DRAFT 3 (4/12/01)
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                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

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

                                    FORM 10-K
                                   (Mark One)

[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934

                   For the Fiscal Year ended December 31, 2000

[ ]   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 33-19139-NY

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

                             RATEXCHANGE CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

               Delaware                                      11-2936371
   (State or Other Jurisdiction of                        (I.R.S. Employer
    Incorporation or Organization)                       Identification No.)

       185 Berry Street, Suite 3515
            San Francisco, CA                                  94107
 (Address of Principal Executive Offices)                   (Zip Code)

                                 (415) 371-9800
              (Registrant's Telephone Number, Including Area Code)


        Securities Registered Pursuant to Section 12(b) of the Act: None

        Securities Registered Pursuant to Section 12(g) of the Act: None


         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  period  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  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X ]

         The aggregate  market value of the voting and  non-voting  common stock
held by  non-affiliates  of the registrant as of April 5, 2001 was approximately
$27,000,000.

         The  registrant  had issued and  outstanding  17,783,000  shares of its
common stock on April 5, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's  definitive proxy statement for the annual
shareholders'  meeting to be held on May 31, 2001 are  incorporated by reference
into Part III of this Form 10-K.

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<TABLE>
<CAPTION>
                             RATEXCHANGE CORPORATION
                                    FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2000
<S>               <C>                                                                             <C>
PART I

        ITEM 1.   BUSINESS.........................................................................3
        ITEM 2.   PROPERTIES......................................................................14
        ITEM 3.   LEGAL PROCEEDINGS...............................................................15
        ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................15

PART II

        ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ..........15
        ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA............................................16
        ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                    RESULTS OF OPERATIONS.........................................................16
        ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................27
        ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................28
                  CONSOLIDATED BALANCE SHEET......................................................30
                  CONSOLIDATED STATEMENT OF OPERATIONS............................................31
                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY..................................32
                  CONSOLIDATED STATEMENT OF CASH FLOWS............................................35
PART III

        ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                    FINANCIAL DISCLOSURE .........................................................48
        ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.................................48
        ITEM 11.  EXECUTIVE COMPENSATION..........................................................51
        ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................51
        ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................51
PART IV

        ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
                  SIGNATURES......................................................................51
</TABLE>


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                                     PART I

ITEM 1.    BUSINESS

Forward-Looking Statements and Associated Risks

         This Outlook  section,  and other  sections of this  document,  include
certain "forward-looking  statements" within the meaning of that term in Section
27A of the  Securities  Act of 1933,  and Section 21E of the  Securities  Act of
1934,  including,  among  others,  those  statements  preceded by,  following or
including  the words  "believe,"  "expect,"  "intend,"  "anticipate"  or similar
expressions.  These forward-looking  statements are based largely on our current
expectations and are subject to a number of risks and uncertainties.  Our actual
results could differ materially from these forward-looking statements. Important
factors to consider in evaluating such forward-looking statements include:

         o    Changes in our  business  strategy or an  inability to execute our
              strategy due to unanticipated changes in the market;

         o    Our  ability  to  raise  sufficient   capital  to  meet  operating
              requirements;

         o    Various  competitive  factors  that may prevent us from  competing
              successfully in the marketplace; and

         o    Changes in external competitive market factors, which might impact
              trends in our results of operations.

         In light of these risks and  uncertainties,  there can be no  assurance
that the events contemplated by the forward-looking statements contained in this
Form 10-K will in fact occur.

OVERVIEW

         We provide  trading,  consulting  and  information  solutions  enabling
market  participants  to maximize their assets.  These trading  solutions  allow
network  providers,  energy  merchants,  financial  institutions  and  commodity
managers engaged on the RateXchange Trading System (RTS) and RateXchange Futures
System (RFS) the ability to trade bandwidth and futures globally. Our consulting
solutions  practice provides asset valuation tools,  risk management  strategies
and analytics.  The information  solutions group provides  pricing  information,
market  research and industry  background.  We are a trading  solutions  company
enabling  the  creation  of  liquid   marketplaces   for   bandwidth  and  other
telecommunications products.

BUSINESS MODEL

         We expect to generate revenues by providing (1) trading  solutions, (2)
consulting  services and (3) information  services to network providers,  energy
merchants,  financial institutions and asset managers.  These three core service
offerings provide interdependent  capabilities that allow participants to obtain
key market and pricing information in order to employ commodity management tools
and risk  management  strategies,  which  we  believe  will  result  in  trading
activity.

Trading Services

RateXchange Trading System

         Proprietary  RateXchange  trading  software  powers the trading system,
designed  with  input  from  energy  merchants,   telecommunication   companies,
commodity traders and brokers. The RateXchange Trading System "RTS" is analogous
to trading platforms that dominate on-line natural gas and electricity commodity
trading.  The RateXchange  Trading System will enable market participants to buy
and sell fiber optic, Internet and satellite bandwidth capacity globally.


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         Our software  employs push  technology  and  incorporates  the advanced
Java,  Oracle,  Sun and  encryption  technologies  making it one of the  fastest
trading  systems in the industry.  The  RateXchange  Trading  System serves as a
platform for bandwidth trading and will be enhanced to trade other products such
as IP transit, IP transport and satellite bandwidth. The Company believes it has
developed  intellectual  property with regard to its trading  system,  including
certain patentable processes and innovations.

         Trades  executed on the  RateXchange  Trading  System can be  delivered
between any two city-pairs globally. Market participants can trade any number of
city pairs. As the bandwidth  trading market matures,  participants  will likely
adopt a  standardized  contract  as  evidenced  by what  has  happened  in other
commodities.  Trading  will  utilize  the  Master  Bandwidth  Purchase  and Sale
Agreement (MBPSA) - made available by the Bandwidth Trading Organization (BTO) -
as well as other supplier and buyer contracts.

Addressable Markets

         The  RateXchange  Trading  System  currently  supports  three  distinct
bandwidth markets:

         Fiber Optic Bandwidth:  The largest markets in order of annual revenues
are  North  America,   Europe   (including   Trans-Atlantic),   Asia  (including
Trans-Pacific)  and Latin America.  Fiber optic bandwidth includes both dark and
lit fiber that  circumnavigates  the world under the earth (terrestrial) as well
as under the ocean (sub-sea).  Estimates for the addressable market of bandwidth
trading  range from $250  billion to $450 billion by 2005 (CIBC,  Salomon  Smith
Barney).  The  transaction  velocity is expected to range from 3 to 5 times this
number because of the ability to trade in and out of positions.

         We believe  that a liquid  bandwidth  trading  market will begin almost
simultaneously  in North  America and Europe.  Advances in  technology,  such as
Dense Wave  Division  Multiplexing,  increase  the amount of bandwidth by adding
colors to the bandwidth spectrum.

          IP Access/Transport: The total Internet access and transport market is
estimated to be  approximately  $10.5 billion  currently and expected to grow to
over $200 billion in 2004.  We recently  signed an agreement  with  TeleCity,  a
leading  managed  services  provider  in Europe to  jointly  launch an IP access
product in the first half of 2001. Our IP access product will offer improvements
over other products in the marketplace that only provide  short-term  contracts.
Our IP access product will provide buyers with short-term contracts for Internet
access  and allow for  third-party  verification  of  quality  of  service.  The
third-party verification,  which will be provided by TeleCity, is expected to be
of  significant  value to both the buyers and the sellers.  Buyers will now have
independent  verification of any interconnected ISP backbone  provider's network
performance.  Until now, only the backbone  provider could give this information
to its  customer,  and  only  after-the-fact.  Suppliers  are  seeking  ways  to
differentiate  themselves  from  their  competitors  and we expect our IP access
product to create an environment where the information published by TeleCity has
more credibility than that provided by a supplier, due to TeleCity's neutrality.

         We are  also  working  in  conjunction  with a select  group of  energy
marketing firms, telecommunications providers, local loop providers, and Science
Applications  International  Corporation  (SAIC)  to  complete  the  launch of a
trading  product for IP  transport.  We expect this  product to include the city
pair bandwidth  product combined with a local loop solution that enables buying,
selling,  and trading to be done on short intervals with short lead times.  This
product  will also offer  capacity  utilization  monitoring  and near  real-time
provisioning  on  circuits  that will enable  buyers  such as  Internet  service
providers and CLECs to more closely match their IP bandwidth needs with the size
of their circuits,  thus  potentially  allowing them to materially  reduce their
network costs.  This value  proposition  is  effectively a  just-in-time  buying
alternative  that will allow  purchased  bandwidth to be more closely matched to
traffic load demands of these buyers.

         Satellite Bandwidth:  The total satellite bandwidth market is estimated
to be  approximately  $10 billion  currently  and  expected to grow to over $150
billion in 2004. We have recently  forged an alliance with The London  Satellite
Exchange, the first on-line exchange for the satellite industry as a way to gain
access to the satellite  bandwidth  trading  market.  We are linking our trading
system with The London Satellite Exchange's,  allowing users immediate access to
satellite  and fiber optic  bandwidth  capacity  and pricing  information.  This
alliance  diversifies both companies'  product offerings by allowing their users
to package total bandwidth requirements.


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OffXchange Trading

         In addition to trading  directly over the  RateXchange  Trading System,
RateXchange,  in  a  partnership  agreement  with  Amerex,  also  executes  many
transactions using traditional voice brokerage.  We believe that voice brokerage
is critical to establishing liquidity in early markets such as bandwidth. Amerex
is the world's largest  over-the-counter energy broker, providing customers with
voice and electronic brokerage services, market liquidity,  price discovery, and
data  services  around  the  globe.  These  voice  transactions  are  part  of a
comprehensive  approach that RateXchange and Amerex have jointly  developed that
involves  assisting  those customers who are not fully utilizing the RateXchange
Trading  System  to  execute   transactions  and  help  them  move  toward  full
participation   in  the  RateXchange   Trading  System.   This  approach  allows
RateXchange  and Amerex to engage  customers who are unfamiliar  with electronic
trading  and engage them on the  RateXchange  Trading  System on a  step-by-step
basis. We believe that once involved in this manner,  market  participants  will
become  increasingly  comfortable  trading  directly on the RateXchange  Trading
System.

RateXchange Futures System

         RateXchange  is  planning to develop  futures  and options  markets for
bandwidth.  In order to provide these services for our clients, we are currently
investigating  opportunities  to develop  these  markets.  The Company  recently
appointed  Patrick  Arbor to the Board of  Directors.  Mr.  Arbor is a  longtime
member of the Chicago  Board of Trade  (CBOT),  the world's  oldest  derivatives
exchange,   serving  as  the   organization's   Chairman   from  1992  to  1998.
Additionally, RateXchange recently acquired Xpit.com, which provides a front-end
execution  and risk  management  platform  for  traders,  account  managers  and
intermediaries  active in the managed  futures  industry.  This  platform is now
referred to as the RateXchange Futures System (RFS). This acquisition  positions
RateXchange as a leading provider of derivative  trading solutions and commodity
risk management and is expected to provide the Company with an immediate revenue
stream. A description of the business is provided below.

         We recently  expanded our trading  service  offerings by announcing our
acquisition  of Xpit.com  ("Xpit"),  a privately  held  company  based in Boise,
Idaho. The acquisition provides us with a trading and risk management system for
the  derivatives  market - which we have named the  RateXchange  Futures  System
(RFS) - further allowing  customers to manage their commodity risk, and broadens
our  target  market to  include  brokerages,  institutional  fund  managers  and
financial  institutions  worldwide.   The  RFS  seeks  to  become  the  dominant
electronic  platform  for the  execution  of  futures  and  options  on  futures
transactions worldwide.

         Xpit  has  developed  this  proprietary,   browser-based,   web-enabled
software system in order to serve the needs of three types of customers:

               1)   Traders-enables   them  to   execute   futures   and  option
                    transactions  on all listed futures  contracts  worldwide on
                    both electronic and non-electronic exchanges, inexpensively,
                    rapidly,  accurately and anonymously with a minimum of human
                    intervention,

               2)   Institutional  managers - allows  them to  oversee  multiple
                    internal  trading  accounts to monitor activity and exposure
                    on an account by account or consolidated basis in real-time,

               3)   Intermediaries - enables them to monitor margin requirements
                    and credit exposure in real-time and reduce error risk.

         The system has been  designed to replace or improve  existing  industry
practices  in order  processing,  data  handling,  regulatory  compliance,  risk
management and account monitoring that are expensive, slow, labor-intensive, and
prone to error.  Xpit is expanding its  multi-lingual  capability and developing
technology for the delivery of real-time  quotes,  research,  and other relevant
information to its users. The Company  believes that its competitive


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advantages  include  the  trading  platform's   user-interface,   functionality,
automation, and analytical/risk management tools.

