and development of relationships with
additional companies and other corporate users of information technology
and securing repeat engagements with existing clients are important
components of our success.

     Cost of revenues includes salaries, payroll taxes and related benefits
and other direct costs associated with the generation of revenues. Sales
and marketing expense represent the actual costs associated with our
marketing and advertising. General and administrative expenses include
facilities costs, recruiting, training, finance, legal, and other corporate
costs as well as salaries and related employee benefits for those employees
that support such functions.

Revenues

     Revenue for the three-month period ended March 31, 2001 decreased to
$8.6 million from $23.8 million for the three-month period ended March 31,
2000, a decrease of $15.2 million. This decrease reflects the weakening of
general economic conditions in which many companies have reduced their
spending on Internet-focused business solutions. Our incubator companies
generated revenues totaling $1.9 million in the three-month period ended
March 31, 2001, compared to $1.5 million in the three-month period ended
March 31, 2000. After disposing of our majority interest in two incubator
companies in April, revenues from these companies will not continue to be
recognized by us in future periods.

Cost of Revenues

     Cost of revenues for the three-month period ended March 31, 2001
increased to $15.2 million from $13.1 million for the three-month period
ended March 31, 2000, an increase of $2.1 million. This increase is due
primarily to the increase in the number of personnel in our Internet
services business during 2000. After the restructuring activities in the
first quarter of 2001, we expect our cost of revenues to decline in future
periods as we have reduced the number of billable professionals. The
increase in cost of revenues for the three-month period ended March 31,
2001 also reflects $1.6 million of costs related to our incubator
companies. After disposing of our majority interest in two incubator
companies in April, our cost of revenues from these companies will not
continue to be recognized by us in future periods.

Sales and Marketing Expense

     Sales and marketing expense for the three-month period ended March 31,
2001 decreased to $3.3 million from $3.4 million for the three-month period
ended March 31, 2000, a decrease of $0.1 million. The decrease is primarily
the result of decreased marketing activities by the Internet services
business offset by a marketing campaign by CMJ to increase subscriptions
for its monthly publication. After disposing of our majority interest in
two incubator companies in April, including CMJ, we do not expect our sales
and marketing expense to remain at this same level in future periods.


                                    11

General and Administrative Expense

     General and administrative expense for the three-month period ending
March 31, 2001 decreased to $17.8 million from $18.0 million for the
three-month period ended March 31, 2000, a decrease of $0.2 million. This
decrease was primarily due to the restructuring effort aimed at aligning
our cost structure with changing market conditions and decreased demand for
our services, including the office closures in Canada, Australia,
Singapore, England and Michigan. These cost savings were partially offset in the
first quarter of 2001 because we experienced an increased risk of
collection of accounts receivable from our Internet professional services
clients that caused us to take a charge for bad debt of $3.6 million. After
disposing of our majority interest in two incubator companies in April
and our restructuring efforts primarily related to our Internet services
business, we expect general and administrative expense to decrease in
future periods.

Depreciation and Amortization Expense

     Depreciation and amortization expense substantially consists of the
amortization of intangible assets. Depreciation and amortization expense
for the three-month period ended March 31, 2001 increased to $12.9 million
from $10.4 million for the three-month period ended March 31, 2000, an
increase of $2.5 million. This increase resulted primarily from increased
computer and equipment purchases to support the increase in headcount
during 2000. As we have decreased our capital expenditures, we expect
depreciation and amortization expense to decrease in future periods.

Restructuring Charges

     During the first quarter of 2001, we recorded restructuring
charges of approximately $15.8 million primarily related to our Internet
services business, consisting of $10.8 million for the consolidation of
facilities and the disposition of property and equipment, $2.0 million for
the impairment of unamortized goodwill, $1.8 million for severance and
benefits related to headcount reductions and $1.2 million for other office
shutdown costs. These restructuring charges were aimed at aligning
our cost structure with changing market conditions and decreased
demand for our services and were primarily related to office
closures in Canada, Australia, Singapore, England and Michigan and other
office consolidations. The plan resulted in head count reductions of
approximately 250 employees, most of which occurred in March.