         Xpit was  co-founded  in 1999 by five futures  industry  professionals,
including  three  principals  of  Sawtooth  Investment  Management,   a  limited
liability  company  specializing  in  arbitrage  (low  risk)  and  limited  risk
investment  strategies  in  government  debt,  foreign  currencies  and  related
derivative securities.  Prior to establishing Sawtooth, Michael Boren, President
and  COO  of  Xpit,  was  co-owner  and  co-founder  of  Summit  Management,  an
introducing  broker and broker/dealer  that was sold to Refco, Inc. David Boren,
Chief  Technology  Officer,  was  previously at Goldman  Sachs,  where he helped
establish  the  swaps  and  derivatives  trading  group.  Douglas  Bates,  Chief
Marketing  Officer,  was also  previously at Goldman  Sachs,  where he served in
institutional  sales and sales  management  positions in derivative  securities.
Messrs. Boren have both joined the Board of Directors of RateXchange.

         Xpit has recently  completed  successful  real-time beta testing of the
platform and has  approximately  200  accounts.  We plan to fully market the RFS
trading  platform  during the second  quarter of 2001,  through a combination of
trade shows, advertising, direct sales, and relationship sales through strategic
partners.

         The two broad categories of futures traders - hedgers and speculators -
can be broken  down into  institutional  and retail  accounts.  The  Company has
recently begun directing its marketing efforts toward  institutional  accounts -
corporations,  banks,  investment  banks,  partnerships  and fund managers - and
large  intermediaries,  including  Introducing Brokers (IBs), Futures Commission
Merchants (FCMs), and Floor Brokers (FBs). Xpit has identified 800 institutional
accounts and 550  intermediaries  (500 IBs and 50 FCMs) as its immediate  target
market.

         Potential  strategic  partnerships with  intermediaries will play a key
role in Xpit's  ability to  penetrate  the  market.  To this end the Company has
recently  closed a significant  licensing  agreement with Refco Group Ltd., LLC,
the parent of Refco,  Inc., the largest  independent  FCM.  Through this private
label  process,  Refco,  Inc's  customer  will  be  able  to  utilize  the  RFS.
RateXchange is paid a flat per contract  transaction fee on the volume traded on
the system.

         With respect to competition, there are a number of other companies that
offer on-line placement of futures orders.  Most of these are small IBs catering
to  retail  customers.  A few  FCMs  cater  to  retail  customers  and a few are
developing systems for institutional  customers.  Finally, several companies are
in the business of providing on-line access to electronic exchanges for FCMs and
professional   traders.   The  systems  developed  by  small  IBs  have  limited
functionality,  minimal or  nonexistent  risk  controls,  and are not capable of
handling  institutional-type  business.  These  systems  are an  alternative  to
telephone contact,  not a new futures brokerage  paradigm.  There is very little
competition  for the  business  of IBs who do not have the  ability or desire to
create their own on-line order entry system. The only institutional  order entry
systems  currently  in place are being used by a select  group of  institutional
traders.  The investment  banks that own these systems have shown no interest in
competing  for retail,  IB or small  institutional  business.  The most  notable
competition  for the RFS comes from a few  companies  that market  systems  that
provide access to fully electronic futures markets.  The significant  players in
this area are Interactive Brokers, PATSystems and Trading Technologies.  Each of
these firms has  developed a system that offers  direct  access to several fully
electronic futures exchanges such as Eurex, LIFFE or GLOBEX.  These are credible
systems.  In fact,  Xpit routes some orders to one or more of these  systems for
execution.  None of these  companies  provides  access  to open  outcry  markets
however,  and their  products lack the  comprehensiveness  of the RFS. The broad
futures brokerage experience of Xpit's principals gives the Company an advantage
in development and implementation of a superior  electronic futures broker. Only
Xpit offers a platform  comparable to the available  electronic  stock brokerage
products.

         In addition to the trading  system and associated  software,  hardware,
vendor  relationships and prospective  customer lists,  RateXchange will augment
its  software  engineering  team  by  employing  eight  software  engineers  and
programmers in Boise, Idaho.

         Xpit is a member of the National Futures Association, a self-regulating
body.  RateXchange  has  complied  and will  continue to comply with any and all
applicable  regulations  and standards  for  processing  futures and  derivative
transactions.


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         RateXchange  will  operate the futures and  derivative  trading  system
within a wholly-owned operating subsidiary named Xpit Corp. The Company believes
that the  futures  trading  experience  and  relationships  that Xpit  brings to
RateXchange will further position it as a leading provider of derivative trading
solutions for asset and commodity managers of all types, including bandwidth.

Application for Derivatives Transaction Execution Facility (DTEF) Status

         The Commodity Futures Modernization Act of 2000 (CFMA) became effective
on December  21,  2000.  The CFMA amends the  Commodity  Exchange  Act (CEA) and
related  sections of other statutes.  The CFMA created several new categories of
trading  facilities,  including  derivatives  transaction  execution  facilities
(DTEF).  In order to be recognized  as a DTEF, a market must;  (1) have adequate
means to deter trading abuses;  (2) establish and enforce trading procedures and
(3)  establish  and  enforce   rules   regarding  the  financial   integrity  of
transactions   and   intermediaries   for  the  protection  of  customer  funds.
Recognition as a DTEF allows a trading  facility to list futures and derivatives
contracts for trading.

         RateXchange  intends to file an application  for recognition as a DTEF.
Over the past year,  we have  developed  our trading  systems and  operations in
order to provide an efficient marketplace for our customers. We expect that this
work will result in  recognition  as a DTEF.  Upon  approval as a DTEF,  we will
develop and market bandwidth  futures and options contracts that will bring risk
management tools and practices to the telecommunications industry. The contracts
traded  on the DTEF will  enable  market  participants  to hedge  risk,  protect
against price volatility and leverage their assets.

Partnerships with Leading Exchanges

         We are  exploring  partnerships  with  the  world's  leading  commodity
exchanges.  Through these  proposed  partnerships,  RateXchange  and a commodity
exchange  would  jointly  develop  and  market  futures   instruments  based  on
telecommunications  products.  RateXchange  would supply  domain  expertise  and
market the contract to industry  participants  and  RateXchange  customers.  The
exchange would provide futures product development expertise, market the futures
contracts to exchange members, commodity traders and financial institutions, and
list the  contract  for  trading.  We expect the  establishment  of a  bandwidth
futures market to spur the  development of the underlying spot market and create
arbitrage opportunities.  As major investment banks and commodity traders enter,
we expect the bandwidth trading market to become increasingly liquid.

Consulting Services

         In the context of  declining  bandwidth  prices and  current  financial
pressures on the  telecommunications  market, there has been increasing emphasis
on the  monetization  of bandwidth  assets.  Institutions  within the  financial
community  have become aware of the  opportunities  presented by the  developing
bandwidth  market and are actively  seeking to educate and position  themselves.
Furthermore,  network providers are aware of the need to effectively manage risk
in the face of volatile  market  conditions.  Based on our  management  team and
professional  staff drawn from the  financial  services,  energy,  commodity and
telecommunications  industries,  we are  qualified  to  provide a wide  range of
consulting  services  to  existing  and  prospective  market  participants.  Our
consulting  practice  assists  customers with risk  management  services,  asset
valuation  tools,  asset  disposition  programs,  pricing  strategy  as  well as
customized  price analytics.  These  consulting  services are a critical part of
moving the market to liquidity and  establishing  RateXchange  as a solution for
its clients.

Risk Management Group

         RateXchange  recently  formed RMG Partners Corp.  (RMG), a wholly owned
Delaware  subsidiary  consisting  of  six  individuals  hired  to  provide  risk
management  solutions  through the use of  derivative  trading  strategies.  RMG
designs  solutions to manage  financial risk for a variety of clients  including
corporations,  money managers,  and hedge funds.  The management team at RMG has
extensive experience in structuring fixed income and equity derivative products.

         As part of  RateXchange's  consulting  services,  the RMG team will not
only add top line revenue from its  existing  clients,  but will serve as expert
resources in risk management, logistics, and structured financial solutions


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that  RateXchange can draw upon internally for the trading and derivatives  work
involved with our various trading services and products.

         RMG's  specialty is  financial  engineering.  By  utilizing  derivative
instruments,  RMG offers  customized  investment  products and trade ideas.  The
following  list  identifies a few basic  strategies  that have been executed for
clients of the RMG team:

         o    Arbitrage Trades

         o    Covered Call-Write Option Strategies

         o    Fund Redemption Strategies

         o    Directional Exposure with Defined Risk/Reward Profiles

         o    Variable Rate Prepay Forwards

         o    Structured Notes

         Once an optimal solution has been designed,  RMG will assist the client
with the execution for the trade.  RMG is paid a structuring  fee  contingent on
the completion of the transaction.

         The team at RMG is headed up by Dr. Sanjay H. Lillaney, Ph.D in Finance
and  MBA  from  Rutgers,   who  has  extensive  experience  in  structuring  and
customizing  specialized  investment products across different asset classes and
markets.  In  addition,  Mark S.  Burger,  BS from  Berkeley,  has a broad  risk
management  background,  with nearly 20 years experience in money management for
pension funds and individuals.

         RMG Partners Corp.  will apply for its  broker-dealership  license with
the NASD.  Dr.  Lillaney is the CEO of RMG  Partners.  We expect the RMG team to
contribute  significantly  to the  development  of derivative  products and risk
management strategies related to the bandwidth market as well.

RateXlabs

         Through  RateXlabs,  our research and education unit, we provide market
entry, commodity and risk management  consulting,  as well as price analytics to
network providers and financial institutions.

Commodity/Risk Management

         Current  volatile  energy prices provide strong evidence that companies
should consider  utilizing risk management  tools. We currently provide hedging,
trading and  analytical  expertise that will help  bandwidth  trading  customers
manage  the risk  associated  with  bandwidth  price  volatility.  Our  areas of
expertise include:

         o    Hedging, as well as price and risk management

         o    Asset valuation

         o    Purchase and liquidation provisioning

         o    Structured swaps and derivative products

Analytics

         With  increasing   liquidity  and  resulting  price  discovery  in  the
bandwidth  market,  buyers and sellers are able to  identify  and build  forward
price  curves.  The  Company's  RateXlabs  unit  provides  pricing  strategy and
develops analytical tools, such as custom-made indices, that enable customers to
make more effective decisions with respect to their bandwidth assets.  RateXlabs
has  presented  its work on  bandwidth  pricing  strategy  and other  analytical
information to numerous current and potential market participants.

Information Services


         In  order  for  telecommunications   companies,  energy  merchants  and
financial institutions to effectively manage risk, their bandwidth trading desks
need to establish a centralized point of market, pricing and demand information.
We believe that increased  information will drive trading activity and liquidity
in the bandwidth


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market,  which in turn will create  greater  price  discovery  and more valuable
market information.  Our information services group offers our customers pricing
information,  current  market  research,  and  comprehensive  industry  news and
commentary  to assist  them in their  network  deployment,  pricing  and trading
decisions.  We can offer these services through private label  information feeds
from  RateXchange or as co-branded  links to  media/research  and financial news
organizations.

Pricing Information

         We make  available a series of  price-related  information to corporate
decision makers,  financial analysts and market  participants.  This information
provides data to news agencies and participants, tracks historical prices on the
most liquid bandwidth routes,  such as New York-London and New York-Los Angeles,
and provides global indicators, as well as trending tools.

Market Research

         The  Company's  RateXlabs  unit makes  available  a number of  industry
whitepapers  and provides  market  research to customers  and  potential  market
entrants. Topics include decision analysis, risk and yield management, bandwidth
pricing  strategy,  bandwidth  derivative  pricing  models,  and benefits of the
exchange  model.  This  research is utilized  by traders,  analysts,  investment
bankers and corporate decision makers.

Industry News/Market Commentary

         We provide access to the latest news related to the telecommunications,
energy,  and commodity  markets and offer updated market commentary from various
members of our professional staff. This enables our customers to stay abreast of
the latest market developments, pricing trends and supply and demand patterns.


BANDWIDTH TRADING OVERVIEW

         According to the Hoover's "Telecommunications Industry Summary," annual
global spending on telecom  services is expected to grow to $1 trillion by 2001.
Technology and deregulation continue to transform the telecommunications  market
from a  closed  industry  made up of  localized  monopolies  to an  increasingly
competitive  marketplace.  Formerly  state-owned carriers must both defend their
own  markets  and pursue  opportunities  abroad to remain  competitive.  New and
legacy  carriers are taking  advantage of rapid  advances in technology to build
networks  with  drastically  lower  costs of  operation.  The number of carriers
licensed to trade  international  voice traffic in the U.S. alone has doubled in
each of the past three years to well over 1,200.

         Traditionally,  the  telecommunications  market has been fragmented and
inefficient,  with non-standard  pricing and high  interconnection and switching
costs between carriers. As a result of market inefficiency:

         o    Bandwidth   trades  are  currently   conducted   bilaterally  with
              imperfect market data and no central marketplace;

         o    Establishing  and managing  multiple  bilateral  relationships  to
              conduct  bandwidth  trades results in redundant  costs,  marked by
              fulfillment cycles that average 60-90 days;

         o    As many as nine out of 10  transactions  fail  because  of  market
              changes,  financial,  contractual  and quality issues and delivery
              delays; and

         o    Significant price and volume exposure results in operational risks
              and costs for carriers of all sizes.

         Carriers are expected to continue to aggressively  use partnerships and
outsource  agreements to penetrate new markets and alleviate congestion in their
current  networks.  These are the market factors behind the rapidly growing spot
and forward  markets in  bandwidth.  However,  despite  advances in hardware and
software    technologies   and   increasing   network    interconnection,    the
telecommunications  bandwidth market remains  inefficient due to static business
processes that continue to be utilized by carriers of all sizes. In response, we
have created an electronic trading system and a streamlined  delivery mechanism.
By  offering a trading  platform  that  effectively  brings  buyers and  sellers
together and a single standardized  contract and marketplace,  we believe we can
provide significant economic value to both parties through:


                                       9
<PAGE>


         o    Time Savings. We provide instantaneous access to bandwidth prices,
              thus facilitating information flow and transaction timing.

         o    Cost  Savings.  The  most  readily  quantifiable  benefit  to both
              purchasers and sellers of bandwidth is reduced costs from trading
              on an exchange.  Specifically,  cost reductions can be achieved by
              eliminating   unnecessary   costs   and   solving   inefficiencies
              associated with existing buying processes among telecommunications
              carriers.

         o    Scalability.  Historically  as a result of market  inefficiencies,
              existing buying and selling practices have lacked  scalability and
              have been  unable  to meet the  growth  in  demand  for  bandwidth
              trading.  Conversely, our online marketplace significantly reduces
              timing  and costs of  effecting  trades  and  subsequently  offers
              virtually unlimited scalability.

         o    Network  Optimization.  By providing the  communications  industry
              with an alternative sales channel,  we enable service providers to
              optimize the value of their network assets.

         o    Strategic Risk Management. As a source of pricing information,  we
              provide market  participants the information  needed to manage the
              risk associated with fluctuations in supply and demand.

         The entrance of the leading energy  companies  into the  communications
industry expands the total market  opportunity  presented by bandwidth  trading.
The same companies that played a significant role in the development of actively
traded energy and power commodity  markets are playing a significant role in the
development of the bandwidth market. The leading energy companies are at various
stages of entering the bandwidth  trading market,  with most having completed or
about to complete multiple trades.

BANDWIDTH AS A COMMODITY

         Our long-term success depends, in part, on the continued development of
bandwidth as a tradeable  commodity.  In order for an active,  liquid  bandwidth
market to develop, the following characteristics need to be present:

STANDARDIZED PRODUCT

         The development of a commodity  market requires a standardized  product
so that  participants  from  different  industries  can trade the same  product.
Bandwidth as traded on our electronic  trading system is defined as the physical
means of sending  data over lines.  The  bandwidth  traded is a unit of capacity
(capacity)  through  which voice or data can be  transmitted  between two points
(city  pair)  with  predetermined  quality  of service  levels  (quality).  With
capacity,  city  pair and  quality  predetermined,  the  physical  circuit  is a
standardized product.  Physical circuits are the basic building block underlying
all  telecommunications  products.  All types of  communications  from  voice to
Internet Protocol flow over physical circuits.

         Our electronic trading system supports the trading of this standardized
product and is capable of supporting the trading of other standardized  products
as new  markets  develop.  We believe the  flexibility  and  scalability  of our
electronic  trading  system  provides  us an  advantage  in the  development  of
additional trading markets.

STANDARDIZED CONTRACT

         The development of a liquid commodity market requires the adoption of a
standardized  contract.  A standardized  contract allows market  participants to
complete  transactions  quickly by eliminating the need to prepare and negotiate
definitive  documentation for each transaction.  The standardized contract needs
to have standardized terms and conditions that define quality of service,  allow
for orderly  resolution  of disputes  and have  remedies in place for failure to
perform.  A group of industry  participants,  including  RateXchange and several
energy/utility  and  telecommunications  companies,  have  formed the  Bandwidth
Trading  Organization and are working toward the development of an industry-wide
standardized  contract. The contract is called the Master Bandwidth Purchase and
Sale Agreement.


                                       10
<PAGE>

         We have adopted the Master Bandwidth Purchase and Sale Agreement as the
default agreement for trading on the RateXchange  Trading System, but the system
also  supports any number of different  contracts.  Eventually,  the market will
decide what the  standardized  contract is. Until the market  coalesces around a
standardized  contract,  we provide a platform  that supports the trading of any
contract.

         In  December  2000,  we entered  into  contracts  with eight  carriers,
including Tier 1 carriers headquartered in Asia, Europe and North America. Since
December,   an  additional   twenty   contracts   have  been  signed  by  market
participants.

NEED FOR PRICE TRANSPARENCY AND RISK MANAGEMENT

         The  communications  industry has a strong need for price  transparency
and risk management tools,  such as efficient  trading of bandwidth assets.  The
rapid decline in bandwidth pricing, along with the creation of applications that
use a lot of  bandwidth,  has created  uncertainty  for users and  suppliers  of
bandwidth.  A liquid,  commodity  market for bandwidth would provide both buyers
and sellers the information  needed to make sound decisions.  The aggregation of
buyers and  sellers in the market  will lead to a forward  price for  bandwidth.
This  forward  pricing  could be used when making  purchasing  decisions or when
considering laying or lighting fiber optic cable.

         The   aggregation   of  buyers,   sellers  and   transaction   data  on
RateXchange's  Trading System has provided the information  needed to bring risk
management  tools and practices to the  communications  industry.  We believe we
have,  and will  continue  to  play,  a  leadership  role in the  emergence  and
validation of bandwidth as a tradable commodity.

COMPETITIVE CONDITIONS

         Products,  services  and  geographic  location  define the  competitive
conditions for online bandwidth trading. At this stage in the telecommunications
trading  industry's  development,  we believe  that  being the first  company to
establish a trading  system for  transacting  in multiple  types of bandwidth is
significant.

         We  believe  we are  well  positioned  to  compete  effectively  in the
bandwidth trading market for three reasons:

         o    Neutrality  - We believe  that some of our  competitors  intend to
              take positions in their own systems or exchanges as market makers.
              This will generate initial  liquidity,  but carrier reactions have
              been negative,  as these companies are perceived as competing with
              their own exchange customers.

         o    First-mover  advantage  - We believe  that we are one of the first
              bandwidth  trading  systems  established  in the United States and
              among  the  first  in the  world.  We  also  believe  that  we are
              currently one of the only United States electronic trading systems
              that provides:

                   |X| A neutral bandwidth trading system;

                   |X| A bid/ask market for bandwidth trading.

         o    Industry  experience  - Our  management  team's  knowledge  of key
              industry   participants  in  the  core  market  and  expertise  in
              telephony,  energy and  financial  markets  adds  credibility  and
              reduces time to market.

COMPETITORS

         The market for online  bandwidth and minutes  trading  services is new,
rapidly  evolving  and  highly  competitive,  as are  the  online  commerce  and
business-to-business  markets generally. We expect competition in this market to
intensify  in the future.  Several of the  existing  online  exchanges,  such as
E-Speed,   Intercontinental   Exchange  and  Altra   currently   operate  online
marketplaces in commodities  and have large  established  customer bases.  These
companies may start bandwidth trading marketplaces.  Our ability to compete with
them will depend  largely upon our ability to capture  market share by obtaining
sufficient participants for the RateXchange Trading System.


                                       11
<PAGE>


         In addition,  we compete with companies who trade,  broker or otherwise
assist in the buying and selling of  telecommunications  bandwidth  and minutes.
Therefore,  we  currently  or  potentially  compete  with  a  variety  of  other
companies,  including  lead-generation services and traditional offline brokers.
Many  companies,  such as Band-X,  Arbinet,  and Asia Capacity  Exchange,  offer
services  to buyers  and  sellers  of  bandwidth  and  other  telecommunications
products.  The increased use and acceptance of any other method of  facilitating
the buying and selling of excess  telecommunications  bandwidth  and minutes may
adversely impact the commercial viability of our trading system.

TARGET CUSTOMERS

        The market for domestic and  international  bandwidth  includes dominant
major Tier 1 carriers,  such as AT&T, WorldCom,  NTT, Deutsche Telecom,  Pangea,
KDD and  Teleglobe,  as well as  wholesale-only  carriers,  resellers,  brokers,
energy and utility  companies  and large  multinational  corporations.  Customer
interviews, surveys and a review of the industry press indicate:

         o    Customers have significant frustrations with the current process;

         o    Customers see benefits to trading with us; and

         o    In addition to carriers,  large  corporate  users of bandwidth and
              telecom  products  may become  direct  users to purchase  selected
              bandwidth on a domestic or international city-to-city basis.

INTELLECTUAL PROPERTY

         We have applied for several trademarks covering specific businesses and
products  offered on our Internet web site. We have also  registered  copyrights
for the RateXchange  trading system web page designs.  Patent  applications  are
pending for several processes of the RateXchange  trading system. We do not have
any franchises.

GENERAL DEVELOPMENT OF BUSINESS

         During the fourth  quarter of 2000 and first  quarter of 2001,  we made
certain  additions  to our  management  team to  reflect  our  focus on  trading
bandwidth  and  telecommunications   products  among  a  wide  range  of  market
participants.

         On October 5, 2000, D. Jonathan  Merriman,  formerly  Managing Director
and Head of the Equity Capital  Markets Group at First Security Van Kasper,  was
named as our President and Chief Executive Officer.  On October 20, 2000, Steven
Town,  co-Chief  Executive  Officer  of  Amerex,  was  elected  to our  Board of
Directors.  On November 27, 2000, Dean Barr, the Global Chief Investment Officer
of Deutsche Asset Management, was elected to our Board of Directors. On February
12,  2001,  Patrick  Arbor,  former  Chairman of the Chicago  Board of Trade was
elected to our Board of Directors. On February 20, 2001, E. Russell Braziel, CEO
of Netrana,  LLC and former  Chairman of Altra  Energy  Technologies,  Inc.  was
elected to our Board of Directors.

         On April 9, 2001, we announced the formation of RMG Partners,  Corp., a
wholly owned subsidiary,  created to provide market-based  solutions through the
use of derivative  trading  strategies.  To provide these  services,  we hired a
group of six employees  who formerly  served as a  transaction  structuring  and
execution team at Wells Fargo Van Kasper, Inc.

        On March 21, 2001,  we signed an  agreement  with  TeleCity,  a European
managed services  provider,  marking the launch of our Internet access brokering
service, "IP Access". This new product offering will allow ISPs, carriers, other
service  providers and major  enterprises to purchase  quality-assured  Internet
access bandwidth from major backbone ISPs.  TeleCity is building and will manage
the physical exchange facilities upon which the RateXchange Trading System (RTS)
will operate.  The service will be launched  initially in London and expanded to
other TeleCity locations later in the year.

         On March 12, 2001, we announced the acquisition of Xpit.com ("Xpit"), a
privately held company that seeks to become the dominant electronic platform for
the execution of futures and options on futures transactions worldwide. Xpit has
developed a  web-enabled,  high-speed  trading and risk  management  system that
provides


                                       12
<PAGE>


traders,  brokers and  financial  institutions  the ability to both  execute and
clear listed futures contracts on a global basis. The product provides us with a
front-end  trading  platform that serves as its entry point into the derivatives
trading markets.  Xpit will operate as a wholly-owned  subsidiary of RateXchange
Corp.,  and the trading  system will be referred to as the  RateXchange  Futures
System (RFS).

         On January 10,  2001,  RateXchange  and The London  Satellite  Exchange
announced the first global alliance that provides bandwidth users the ability to
fill both  satellite and fiber optic  bandwidth  requirements  at the same time.
This alliance diversifies both companies' product offerings by allowing users to
package total bandwidth requirements.  The London Satellite Exchange operates an
on-line exchange for the satellite industry.

         On  September  17,  2000,  we  announced  that we had  launched our new
RateXchange  Trading  System  (RTS),  and  the  formalization  of our  strategic
alliance with Amerex.  The  combination of the  RateXchange  Trading System with
Amerex's  brokering  experience  and market  relationships  is  expected to help
create a liquid bandwidth trading market.  This electronic trading system should
enable market  participants of all sizes to participate in the rapidly  evolving
bandwidth  market.  The RTS is  similar  to  trading  platforms  that  have been
successful  in  on-line  natural  gas and  electricity  commodity  trading.  The
RateXchange  Trading System enables  bandwidth traders to pre-approve and manage
counterparty  credit.  Trading on the RTS supports the Master Bandwidth Purchase
and Sale Agreement based on the Bandwidth Trading  Organization master agreement
and also supports the trading of other standardized contracts.