     The total cash outlay and non-cash charges for the restructuring
activities will be approximately $7.3 million and $8.5 million,
respectively. As of March 31, 2001, approximately $1.6 million of cash was
used, $2.5 million is expected to be used in the second quarter of 2001,
and the remaining cash outlay of approximately $3.2 million, primarily
related to the present value of the net future minimum lease payments for
certain real estate lease obligations, is expected to be used over the next
seven years.

Loss on Investments in Affiliates

     Loss on investments in affiliates consists primarily of $7.4 million
for the impairment to the carrying value of certain affiliates accounted
for under the cost method, $1.1 million for our proportionate share of
affiliates' operating losses and amortization of our net excess investment
over its equity in each affiliate's net assets for those affiliates
accounted for under the equity method, and $2.5 million for the impairment
of goodwill related to CMJ. We will continue to monitor the carrying value
our investments in affiliates accounted for under the cost method for
further impairment.

Interest Expense, Net

     Interest expense, net for the three-month period ended March 31, 2001
is mainly comprised of the interest earned on the proceeds received from
the sale of our common stock during the first quarter of 2000.

Net Loss

     For the three-month period ended March 31, 2001, we recorded a net
loss of $65.5 million. Excluding $12.9 million in amortization and
depreciation, the net loss was $52.6 million. The loss was primarily due to
the factors described in "Cost of Revenues," "General and Administrative
Expense," "Sales and Marketing Expense," "Restructuring Charges" and "Loss
on Investments in Affiliates."

                                    12

     Included in net loss attributable to common shareholders of $68.5
million was $2.9 million of non-cash deemed dividends and accretion related
to the issuance of our Series A convertible preferred stock. Dividends were
accrued related to the pay-in-kind dividends payable quarterly on Series A
convertible preferred stock and to the accretion of the carrying amount of
the Series A convertible preferred stock up to its $100 per share face
redemption amount over 13 years.

Liquidity and Capital Resources

     We had $133.7 million in cash, cash equivalents, and short-term
investments at March 31, 2001. Cash used in operating activities was $14.1
million for the three-month period ended March 31, 2001 and resulted
primarily from the net loss of $65.5 million, offset by non-cash charges of
$32.4 million (which consists of depreciation, amortization, loss on
investments in affiliates, and non-cash restructuring charges) and changes
in working capital. We expect cash used in operations to decrease in future
periods as we believe our restructuring activities will more closely align
our cost structure with the changing market conditions and the decrease in
the demand for our services.

     Cash used in investing activities was $9.7 million, net of the $2.6
million invested in short-term investments, for the three-month period
ended March 31, 2001, which primarily consists of cash paid for venture
investments of $6.2 million and capital expenditures of $3.6 million.
Capital expenditures have generally been comprised of purchases of computer
hardware and software, as well as leasehold improvements related to leased
facilities, and are not expected to increase at the same level in future
periods.

     In April 2001, we agreed to purchase from Motient Corporation
("Motient") 12.5% secured promissory notes (the "Notes"), issuable in two
tranches, in the aggregate amount of $50.0 million. The Notes are
collateralized by up to 5,000,000 shares of XM Satellite Radio, Inc. ("XM
Radio") common stock owned by Motient. The first tranche in the amount of
$25.0 million was purchased on April 4, 2001. The amount of the second
tranche is dependent on the trading price of XM Radio shares on the date of
issuance but is not to exceed $25.0 million. The principal and accrued
interest of the Notes are payable October 1, 2001 in either cash, shares of
XM Radio, or any combination thereof at Motient's option, as defined by the
agreement. At our option, the Notes can be exchanged for a number of XM
Radio shares equivalent to the principal of the Notes and any accrued
interest thereon, as defined by the agreement. The Notes will be cancelled
upon the closing of our merger with Motient, which is expected to occur
during the third quarter of 2001.