         Amerex is a leading  energy and power broker.  Under our agreement with
Amerex,  Amerex  brokers  will  execute  trades  for the  sales or  purchase  of
telecommunications   capacity,   Internet   protocol   products   and/or   other
telecommunications-related  products over our RateXchange  trading system and we
will  share in the  revenues  generated  by the RTS.  In  connection  with  this
agreement,  we issued to Amerex five  warrants  for an  aggregate  of  2,300,000
shares of our common  stock.  Two warrants,  one for 300,000  shares and one for
500,000 shares, with exercise prices of $4.47 and $4.70 per share, are currently
exercisable by Amerex. The remaining three warrants, each for 500,000 shares and
with  exercise  prices of $4.92 per share,  $5.14 per share and $5.37 per share,
will  become  exercisable  upon the  earlier  of  September  17,  2005 or Amerex
executing a cumulative  minimum of $2,000,000,  $5,000,000 and  $10,000,000,  of
value of transactions over the RateXchange Trading System.

         On September  15, 2000, we announced  that our  RateXlabs  division had
established a bandwidth trading consulting  practice.  Two Fortune 100 companies
have engaged  RateXlabs to provide the expertise needed to develop a competitive
advantage  in  the  emerging  bandwidth  trading  industry.  RateXlabs  provides
independent economic research and risk management consulting regarding bandwidth
trading.

         On  July   17,   2000,   we   announced   that  we  had   appointed   a
telecommunications industry consultant, Gordon (Don) Hutchins, Jr., to our Board
of Directors.

         On July 10,  2000,  we  announced  we had  received an  American  Stock
Exchange  listing.  Our common stock commenced trading on the AMEX under the new
symbol RTX on July 10, 2000.

         Since  March  2000,  we have  focused on the  business  of  creating an
electronic marketplace for telecommunication products. In March 2000 we closed a
$32.8 million private placement, netting $30.1 million after expenses. On May 5,
2000, we changed our name to RateXchange  Corporation to more accurately reflect
our new business focus.

         On July 6, 1999,  we  acquired  100% of the  outstanding  stock of Rate
Exchange, Inc., a Colorado corporation,  through a merger of Rate Exchange, Inc.
into  RateXchange I, Inc., our wholly owned  Delaware  subsidiary.  The Delaware
subsidiary was the surviving  entity. We paid 574,998 shares of common stock and
$450,000 in a note that was due one year from the date of closing.  This note is
now fully paid.


                                       13
<PAGE>


         In 1999,  we changed our name to  NetAmerica.com  Corporation.  Shortly
thereafter,  we incorporated Telenisus Corporation,  a Delaware corporation,  as
one of our wholly owned  subsidiaries.  Telenisus is a development stage company
that is  seeking  to become a single  source  provider  of secure  and  reliable
Internet-based  business-to-business services to corporate customers,  carriers,
Internet service providers and marketers of telecommunications services. Through
acquisitions  and internal  business  development,  Telenisus seeks to develop a
full suite of  Internet  and data  network  management  tools  that will  enable
customers to increase  productivity,  to reduce costs and to access a wide range
of Internet, e-commerce, security and communication applications from a one-stop
network service delivery provider.

         In  November  1999,  Telenisus  announced  the  closing  of  its  first
independent  private  placement  financing.  The  common  stock  issued  in this
financing,  together  with stock issued in a  Telenisus-subsidiary  acquisition,
reduced  our  percentage  ownership  interest  in  Telenisus  to less  than 10%.
Telenisus used the proceeds of the financing to expand its  management  team and
to  accelerate  development  of  its  four  service  families:  virtual  private
networks,  managed firewall/security  services, Web site and application hosting
and  e-commerce.  Telenisus  is  focused on  delivering  its  business  Internet
solutions to large and  mid-sized  corporate  customers.  Because of  subsequent
financings,  our ownership in Telenisus is currently below 5%. Our investment is
carried at the lower of cost or market on the balance sheet.

         In  September  1998,  in  connection  with our  strategy to acquire and
consolidate  Internet service providers,  we also entered into an agreement with
NetAmerica,  Inc., a Washington  corporation,  under which we agreed to purchase
the outstanding stock of Net America, Inc. Net America, Inc. subsequently agreed
to be renamed A1  Internet,  Inc. and agreed to assign and transfer to us all of
its right,  title and interest in the name "Net America." We determined in March
1999  that it was not in our  best  interest  to  complete  the  purchase  of A1
Internet's stock after A1 Internet  acknowledged that some  representations made
to us were  inaccurate.  Consequently,  on March 16,  1999,  we entered  into an
agreement with A1 Internet to abandon the stock purchase.

         On September 30, 1998, we acquired  PolarCap,  Inc. As a result of this
acquisition,  PolarCap  became  our  wholly  owned  subsidiary.  PolarCap  is  a
California  corporation  that was  organized  in April  1997 for the  purpose of
investing in and developing rights to a variety of software technologies related
to multimedia, development tools and applications technologies.

         We were originally  incorporated as Venture World, Ltd. on May 6, 1987,
under  the laws of the State of  Delaware,  for the  purpose  of  developing  or
acquiring  general business  opportunities.  We had no material  operations from
1992 to 1998.

RESEARCH AND DEVELOPMENT

         We  conduct  on-going  research  in the  areas  of  commoditization  of
telecommunications  bandwidth in evolving pricing models for bandwidth and other
telecommunications  products and services, and we are developing future products
and services  based on this  research.  During 2000,  we estimate  that we spent
approximately  $400,000 to commission  proprietary  university-based and private
sector  research  in  these  areas.  During  1999,  we  estimate  that we  spent
approximately  $100,000 to commission  proprietary  university-based and private
sector  research in these areas.  Before 1999,  we did not have any  significant
expenditures for research and development.

EMPLOYEES

         RateXchange and its subsidiaries  employed thirty-seven (37) persons at
December 31, 2000.

ITEM 2.    PROPERTIES

         Not applicable.

                                       14
<PAGE>


ITEM 3.    LEGAL PROCEEDINGS

         Gregory K.  Martin v.  NetAmerica.,  Inc. et al. In the spring of 1999,
Gregory K. Martin,  a former officer of both NetAmerica  (Seattle)(NAI)  and the
Company,  brought suit  against the Company and others in the Superior  Court of
Washington (Civil Action No. 99-2-09171-OSEA).  The suit related to, among other
things,  Mr.  Martin's  claims  for  compensation,  reimbursement  for  business
expenses,  certain  insurance  benefits,  payment of certain  other  obligations
guaranteed  by  Mr.  Martin  (or  reimbursement  of  payments  made  by  him  as
guarantor),  payment of certain tax and other  obligations of a company referred
to as SRG/Quantum that were purportedly assumed by NAI and the Company, issuance
of options to purchase stock of the Company and other  remedies  relating to the
terminated  acquisition  and  other  transactions.  The suit  was  conditionally
settled by an agreement  dated May 22, 1999,  among NAI  (referred to therein as
"A1"),  the Company and Mr.  Martin (with  William  Fritts  undertaking  certain
limited  obligations).  Pursuant to that agreement,  Mr. Martin took a voluntary
non-suit,  i.e.  dismissed his suit without  prejudice.  Mr. Martin may have the
ability to attempt to void the settlement  pursuant to noncompliance on the part
of NAI to their part of the settlement. As of December 31, 2000, the Company has
fulfilled all of its current obligations under the settlement agreement.

         On February 24, 2000,  Concentric  Network  Corporation filed a lawsuit
against NetAmerica, Inc., aka A1 Internet, Inc., and the Company in the Superior
Court of  California  in the  County of Santa  Clara (CV  784335).  The  lawsuit
involves  claims for breach of contract and common counts based on A1 Internet's
nonperformance in a service  agreement between A1 and Concentric.  Concentric is
asking for  compensatory  damages of at least $167,794,  restitution,  costs and
attorney fees.  The matter is currently  pending in Superior Court and will soon
proceed to arbitration. The Company recorded an accrual for the estimated amount
of this contingency.

         In 1999,  RateXchange entered into a term sheet agreement with a vendor
to  provide  specialized  consulting  and  computer  programming  to  assist  in
RateXchange's  business plans and operations in the electronic  trading business
niche it was  developing.  The term  sheet  was  never  finalized  into a formal
agreement,  but some services were provided, and certain cash payments were made
for the services that were rendered. The term sheet also provided for the vendor
to receive a stock position in RateXchange of up to 10% for certain services. In
February 2000, the Company entered into discussions  with the vendor  concerning
the 10% stock  position in  RateXchange  because the formal  agreement was never
completed and the contemplated services were not fully provided. In August 2000,
the Company  reached an agreement for settlement of the dispute with the vendor,
whereby the Company issued 175,000 shares of common stock,  175,000 warrants and
$100,000 in cash. The market value of the settlement was $1.8 million.

         Additionally,  from time to time,  we are involved in ordinary  routine
litigation incidental to our business.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.

                                     PART II

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

PRICE RANGE OF COMMON STOCK

         Our common stock trades on the American Stock Exchange under the symbol
"RTX." The following table sets forth the range of the high and low sales prices
per  share of our  common  stock for the  fiscal  quarters  indicated.  Prior to
December 18, 1998, there was no known public trading in our common stock.


                                       15
<PAGE>


                                                           HIGH        LOW
                                                        -------      -------
2000
----
Fourth Quarter                                         $ 4 1/8       $1 1/4
Third Quarter                                            6 3/8        3
Second Quarter                                          22 1/8        5 3/16
First Quarter                                           43 1/4        5 5/8

1999
----
Fourth Quarter                                         $ 8 7/8       $3 3/4
Third Quarter                                            6 3/4        4 3/8
Second Quarter                                           7 1/4        5 1/2
First Quarter                                            6 7/8        4 1/2

1998
----
Fourth Quarter                                         $ 5 3/8       $4 1/2
Third Quarter                                             N/A          N/A
Second Quarter                                            N/A          N/A
First Quarter                                             N/A          N/A


APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

         On March 14, 2001,  there were 305 shareholders of record of our common
stock.

DIVIDENDS

         We do not presently pay dividends on our common stock.
<TABLE>
ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
For the Year                              2000               1999               1998               1997               1996
                                      ------------       ------------       ------------       ------------       ------------
<S>                                   <C>                <C>                <C>                <C>                <C>
Revenue                               $     91,000       $       --         $       --         $       --         $       --

Net loss                               (44,729,000)        (9,299,000)        (3,145,000)              (200)            (2,000)

Basic and diluted loss per share             (2.69)             (0.72)             (1.92)              --                 --

Weighted average number of
common shares:                          16,633,611         12,863,020          1,636,919            200,000            200,000

At End of Year

Total assets                          $ 16,264,000       $  3,044,000       $    830,000       $       --         $       --
</TABLE>


ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

         The  following  discussions  should  be read in  conjunction  with  our
consolidated financial statements contained under Item 8 of this report.


                                       16
<PAGE>


RESULTS OF OPERATIONS

         The following table summarizes our results of operations:

                            Year Ended          Year Ended        Year Ended
                           Dec. 31, 2000      Dec. 31, 1999      Dec. 31, 1998
                           -------------      -------------      -------------
Revenue                     $     91,000               --                 --
Expenses                    $ 42,192,000       $  9,431,000       $  3,136,000
Interest income             $  1,017,000       $    151,000       $      2,000
Net loss                    $(44,729,000)      $ (9,299,000)      $ (3,145,000)


2000 vs. 1999

Revenue

         We generated  revenue of $91,000 during 2000 from  consulting,  trading
commissions and banner advertising. We generated no revenue in 1999.

Expenses

         Our total  expenses were  $42,192,000 in 2000 compared to $9,431,000 in
1999. The increase was primarily due to business and infrastructure  development
associated  with  executing  our  business  plan.  The major  components  of our
expenses in 2000 and 1999 were:

         Non-cash Expenses

         o    $10,391,000  in 2000  associated  with below  market  stock option
              grants to employees, there were no such expenses in 1999;

         o    $7,368,000 in 2000  associated  with the warrants  issued or to be
              issued in conjunction with the strategic alliance established with
              Amerex, there were no such expenses in 1999;

         o    $1,507,000  in 1999 for stock and notes  payable  expensed  in the
              purchase of  RateXchange  I, Inc.,  there were no such expenses in
              2000;

         o    $4,302,000  in 2000 for  options and  warrants to purchase  common
              stock  granted to service  providers  compared  to  $3,158,000  of
              common stock, warrants and options to purchase common stock issued
              to service providers in 1999;

         o    $1,047,000  in 2000 for option  revaluation  related to terminated
              employees, there were no such expenses in 1999.

         Cash Expenses

         o    $5,319,000  in 2000  compared  to  $1,325,000  in 1999 for payroll
              costs.  The increase was due to an increased  number of employees;
              and $519,125 associated with severance.

         o    $6,194,000  in outside  services in 2000 compared to $2,035,000 in
              1999.  The  increase  was  primarily  due  to  increased  business
              development and marketing activity;

         o    $3,970,000 in delivery equipment costs in 2000, there were no such
              expenses in 1999.