     In 2000, we entered into a strategic alliance agreement, as amended,
with a software company (the "Partner") to assist in the development,
delivery and training of our LiveMarket e-commerce solutions built
utilizing the Partner's technology. Rare CSP, Inc., d/b/a LiveMarket, Inc.,
a wholly owned subsidiary of ours, develops and deploys solutions that
facilitate and manage electronic transactions between businesses and
enables businesses to establish their own trading network with other
businesses or consumers. As of March 31, 2001, under the terms of the
alliance, the Partner has provided us with refundable advances of
approximately $8.6 million, on an interest free basis. The amount and
timing of the repayment of the advances may be adjusted based on
LiveMarket's achievement of certain milestones in accordance with the terms
of the agreement. The Partner has expressed an interest in renegotiating a
revised payment schedule and revised milestones with us with respect to our
obligations. Absent a successful renegotiation, the Partner may seek
accelerated repayment of all outstanding amounts. Under the current
agreement, subject to certain conditions including our compliance with
certain requirements, such amounts are presently not required to be paid
until June 30, 2002. However, if the agreement were to be terminated, we
would be required to currently repay the advanced amounts to the Partner.
While we do not believe that the agreement is presently terminable in
accordance with its terms, there can be no assurance that we and the
Partner will agree on renegotiated terms or that accelerated repayment will
not be required.

     We have been in settlement discussions with its former financial
public relations firm with respect to our failure to deliver options
covering approximately 124,000 shares of our stock that are allegedly owed
relating to past services allegedly rendered. We have not accepted the most
recent settlement offer and recently been notified that the claimant
intends to file a claim asserting its entitlement to damages of
approximately $12.8 million. As a claim has not yet been filed, the
ultimate outcome with respect to this unasserted claim cannot be reasonably
determined at this time.

                                    13


Recently Issued Accounting Standards

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. During
June 1999, SFAS No. 137 was issued which delayed the effective date of SFAS
No. 133 to January 1, 2001. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of FASB Statement No. 133," which intended to
simplify the accounting for derivative under SFAS No. 133 and is effective
upon the adoption of SFAS No. 133. The adoption of SFAS No. 133 did not
have a material effect on our results of operations.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     We believe that our market risk exposure associated with our
outstanding debt is immaterial as our fixed rate and variable rate debt
obligations are not material.

                                    14

                                  PART II
                             OTHER INFORMATION

Item 1.  Legal Proceedings

     Currently, the Company is not a party to any pending material legal
proceedings.

Item 2.  Changes in Securities

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

Item 3.  Defaults Upon Senior Securities

     Not applicable

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

     None

Item 5.  Other Information

     None

Item 6.  Exhibits and Reports on Form 8-K

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

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

  10.1     --   Amendment to Employment Agreement, dated as of
                February 15, 2001, between Rare Medium Group, Inc.
                and Craig Chesser.

  10.2     --   Amendment to Employment Agreement, dated as of
                February 15, 2001, between Rare Medium Group, Inc.
                and Michael Hultberg.

  10.3     --   Amendment to Employment Agreement, dated as of February 15,
                2001, between Rare Medium Group, Inc. and Robert C. Lewis.


                                    15


SIGNATURES

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


Date: May 15, 2001             By:   /s/ Glenn S. Meyers
                                     -------------------
                                     Glenn S. Meyers
                                     Chief Executive Officer

Date: May 15, 2001             By:   /s/ Craig C. Chesser
                                     --------------------
                                     Craig C. Chesser
                                     Vice President Finance and Treasurer
                                     (Principal Financial Officer)

Date: May 15, 2001             By:   /s/ Michael A. Hultberg
                                     ---------------------
                                     Michael A. Hultberg
                                     Vice President and Controller
                                     (Principal Accounting Officer)

                                    16

                               EXHIBIT INDEX

EXHIBIT
NUMBER            DESCRIPTION
------            -----------

10.1    --   Amendment to Employment Agreement, dated as of February 15, 2001,
             between Rare Medium Group, Inc. and Craig Chesser.

10.2    --   Amendment to Employment Agreement, dated as of February 15, 2001,
             between Rare Medium Group, Inc. and Michael Hultberg.

10.3    --   Amendment to Employment Agreement, dated as of February 15, 2001,
             between Rare Medium Group, Inc. and Robert C. Lewis.


                                    17