                                       17
<PAGE>


Interest Income

         Interest income for 2000 was $1,017,000  compared to $151,000 for 1999.
The  increase  in  interest  income  is due to  interest  earned  on  investment
securities acquired with the proceeds from the private placement.

Interest and other expense

         Interest and other expenses were $3,646,000 in 2000 compared to $19,000
in 1999. The 2000 expenses include non-cash charges related to:

         o    $1,723,000 in stock and warrants to buy stock issued in settlement
              of a dispute;

         o    $1,658,000 fair value  adjustment  classified as interest  expense
              associated  with  conversion  of our  bridge  notes into stock and
              warrants.

Net Loss

         During 2000, we incurred  losses of  $44,729,000  compared to losses of
$9,299,000  in 1999.  The major  components of the net loss  comprised  non-cash
expenses of $26,489,000 for stock options and warrants to purchase company stock
and cash  expenditures  associated  with  developing the business of $19,349,000
compared to non-cash expenses of $4,665,000 in 1999 and cash expenses associated
with  developing the business of $4,785,000.  Because we are developing a unique
electronic  trading  system,  we  anticipate  that we  will  continue  to  incur
operating losses and cash flow deficiencies for the foreseeable future.

1999 vs. 1998

Revenue

         We generated no revenues in 1999 or 1998.

Expenses

         Our total  expenses for 1999 increased  substantially  compared to 1998
because we did not begin  operations  until  September  30,  1998.  As a result,
during 1998 we incurred  expenses  for three  months of that year  compared to a
full year of expenses for 1999.  Incurred  expenses relate  primarily to finding
and funding a development  stage  enterprise.  We  investigated  many  potential
acquisition targets and succeeded in creating one entity, Telenisus Corporation,
and acquiring another entity, RateXchange I, Inc.

         We  funded  Telenisus  Corporation  only  to  the  extent  of  original
capitalization of $75,000. Any further funding of Telenisus was completed on its
own and did not affect our operations.

         Total expenses for 1999 were $9,431,212  compared to $3,136,000 in 1998
of which the principal components were:

         Non-cash Expenses

         o    $3,158,000  in 1999  compared  to  $2,020,000  in 1998 for  common
              stock, warrants or options to purchase common stock of the Company
              issued in exchange  for various  services.  The  increase  was due
              primarily  to  increased  business  development  activity  and our
              purchase of RateXchange I, Inc.

         o    $1,507,000  expensed  in the  purchase of the  outstanding  common
              stock of RateXchange in 1999 and $90,000  expensed in the purchase
              of the outstanding common stock of PolarCap, Inc. in 1998.

         Cash Expenses

         o    $2,035,000  for outside  services  related  primarily  to business
              development, there were no such expenses in 1998;


                                       18
<PAGE>


         o    $1,325,000 for payroll costs, there were no such expenses in 1998;
              and

         o    $414,000 in 1999 and $885,000 in 1998 to write-off  advances to A1
              Internet, Inc.

         Total expenses for 1998 related to operations  commencing September 30,
1998 and included the activity of  RateXchange  Corporation  and its  subsidiary
PolarCap Inc.

Interest Income

         The only income we generated  during 1999 and 1998 was interest  income
on our subscription receivables.  Interest income for 1999 was $151,000 compared
to $2,000 for 1998.  The  increase in  interest  income is  attributable  to the
amount of subscription  receivables carried during 1999 compared to 1998. All of
these receivables have been collected.

LIQUIDITY AND CAPITAL RESOURCES

         We have financed our operations to date  primarily  through the sale of
equity securities. We have been unprofitable since inception , have incurred net
losses in each year, and to date, we have generated only nominal revenues.

         We had working  capital of $12,001,000 at December 31, 2000 compared to
negative  working capital of $48,000 on December 31, 1999. At December 31, 1999,
we had common stock subscription receivables in the amount of $1,590,000,  which
were due and payable in 2001,  but which were  collected in 2000. In March 2000,
we  closed a $32.8  million  private  placement,  netting  $30.1  million  after
expenses.  In April,  2001, the Company received an irrevocable  commitment from
two  investors  to acquire $9.0  million of newly  issued  common  shares of the
Company.  The sale of shares will settle on or before July 10, 2001. These funds
should be sufficient to cover our  operations and working  capital  requirements
for the next  twelve  months. We are  taking  the  following  steps  to  achieve
profitability:

         o    We are pursuing additional revenue generating opportunities;

         o    We have  exited  the  delivery  hub  business  and  are  exploring
              potential  sales to operators of delivery  hubs whereby they would
              operate and own our equipment;

         o    We are reducing our personnel costs; and

         o    We are reducing our marketing and public relations costs.

In addition, we have substantially  completed the development of the RateXchange
Trading System and do not  anticipate  significant  expenditures  related to it.
Nevertheless,  we may need to seek additional  financing sooner than expected in
order  to  accelerate  market  penetration  through  mergers,   acquisitions  or
additional strategic relationships.

         Our  operating  activities  used cash of  $17,160,000  during  2000 due
primarily to:

         o    Increased marketing and development activity;

         o    Increased  number of  employees  and  expansion  of our  executive
              management team; and

         o    Development of our delivery hub infrastructure.

         Our investing  activities  used cash of  $13,644,000  during 2000,  due
primarily to investing the proceeds from the private placement.

         In March 2000,  we executed a Master Lease Line  Commitment  Agreement,
which has a minimum  term of either 36 to 48 months  depending  upon the type of
equipment  we  lease.  Pursuant  to this  agreement,  we are  entitled  to lease
equipment that has a cost or sale price, which in the aggregate, does not exceed
$10,000,000.  To date,  this


                                       19
<PAGE>


facility has been utilized by the Company to lease  equipment  needed to operate
the delivery hubs. Equipment with a cost of $4,912,000 is currently leased under
this facility.  Our periodic  lease  payments are determined by multiplying  the
cost or sale  price of the  equipment  leased by a lease  rate  factor of either
0.03277  or  0.02633,  depending  upon  the  type  of  equipment.  We  are  also
responsible for all taxes, shipping, transportation,  installation, services and
other expenses related to the equipment we lease pursuant to the agreement.

         Financing  activities  generated  $32,800,000 during 2000 and consisted
primarily of proceeds  from sales of common  stock.  Between  February and March
2000,  we sold to  accredited  investors  a total  of  2,733,329  shares  of our
restricted  common  shares plus  warrants to  purchase  1,366,673  shares of our
common stock at an exercise price of $14.40 per share. The shares were sold at a
subscription  price of $12.00 per share. After deducting the expenses related to
the offering, we received $30,135,000. The proceeds of the sales of common stock
are being used to expand our online marketplace for telecommunications  products
and enhance our geographic reach and product line.

         We are executing an overall  business plan that may require  additional
capital for among other uses:

o        Expansion into new domestic and international markets;

o        Development of additional products and services; and

o        Acquisitions.

         Furthermore,  our  funding of working  capital  and  current and future
operating losses may require additional capital investment.  We do not currently
possess a bank source of financing and we have had nominal revenues.

         Our  business  and  operations  have not been  materially  affected  by
inflation during the periods for which financial information is presented.

OUTLOOK

         We provide  trading,  consulting  and  information  solutions  enabling
market  participants  to maximize their assets.  These trading  solutions  allow
network  providers,  energy  merchants,  financial  institutions  and  commodity
managers engaged on the RateXchange Trading System (RTS) and RateXchange Futures
System (RFS) the ability to trade bandwidth and futures globally. Our consulting
solutions  practice provides asset valuation tools,  risk management  strategies
and analytics.  The information  solutions group provides  pricing  information,
market  research and industry  background.  We are a trading  solutions  company
enabling  the  creation  of  liquid   marketplaces   for   bandwidth  and  other
telecommunications products.

         We are a development  stage company and we are subject to all the risks
inherent in the  establishment  of a new business  enterprise.  To address these
risks, we must:

         o    Establish market acceptance for our electronic  trading system and
              other products and services;

         o    Continue to retain, attract and motivate qualified personnel;

         o    Effectively   manage  our  capital  to  support  the  expenses  of
              developing and marketing new products and services;

         o    Implement  and  successfully  execute our business  and  marketing
              strategy;

         o    Respond to competitive  developments and market  conditions in the
              global communications industry; and

         o    Continue to develop and upgrade our trading system.

         The foregoing  contains  forward-looking  statements that involve risks
and  uncertainties,  including  but  not  limited  to  changes  in our  business
strategy,  our inability to raise sufficient capital,  general market trends and
conditions,  and other risks  detailed  below in "Factors That May Affect Future
Results."  Actual results may vary materially from any future results  expressed
or implied by the forward-looking statements.


                                       20
<PAGE>


BRIDGE LOAN

         During  December  1999,   RateXchange  I,  Inc.  received  $435,000  in
short-term loans in connection with a $2,000,000  bridge loan agreement  reached
with various  investors.  The remaining  $1,565,000  was received in January and
February 2000. The $2 million of bridge loans were used as interim  financing of
RateXchange  I, Inc.  activities.  The loans  bore  interest  at 10% and were to
mature six months  from the  completion  of the  funding of the loan  (completed
February 2000). The notes were convertible into RateXchange I, Inc. common stock
at a price per share to be determined in an anticipated  subsequent financing of
RateXchange I, Inc..  Purchasers of the notes also received warrants to purchase
RateXchange I, Inc. common stock at $2.40 per share, subject to adjustment.

         In 2000,  as a result  of the  Company's  new  business  strategy,  the
Company  offered to the  investors  in the $2 million  bridge  loan the right to
convert  their notes into  RateXchange  Corporation  common stock at an exchange
rate of $5.00 per  share.  In  addition,  the  Company  issued  such  holders an
aggregate of 493,750  warrants to purchase common stock at $5.00 per share.  Any
note holders who declined  this offer were  entitled to rescind  their  original
investment and receive their principal back in full, including accrued interest.
As a result of this offer all notes, except $25,000, were converted into 395,000
shares of RateXchange Corporation common stock.

OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK

         Shareholders  authorized  the  1999  Stock  Option  Plan  during  1999.
Shareholders  authorized  the 2000 Stock  Option Plan in April  2000.  There are
options to purchase  8,000,000 shares  authorized for issuance under both plans.
In February 2000, the Board authorized  additional options to purchase 4,290,000
shares  outside of either plan.  During the first  quarter of 2000,  the Company
granted 3,940,000 options to employees for less than fair market value for which
the Company is recognizing related  compensation expense over the option vesting
periods.  The compensation  expense is computed based on the difference  between
the fair value of the stock on the date of grant,  which was $12, and the strike
price of the options, which is $7.

         The  Company has also  granted  options  and  warrants to  non-employee
consultants  totaling  874,620 for which the Company recorded related expense of
$4,302,000 in 2000.

         In September 2000, the Board of Directors approved and issued 2 million
options to the Company's new Chief Executive Officer. These options were granted
with a strike price equal to the fair value of the  Company's  stock on the date
of grant and vest over various periods.

PRIVATE PLACEMENT

         In March 2000,  the Company  completed a private  placement in which it
sold 2,733,329 shares of restricted common stock at a subscription  price of $12
per share plus warrants to purchase  1,366,673  shares of its common stock at an
exercise price of $14.40 per share. The warrants are immediately exercisable and
expire in three years. After deducting  $2,665,000 for costs associated with the
offering, the Company received $30,135,000. The proceeds were used to expand our
online marketplace for telecommunications products, enhance our geographic reach
and product line and accelerate deployment of our delivery hubs.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         We operate in a highly  competitive  and rapidly  changing  market that
involves  a  number  of  risks.  While we are  optimistic  about  our  long-term
prospects, the following discussion highlights some risks and uncertainties that
should be considered in evaluating our growth outlook.

As a  development  stage company with a limited  operating  history in a new and
rapidly  changing  industry,  it is  difficult  to  evaluate  our  business  and
prospects.


                                       21
<PAGE>


         We are a  development  stage  company.  Our  activities  to  date  have
concentrated primarily on planning and developing our trading system for trading
bandwidth and other  telecommunications  products.  In September  2000, we began
operating the RateXchange Trading System for trading bandwidth.  Accordingly, we
have a limited  operating history on which to base an evaluation of our business
and prospects.  Our prospects must be considered in light of the risks, expenses
and  difficulties  frequently  encountered  by companies in their early stage of
development,  particularly companies in new and rapidly evolving markets such as
online  commerce.  There  can be no  assurance  that we will  be  successful  in
addressing  these risks,  and our failure to do so could have a material adverse
effect on our business and results of operations.

We have a history of losses and expect to incur losses in the future, and we may
never achieve profitability.

         At December 31, 2000,  our  accumulated  deficit  since  inception  was
$57,172,000,   including  $33,553,000  related  to  stock  grants,  options  and
warrants. For 2000, we incurred a net loss of $44,729,000, including $26,489,000
related to stock grants and  warrants.  We have incurred a net loss in each year
of our existence,  and have financed our development stage operations  primarily
through  sales of equity  securities.  We have  recorded  nominal  revenues from
operations.  We expect to incur net losses for the  foreseeable  future.  We may
never achieve or sustain significant revenues or profitability on a quarterly or
annual basis.

If the RateXchange  Trading System and RateXchange Futures System do not achieve
commercial acceptance, our results will suffer.

         We expect to rely  largely on fees and  commissions  from  transactions
facilitated on the RateXchange  Trading System,  RateXchange  Futures System and
related  consulting  services,  for the  foreseeable  future.  Online trading of
telecommunications  bandwidth  and minutes  currently  has only  limited  market
acceptance, as does online trading of futures contracts. As a result, our future
ability to gain  commercial  acceptance of the  RateXchange  Trading  System and
RateXchange  Futures  System  is  critical  to  our  success.   Any  failure  to
successfully  gain commercial  acceptance of the RateXchange  Trading System and
RateXchange  Futures System would not only have a material adverse effect on our
business  and  operating  results,  but also on our  ability to seek  additional
revenue opportunities.

We depend on the  efforts of the Amerex  Bandwidth,  Ltd.  brokers  who  execute
trades on our  trading  system to generate revenues for us.

         In September  2000,  we entered into a strategic  alliance  with Amerex
Bandwidth,  Ltd., a leading  energy and power broker.  Under our agreement  with
Amerex,   Amerex   brokers   execute   trades  for  the  sale  or   purchase  of
telecommunications   capacity,   Internet   protocol   products   and/or   other
telecommunications-related  products  on our trading  system,  and we share with
Amerex the revenues  generated by these  trades.  As a result,  we depend on the
efforts of the Amerex brokers who execute those trades to generate  revenues for
us. There can be no assurance that these brokers will be successful in expanding
our business.

We may need  additional  capital in the future  and it may not be  available  on
acceptable terms.

         We  may  need  additional   working  capital  for  enhancement  of  the
RateXchange  Trading  System,  software  development,  marketing and general and
administrative costs and to fund losses before achieving  profitability.  We may
need to raise additional funds through  additional  equity and/or debt financing
to meet our capital  requirements.  We will need to raise additional funds if we
have  underestimated  our capital needs or if we incur unexpected  expenses.  We
cannot assure you that such  financings will be available in amounts or on terms
needed to meet our requirements, or at all. Further, our lack of tangible assets
to  pledge  could  prevent  us from  establishing  a source  of  financing.  The
inability  to raise all needed  funding  would  adversely  affect our ability to
successfully implement the objectives of our business plan.

We  may  not  be  able  to  compete  successfully  against  current  and  future
competitors.


                                       22
<PAGE>


         The  market for  online  bandwidth,  minutes  and  derivatives  trading
services is new,  rapidly  evolving  and highly  competitive,  as are the online
commerce and  business-to-business  markets generally.  We expect competition in
this  market  to  intensify  in  the  future.  Several  of the  existing  online
exchanges,  such as  E-Speed,  Intercontinental  Exchange  and  Altra  currently
operate online  marketplaces in commodities and have large established  customer
bases. These companies may start bandwidth trading marketplaces.  Our ability to
compete with them will depend  largely upon our ability to capture  market share
by obtaining sufficient participants for the RateXchange Trading System.

         In addition,  we compete with companies who trade,  broker or otherwise
assist in the buying and selling of  telecommunications  bandwidth  and minutes.
Therefore,  we  currently  or  potentially  compete  with  a  variety  of  other
companies,  including  lead-generation services and traditional offline brokers.
Many  companies,  such as Band-X,  Arbinet,  and Asia Capacity  Exchange,  offer
services  to buyers  and  sellers  of  bandwidth  and  other  telecommunications
products.  The increased use and acceptance of any other method of  facilitating
the buying and selling of excess  telecommunications  bandwidth  and minutes may
adversely impact the commercial viability of the RateXchange Trading System.

         Large  telecommunications  and energy  companies  have the  ability and
resources to compete in the online bandwidth and minutes trading services market
if they choose to do so, including launching their own online exchanges or other
trading services.  Many of our competitors have substantially greater financial,
technical and marketing  resources,  larger  customer  bases,  longer  operating
histories,  greater name recognition and more  established  relationships in the
industry than we have. In addition, a number of these competitors may combine or
form strategic partnerships.  As a result, our competitors may be able to offer,
or bring to market  earlier,  products and services that are superior to our own
in terms of features,  quality, pricing or other factors. Our failure to compete
successfully with any of these companies could have a material adverse effect on
our business and results of operations.

         Increased pressure created by any present or future competitors,  or by
our  competitors  collectively,  could  have a  material  adverse  effect on our
business and  operating  results.  Increased  competition  may result in reduced
commissions  and loss of market  share.  Further,  as a  strategic  response  to
changes in the  competitive  environment,  we may from time to time make certain
pricing,  service  or  marketing  decisions  or  acquisitions  that could have a
material adverse effect on our business and operating  results.  There can be no
assurance  that we will be able to  compete  successfully  against  current  and
future competitors.  In addition, new technologies and the expansion of existing
technologies may increase the competitive pressures on us.

         Demand and market  acceptance  for  recently  introduced  services  and
products over the Internet are subject to a high level of  uncertainty.

         We will  rely on  customers  who  have  historically  used  traditional
offline  means of commerce to buy and sell excess  telecommunications  bandwidth
and minutes.  For us to be successful,  these  customers must accept and utilize
novel ways of conducting business and exchanging information over the Internet.

         Critical issues concerning the commercial use of the Internet,  such as
ease of access,  security,  reliability,  cost and  quality of  service,  remain
unresolved  and may affect the growth of Internet use or the  attractiveness  of
conducting  commerce online.  In addition,  the Internet and online services may
not be  accepted  as a viable  commercial  marketplace  for a number of reasons,
including   potentially   inadequate   development  of  the  necessary   network
infrastructure or delayed  development of enabling  technologies and performance
improvements.  To the extent that the Internet and online  services  continue to
experience significant growth, there can be no assurance that the infrastructure
of the Internet and online  services  will prove  adequate to support  increased
user  demands.  In


                                       23
<PAGE>


addition,  the Internet or online  services  could lose their  viability  due to
delays in the development or adoption of new standards and protocols required to
handle  increased levels of Internet or online service  activity.  Changes in or
insufficient availability of telecommunications services to support the Internet
or online  services  could also result in slower  response  times and  adversely
affect usage of the Internet and online  services  generally and our services in
particular. If use of the Internet and online services does not continue to grow
or grows more slowly than expected,  if the  infrastructure for the Internet and
online  services does not  effectively  support growth that may occur, or if the
Internet and online services do not become a viable commercial  marketplace,  we
would be materially and adversely affected.

We face online commerce security risks.

We rely on encryption and authentication  technology licensed from third parties
to  provide  the  security  and   authentication   necessary  to  effect  secure
transmission  of  confidential  information,  such as  bank  account  or  credit
information.  There can be no assurance that advances in computer  capabilities,
new  discoveries in the field of  cryptography,  or other events or developments
will not  result  in a  compromise  or breach  of the  algorithms  used by us to
protect  transaction  data. Any compromise of our security could have a material
adverse  effect on our  reputation and us. A party who is able to circumvent our
security  measures  could  misappropriate   proprietary   information  or  cause
interruptions  in our  operations.  We may be  required  to  expend  significant
capital and other  resources  to protect  against such  security  breaches or to
alleviate problems caused by such breaches. To the extent that our activities or
those of third  party  contractors  involve  the  storage  and  transmission  of
proprietary  information,  such as bank account or credit information,  security
breaches  could  damage  our  reputation  and  expose  us to a risk  of  loss or
litigation and possible  liability which could have a material adverse effect on
our business and results of operations.

Our  operating  results  could  be  impaired  if we are  or  become  subject  to
burdensome governmental regulation of online commerce.

         We are not  currently  subject to direct  regulation by any domestic or
foreign  governmental  agency,  other than regulations  applicable to businesses
generally, including online companies. However, due to the increasing popularity
and use of the Internet and other online services,  it is possible that a number
of laws and  regulations  may be adopted  with  respect to the Internet or other
online services covering issues such as:

         o    User privacy;

         o    Pricing;

         o    Content;

         o    Intellectual property;

         o    Distribution; and

         o    Characteristics and quality of products and services.

         The adoption of any  additional  laws or  regulations  may decrease the
growth of the Internet or other online services,  which could, in turn, decrease
the  demand  for our  products  and  services  and  increase  our  cost of doing
business,  or  otherwise  have an adverse  effect on our business and results of
operations.  Moreover,  the  applicability  of existing  law to the Internet and
other online services  governing  issues such as property  ownership,  sales and
other taxes and personal  privacy to the  Internet and other online  services is
uncertain and may take years to resolve.

         We plan to facilitate  transactions between numerous customers residing
in various states and foreign  countries,  and such jurisdictions may claim that
we are required to qualify to do business as a foreign  corporation in each such
state and foreign country.  Our failure to qualify as a foreign corporation in a
jurisdiction  where it is  required  to do so  could  subject  us to  taxes  and
penalties.  Any new  legislation  or  regulation,  the  application  of laws and
regulations  from  jurisdictions  whose  laws  do  not  currently  apply  to our
business,  or the  application of existing laws and  regulations to the Internet
and other online  services could have a material  adverse effect on our business
and results of operations.


                                       24
<PAGE>


We may face liability for information retrieved from our portal.

         Due to the fact that  material  may be  downloaded  from our portal and
subsequently distributed to others, there is a potential that claims may be made
against us for negligence, copyright or trademark infringement or other theories
based on the nature and  content of such  material.  Although  we carry  general
liability  insurance,  our insurance may not cover potential claims of this type
or may not be  adequate  to cover all costs  incurred  in defense  of  potential
claims or to indemnify us for all  liability  that may be imposed.  Any costs or
imposition  of  liability  that is not  covered  by  insurance  or in  excess of
insurance  coverage  could have a material  adverse  effect on our  business and
results of operations.

We are at risk of capacity constraints and face system development risks.

         The  satisfactory  performance,  reliability  and  availability  of the
RateXchange  Trading  System is  critical to our  reputation  and our ability to
attract and retain users and maintain  adequate  customer  service  levels.  Our
revenues  depend on the number of users of our trading  system and the volume of
trading  that is  facilitated.  Any  system  interruptions  that  result  in the
unavailability of our portal or reduced  performance of the RateXchange  Trading
System could reduce the volume of bandwidth traded and the attractiveness of our
portal as a means for such trading.

         There may be a  significant  need to upgrade the capacity of our portal
and the RateXchange  Trading System in order to handle thousands of simultaneous
users and transactions. Our inability to add additional software and hardware or
to develop and upgrade further our existing technology,  transaction  processing
systems or  physical  infrastructure  to  accommodate  increased  traffic on the
RateXchange  Trading  System or  increased  trading  volume  through  our online
trading  or  transaction  processing  systems  may  cause  unanticipated  system
disruptions,  slower response times,  degradation in levels of customer  service
and impaired  quality and speed of trade  processing,  any of which could have a
material adverse effect on our business and operating results.

Our business and operations would suffer in the event of system failures.

         Our  success,  in  particular  our ability to  successfully  facilitate
bandwidth  and  derivative  trades and provide  high quality  customer  service,
largely depends on the efficient and uninterrupted operation of our computer and
communications  hardware  systems.  Our systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunication failures,
break-ins,  earthquake and similar events. Despite the implementation of network
security measures,  our servers are vulnerable to computer viruses,  physical or
electronic break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to accept and fulfill customer orders.

If we do not respond  effectively  to  technological  change,  our service could
become obsolete and our business will suffer.

         To remain  competitive,  we must  continue  to enhance  and improve the
responsiveness,  functionality  and features of the RateXchange  Trading System.
The  Internet  and the  online  commerce  industry  are  characterized  by rapid
technological change, changes in user and customer requirements and preferences,
frequent new product and service  introductions  embodying new  technologies and
the  emergence of new industry  standards  and  practices  that could render our
existing  RateXchange  Trading  System,   proprietary   technology  and  systems
obsolete.  Our success will depend,  in part, on our ability to license  leading
technologies useful in our business,  enhance our existing services, develop new
services and technology that address the increasingly  sophisticated  and varied
needs of our prospective  customers,  and respond to technological  advances and
emerging industry standards and practices on a cost-effective and timely basis.


                                       25
<PAGE>


         The development of the RateXchange Trading System and other proprietary
technology  entails  significant  technical and business risks.  There can be no
assurance that we will  successfully use new  technologies  effectively or adapt
the RateXchange  Trading System and proprietary  technology to user requirements
or emerging  industry  standards.  Our  failure to adapt in a timely  manner for
technical,  legal,  financial or other reasons, to changing market conditions or
customer requirements,  could have a material adverse effect on our business and
results of operations.

If we do not effectively  manage growth, our ability to provide trading services
will suffer.

         To manage the expected growth of our operations and personnel,  we will
be required to improve  existing,  and  implement  new,  transaction-processing,
operational and financial systems, procedures and controls, and to expand, train
and manage a growing employee base. Further, we will be required to maintain and
expand our relationships  with various hardware and software  vendors,  Internet
and other online  service  providers  and other third  parties  necessary to our
business.  If we are unable to manage growth effectively,  we will be materially
adversely affected.

We need to hire and retain qualified personnel to sustain our business.

         We are  currently  managed  by a small  number  of key  management  and
operating personnel. We do not maintain "key man" insurance on any employee. Our
future success depends,  in part, on the continued service of our key executive,
management and technical  personnel,  many of whom have recently been hired, and
our ability to attract highly skilled employees.  If any key officer or employee
were  unable or  unwilling  to  continue  in his or her  present  position,  our
business could be harmed.  From time to time we have experienced,  and we expect
to continue to  experience,  difficulty in hiring and retaining  highly  skilled
employees.  If we are unable to retain our key employees or attract,  assimilate
or retain  other  highly  qualified  employees  in the  future,  that may have a
material adverse effect on our business and results of operations.

Our success is dependent on our ability to protect our intellectual property.

         Our  performance  and ability to compete is dependent to a  significant
degree on our proprietary technology,  including,  but not limited to the design
of the RateXchange Trading System. We regard our copyrighted material,  software
design,  trade  secrets  and  similar  intellectual  property as critical to our
success,  and we rely on trademark and copyright laws,  trade secret  protection
and  confidentiality  and/or license  agreements with our employees,  customers,
partners and others to protect our proprietary rights. We cannot assure you that
we will be able to secure  significant  protection  for any of our  intellectual
property.  It is possible that our  competitors  or others will adopt product or
service  names  similar to our marks,  thereby  inhibiting  our ability to build
brand identity and possibly leading to customer confusion.

         We generally have entered into  agreements  containing  confidentiality
and  non-disclosure  provisions  with our  employees  and  consultants  who have
limited  access to and  distribution  of our software,  documentation  and other
proprietary  information.  We  cannot  assure  you that the  steps we take  will
prevent  misappropriation  of our technology or that agreements entered into for
that purpose will be enforceable. Notwithstanding the precautions we have taken,
it might be possible for a third party to copy or  otherwise  obtain and use our
software   independently.   Policing  unauthorized  use  of  our  technology  is
difficult,  particularly  because  the global  nature of the  Internet  makes it
difficult to control the ultimate  destination  or security of software or other
data  transmitted.  The laws of other  countries  may  afford  us  little  or no
effective protection of our intellectual property.

         Effective   trademark,   service  mark,   copyright  and  trade  secret
protection  may not be  available in every  country  where our services are made
available  online.  In the future,  we may also need to file lawsuits to enforce
our intellectual  property  rights,  protect our trade secrets and determine the
validity and scope of the proprietary rights of others. Such litigation, whether
successful or unsuccessful,  could result in substantial  costs and diversion of
resources,  which  could  have a material  adverse  effect on our  business  and
operating results.


                                       26
<PAGE>


We may not be able to secure  licenses  for  technology  from  third  parties on
commercially reasonable terms.

         We rely on a variety of  software  and  hardware  technologies  that we
license from third parties, including our database and Internet server software,
components of our online trading  software and  transaction-processing  software
which is used in the  RateXchange  Trading System to perform key  functions.  We
cannot assure you that these third party technology licenses will continue to be
available  to us on  commercially  reasonable  terms.  If we lose our ability to
maintain or obtain upgrades to any of these technology licenses it may result in
delays in completing any proprietary software  enhancements and new developments
until  equivalent  technology  could be  identified,  licensed or developed  and
integrated. Any such delays could have a material adverse effect on our business
and operating results.

The volatility of our securities prices may increase.

         The market price of our common  stock has in the past been,  and may in
the future  continue to be,  volatile.  A variety of events may cause the market
price of our common stock to fluctuate significantly, including:

         o    Quarter to quarter variations in operating results;

         o    Adverse news announcements;

         o    The introduction of new products and services;

         o    Market conditions in the  telecommunications  industry in general,
              Internet-based services and e-commerce; and

         o    General market conditions.

         In  addition,   the  stock  market  in  recent  years  has  experienced
significant price and volume  fluctuations  that have particularly  affected the
market prices of equity  securities  of many  companies in our business and that
often have been unrelated to the operating performance of such companies.  These
market  fluctuations  have adversely  impacted the price of our common stock and
may do so in the future.

Any  exercise of  outstanding  options and  warrants  will dilute  then-existing
stockholders' percentage of ownership of our common stock.

         We have a significant number of outstanding  options and warrants.  The
exercise  of all of the  outstanding  options  and  warrants  would  dilute  the
then-existing  stockholders' percentage ownership of our common stock. Any sales
resulting  from the exercise of options and warrants in the public  market could
adversely affect  prevailing market prices for our common stock.  Moreover,  our
ability to obtain  additional  equity capital could be adversely  affected since
the holders of  outstanding  options and warrants may exercise their options and
warrants at a time when we would also wish to enter the market to obtain capital
on terms more favorable than those provided by the options. We lack control over
the timing of any  exercise or the number of shares  issued or sold if exercises
occur.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SHORT TERM INVESTMENTS

         Our  exposure  to market  risks for changes in  interest  rates  relate
primarily to investments in debt securities issued by U.S.  government  agencies
and corporate debt securities. We place our investments with high credit quality
issuers  and,  by policy,  limit the amount of the  credit  exposure  to any one
issuer.

         Our general  policy is to limit the risk of  principal  loss and ensure
the safety of invested  funds by  limiting  market and credit  risk.  All highly
liquid  investments with an original issue of less than three months to maturity
are considered to be cash equivalents. Investments with maturities between three
and twelve months are considered to be short-term investments.  Investments with
maturities  in  excess  of  twelve   months  are   considered  to  be  long-term
investments.  We do not expect any material loss with respect to our  investment
portfolio.


                                       27
<PAGE>


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following financial statements are included in this report:

         o    Report of Independent Public Accountants.

         o    Consolidated  Balance  Sheet as of December  31, 2000 and December
              31, 1999

         o    Consolidated  Statement of Operations for the years ended December
              31, 2000, December 31, 1999, and December 31, 1998

         o    Consolidated Statement of Stockholders' Equity for the years ended
              December 31, 2000, December 31, 1999 and December 31, 1998

         o    Consolidated  Statement of Cash Flows for the years ended December
              31, 2000, December 31, 1999, and December 31, 1998

         o    Notes to Consolidated Financial Statements

         Schedules  other than those  listed  above are  omitted  because of the
absence of  conditions  under which they are  required  or because the  required
information is presented in the financial statements or notes thereto.


                                       28
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of  Directors  and  Stockholders  of  RateXchange  Corporation  and
Subsidiaries:

We have audited the  accompanying  consolidated  balance  sheets of  RateXchange
Corporation  (a  Delaware   corporation)  (a  development   stage  company)  and
Subsidiaries  as of  December  31,  2000 and 1999 and the  related  consolidated
statements  of  operations,  stockholders'  equity  and cash flows for the three
years in the period ended  December 31, 2000,  and for the period from September
30, 1998 (beginning of development  stage) to December 31, 2000. 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 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 financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of RateXchange  Corporation and
Subsidiaries  as of  December  31,  2000  and  1999,  and the  results  of their
operations and their cash flows for the three years in the period ended December
31, 2000 and for the period from  September 30, 1998  (beginning of  development
stage) to December 31, 2000, in conformity with accounting  principles generally
accepted in the United States.

Arthur Andersen LLP


San Francisco, California
February 1, 2001 (except with respect to the matters
discussed in Note 18, as to which
the date is April 11, 2001).


                                       29
<PAGE>
<TABLE>

                                                RATEXCHANGE CORPORATION
                                             (A Development Stage Company)
                                              CONSOLIDATED BALANCE SHEET
<CAPTION>
                                  ASSETS                                        December 31,
                                                                        ------------------------------
                                                                           2000               1999
                                                                        ------------       ------------
<S>                                                                     <C>                <C>
Current assets

         Cash and cash equivalents                                      $  2,115,152       $    536,615
         Accounts receivable (net of an allowance for doubtful
             accounts of $4,960)                                              41,170               --
         Investment securities available for sale                         12,124,635            387,500
         Interest receivable                                                 204,755            150,608
         Prepaid expenses                                                    116,360             11,647
         Notes receivable on sales of common stock                              --            1,590,319
                                                                        ------------       ------------
                  Total current assets                                    14,602,072          2,676,689

Property and equipment (net of accumulated depreciation of                 1,401,888            188,891
         $240,791 and $18,676 in 2000 and 1999)

Other assets

         Investment in affiliate                                              75,000             75,000
         Deposits                                                            184,856            103,305
                                                                        ------------       ------------
Total assets                                                            $ 16,263,816       $  3,043,885
                                                                        ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

         Accounts payable and accrued expenses                          $  2,600,870       $  1,840,056
         Short term debt                                                        --              885,000
                                                                        ------------       ------------
                  Total current liabilities                                2,600,870          2,725,056

Stockholders' equity

         Preferred stock, 60,000,000 shares authorized; none
             issued or outstanding                                              --                 --
         Common stock, $.0001 par value; 300,000,000 shares
             authorized; issued and outstanding: 17,783,204 shares
             and 14,087,425 shares in 2000 and 1999                            1,778              1,409
         Additional paid-in capital                                       72,132,890         13,225,824
         Accumulated deficit                                             (57,393,548)       (12,664,654)
         Notes receivable on sales of common stock                          (363,661)              --
         Accumulated other comprehensive loss
                                                                            (714,513)          (243,750)
                                                                        ------------       ------------
                  Total stockholders' equity                              13,662,946            318,829
                                                                        ------------       ------------
Total liabilities and stockholders' equity                              $ 16,263,816       $  3,043,885
                                                                        ============       ============
<FN>
See notes to financial statements.
</FN>
</TABLE>


                                                       30
<PAGE>


<TABLE>
                                               RATEXCHANGE CORPORATION
                                             (A Development Stage Company)
                                        CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
                                                                                                        Beginning of
                                                                                                        Development
                                                                                                           Stage
                                                For the Year       For the Year      For the Year      (September 30,
                                                   ended              ended             ended           1998) through
                                                December 31,       December 31,       December 31,      December 31,
                                                   2000                1999              1998               2000
                                               ------------       ------------       ------------       ------------
<S>                                            <C>                <C>                <C>                <C>
REVENUE
Trading and Consulting                         $     91,223       $       --         $       --         $     91,223

EXPENSES
Selling, general and administrative
(includes non-cash expenses of
$23,107,832 in 2000, $3,158,415 in 1999
and $2,020,376 in 1998)                          41,969,950          7,491,447          2,161,253         51,622,650
Write off advances to potential investee               --              413,681            885,000          1,298,681
Depreciation and amortization                       222,115             18,676               --              240,791
Purchase of subsidiaries (non-cash)                    --            1,507,408             89,710          1,597,118
                                               ------------       ------------       ------------       ------------

     Total expenses                              42,192,065          9,431,212          3,135,963         54,759,240

OTHER INCOME (EXPENSES)

Interest income                                   1,017,482            151,496              2,214          1,171,192
Interest expense (includes non-cash
expenses of $1,657,988 in 2000)                  (1,822,659)           (19,073)           (10,773)        (1,852,505)
Settlement of disputes
(includes non-cash expenses of $1,722,875
in 2000)                                         (1,822,875)              --                 --           (1,822,875)
                                               ------------       ------------       ------------       ------------

Loss before taxes                               (44,728,894)        (9,298,789)        (3,144,522)       (57,172,205)

Income tax provision (benefit)                         --                 --                 --                 --

                                               ------------       ------------       ------------       ------------
Net loss                                       $(44,728,894)      $ (9,298,789)      $ (3,144,522)      $(57,172,205)
                                               ============       ============       ============       ============

Basic and diluted net loss per share           $      (2.69)      $      (0.72)      $      (1.92)
Weighted average number
of common shares                                 16,633,611         12,863,020          1,636,919
                                               ============       ============       ============
<FN>
See notes to financial statements.
</FN>
</TABLE>


                                                       31
<PAGE>
<TABLE>

                                                RATEXCHANGE CORPORATION
                                             (A Development Stage Company)
                                      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>

                      Number                                                    Notes
                       of                                                     receivable
                     Shares                                                    on sales      Accumulated
                       of                     Additional                         of            other
                     Common         Par        Paid-In       Accumulated       common        comprehensive      Comprehensive
                     stock         Value       Capital         Deficit          stock           loss               loss
<S>                 <C>           <C>       <C>             <C>               <C>           <C>           <C>
Balance,
December
31, 1997              200,000     $   20       $221,123     $   (221,343)            -              -               -

Shares issued for
services at $.001   1,000,000        100            900                -             -              -               -

Shares issued for
acquisition at
$.001               2,400,000        240          2,160                -             -              -               -

Shares issued for
conversion of
debt at $.34        1,399,773        140      1,492,998                -             -              -               -

Shares issued for
services at $1.00      87,000          9         92,794                -             -              -               -

Shares issued for
cash at $1.07       1,106,250        110      1,179,890                -             -              -               -

Less: Offering
costs                       -          -       (118,000)                -            -              -               -

Shares issued for
notes receivable
at an average
price of $0.29      1,050,000        105      1,119,930                -             -              -               -

Warrants issued
at $2.00 per
share                       -          -         74,000                -             -              -               -

Comprehensive and
net loss                    -          -              -       (3,144,522)            -              -     $(3,144,522)
                    ----------    -------    -----------    -------------    ----------    -----------    ------------
Balance,
December 31,        7,243,023       $724     $4,065,795      $(3,365,865)            -              -               -
1998

Options/Warrants
issued from $.05
to $2.75  per
share                       -          -      1,448,441                -             -              -               -

Shares issued for
cash and notes at
$0.10 per share       916,574         92        977,618                -             -              -               -

Shares issued for
cost
reimbursement at
$0.10 per share       322,500         32        343,979                -             -              -               -

Shares issued for
cash and notes at

$1.07 per share     3,870,938        387      4,047,713                -             -              -               -



                                                             32
<PAGE>


Shares issued for
conversion of A1
Internet debt at
$1.07 per share       193,186         19        206,898                -             -              -               -


Shares issued for
services at $1.07
per share             268,500         27        287,206                -             -              -               -

Shares issued for
note conversion
at $1.00 per share     30,000          3         31,998                -             -              -               -

Shares issued for
services at $1.07
per share              30,000          3         31,998                -             -              -               -

Shares issued for
cash at $1.60 per
share (net)           515,188         52        628,220                -             -              -               -

Shares issued for
services at
$1.60  per share      122,518         12        196,017                -             -              -               -

Shares issued to
acquire
outstanding
shares of
RateXchange at
$1.60 per
share                 574,998         58        919,942                -             -              -               -

Comprehensive
loss:
Net loss                    -          -              -       (9,298,789)            -              -     $(9,298,789)
Other
comprehensive
loss:  Change in
unrealized loss
on securities               -          -              -                -             -       (243,750)       (243,750)
                                                                                                          ------------
Comprehensive loss          -          -              -                -             -              -     $(9,542,539)
                    ----------    -------    -----------    -------------    ----------    -----------    ============
Balance, December
31, 1999           14,087,425     $1,409    $13,225,824     $(12,664,654)            -      $(243,750)              -

Exercise of
warrants and
options from
$0.05 to $2.00        340,450         34          1,216                -             -              -               -

Shares and
warrants issued
in connection
with financing at
between $5.00 and
$14.40, net of
offering costs      3,128,329        313     33,839,873                -             -              -               -

Options issued to
employees,
Directors, and
consultants below
market value on
date of grant               -          -     12,522,671                -             -              -

Shares and
warrants issued
in settlement of
a dispute at $5.88    227,000         22      2,028,372                -             -              -               -


                                                              33
<PAGE>


Option
revaluations for
terminated
employees                   -          -      1,046,458                -             -              -               -

Warrants issued
in connection
with Amerex
transaction                 -          -      7,368,000                -             -              -               -

Warrants issued
for services                -          -      2,170,704                -             -              -               -

Shares sold to
employees for
notes pursuant to
a stock purchase
loan program          102,712         10        487,183                -      (487,193)             -               -

Repurchase of
Shares for Stock
program               (80,000)        (8)      (433,881)               -             -              -               -

Repurchase of
shares from
employees under
stock purchase
loan program          (22,712)        (2)      (123,530)               -       123,532              -               -

Comprehensive
loss:
Net loss                    -          -              -      (44,728,894)            -              -    $(44,728,894)

Other
comprehensive
loss:
Change in
unrealized loss
on securities               -          -              -                -             -       (470,763)       (470,763)
                                                                                                          ------------
Comprehensive loss          -          -              -                -             -              -     $(45,199,657)
                    ----------    -------    -----------   -------------    ----------    -----------    ============
Balance,
December 31,
2000)              17,783,204     $1,778    $72,132,890    $(57,393,548)     ($363,661)     $(714,513)
                    ==========    =======    ===========    =============    ==========    ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>


                                                                34
<PAGE>
<TABLE>

                                                      RATEXCHANGE CORPORATION
                                                  (A Development Stage Company)
                                               CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
                                                                                                              Beginning of
                                                                                                                  the
                                                                                                              Development
                                                                                                                 Stage
                                                              For the Year     For the Year   For the Year    September 30,
                                                                 Ended            Ended          Ended          1998 to
                                                              December 31,     December 31,   December 31,    December 31,
                                                                  2000             1999           1998            2000
                                                              ------------    ------------    ------------    ------------
<S>                                                           <C>             <C>            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                    $(44,728,894)   $ (9,298,789)   $ (3,144,522)   $(57,172,205)
  Adjustments to reconcile net loss to net cash
    used in operating activities
         Depreciation and amortization                             222,115          18,676            --           240,791
         Write off advances to potential investee                     --           206,898            --           206,898
         Stock options and warrants granted to service
           providers and strategic partners                     13,770,883       1,672,954       1,946,376      17,390,213
         Stock options granted to employees below
           fair market value                                    10,391,432            --              --        10,391,432
         Stock options - termination adjustment                  1,046,458            --              --         1,046,458
         Warrants issued in relation to bridge financing         1,657,988            --              --         1,657,988
         Warrants for purchase of common stock issued for
           services                                                   --         1,485,461          74,000       1,559,461
         Purchase of outstanding shares of RateXchange                --         1,507,408            --         1,507,408
         Increase in security deposits                             (81,551)       (103,305)           --          (184,856)
         Decrease in interest receivable and other
            advances                                              (200,030)       (160,617)         (1,638)       (362,285)
         Increase in accounts payable and accrued expenses         760,814       1,601,241         129,300       2,491,355
                                                              ------------    ------------    ------------    ------------
                  Net cash used in operating activities        (17,160,785)     (3,070,073)       (996,484)    (21,227,342)

CASH FLOWS FROM INVESTING ACTIVITIES
         Payment for purchase of equipment                      (1,435,112)       (207,568)           --        (1,642,680)
         Purchase of Halo Stock                                       --          (631,251)           --          (631,251)
         Purchase of investments available for sale            (32,975,313)           --              --       (32,975,313)
         Sale of investments available for sale                 20,767,415            --              --        20,767,415
         Investment in Telenisus Corporation                          --           (75,000)           --           (75,000)
                                                              ------------    ------------    ------------    ------------
                  Net cash used in investing activities        (13,643,010)       (913,819)           --       (14,556,829)

CASH FLOWS FROM FINANCING ACTIVITIES
         Loans and other debt                                    1,090,000         410,000            --         1,500,000
         Proceeds from common stock sales (net)                 30,135,902       3,581,991       1,525,000      35,242,893
         Proceeds from notes receivable                          1,590,319            --              --         1,590,319
         Loan to employee stock purchase program                  (433,889)           --              --          (433,889)
                                                              ------------    ------------    ------------    ------------
                  Net cash provided by financing activities     32,382,332       3,991,991       1,525,000      37,899,323
                                                              ------------    ------------    ------------    ------------
INCREASE  IN CASH AND CASH EQUIVALENTS                           1,578,537           8,099         528,516       2,115,152

CASH and CASH EQUIVALENTS BEGINNING OF YEAR                        536,615         528,516            --              --
                                                              ------------    ------------    ------------    ------------
CASH and CASH EQUIVALENTS END OF YEAR                         $  2,115,152    $    536,615    $    528,516    $  2,115,152
                                                              ============    ============    ============    ============

Supplementary cash flow information
Cash paid for:
         Interest                                             $    164,671            --              --              --
         Taxes                                                        --              --              --              --
Stock issuances for:
         Settlement of bridge loan                            $  1,975,000            --              --      $  1,975,000
         Purchase of outstanding shares of RateXchange        $       --      $    920,000            --           920,000
         Commission on stock sales                            $       --      $    196,029            --           196,029
<FN>
See notes to financial statements.
</FN>
</TABLE>


                                       35
<PAGE>
                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000


NOTE 1     BACKGROUND AND HISTORY

           RateXchange  Corporation  (the  Company) is a  consolidated  group of
           companies including the parent corporation,  RateXchange  Corporation
           and  its  subsidiaries,   RateXchange  I,  Inc.  and  PolarCap,  Inc.
           (PolarCap).

           RateXchange  Corporation  (formerly  Netamerica.com  Corporation  and
           formerly Venture World, Ltd.) is a Delaware corporation  organized on
           May 6, 1987 for the purpose of seeking out and developing any general
           business opportunity. In May 2000, we changed our name to RateXchange
           Corporation to reflect the focusing of our efforts on the business of
           creating an electronic marketplace for  telecommunications  products.
           The Company's  operating  subsidiary  RateXchange I, Inc., a Delaware
           corporation organized in June 1999, has developed proprietary trading
           software  to  support  its  trading  system for  bandwidth  and other
           telecommunications products.

           RateXchange I, Inc., a Delaware  corporation  organized in June 1999,
           is in the business of operating a trading  system that allows  market
           participants to trade bandwidth.

           PolarCap is a California  corporation  organized on April 7, 1997 for
           the purpose of  investing  in and  developing  rights to a variety of
           software  technologies  related to multimedia,  development tools and
           application  technologies.  PolarCap  is  in  the  process  of  being
           liquidated.

           The Company is in its  planning  stages for its  eventual  day to day
           business  and  has  generated   nominal  revenues  from  its  planned
           operations.  The Company is defined as a development stage company in
           accordance with Financial  Accounting Standard No. 7. The Company had
           no  operations  or business  before  September  30, 1998.  Cumulative
           results  of  operations  since  the start of the  development  stage,
           September 30, 1998, when the Company  purchased  PolarCap,  have been
           reported separately.

           From   inception,   the  Company  has  been   primarily   engaged  in
           organizational  activities,  including  designing and  developing its
           website,   recruiting  personnel,   establishing  office  facilities,
           raising capital and developing  infrastructure  and a marketing plan.
           The Company began revenue generating  activities in 1999, but nominal
           revenue has been generated  through  December 31, 2000.  Accordingly,
           the Company is classified as a development stage company.  Successful
           completion of the Company's  development  activities and, ultimately,
           the  attainment  of profitable  operations  is dependent  upon future
           events,   including  obtaining  adequate  financing  to  fulfill  its
           development  activities,  increasing its customer base,  implementing
           and  successfully  executing its business and marketing  strategy and
           hiring and retaining quality personnel.  Negative developments in any
           of these  conditions  could  have a  material  adverse  effect on the
           Company's business, financial condition and results of operations.

NOTE 2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           Principles of Consolidation

           The  consolidated   financial  statements  include  the  accounts  of
           RateXchange  Corporation and its  subsidiaries.  Collectively,  these
           entities are referred to as the Company. All significant intercompany
           transactions and accounts have been eliminated.

           Cash, and Cash Equivalents

           The Company  considers  all highly  liquid debt  instruments  with an
           original  maturity  of  three  months  or less to be  cash  and  cash
           equivalents.


                                       36
<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

           Investments

           The Company classifies its debt and marketable equity securities into
           one   of   three   categories:    trading,    available-for-sale   or
           held-to-maturity.  Trading securities are bought and held principally
           for  the  purpose  of  selling  in the  near  term.  Held-to-maturity
           securities are those  securities that the Company has the ability and
           intent to hold until maturity.  All other  securities not included in
           trading or  held-to-maturity  are  classified as  available-for-sale.
           Available-for-sale   securities   are   recorded   at   fair   value.
           Held-to-maturity  securities are recorded at amortized cost, adjusted
           for  the   amortization   or  accretion  of  premiums  or  discounts.
           Unrealized  gains and  losses,  net of the  related  tax  effect,  on
           available-for-sale securities are reported as a separate component of
           other  comprehensive  income in shareholders'  equity until realized.
           Premiums and discounts are amortized or accreted over the life of the
           related  investment  security  as an  adjustment  to yield  using the
           effective   interest   method.   Dividend  and  interest  income  are
           recognized when earned.  Realized gains and losses for securities are
           included   in   earnings   and  are   derived   using  the   specific
           identification method for determining the cost of securities sold.

           Management  determines the appropriate  classification of investments
           at the time of purchase and reevaluates  such  determination  at each
           balance  sheet date. To date,  all  marketable  securities  have been
           classified as  available-for-sale  and are carried at fair value with
           unrealized  gains  and  losses,  if any,  included  in  stockholders'
           equity. Realized gains and losses and declines in value of securities
           judged to be other than temporary are included in other income,  net.
           Interest  and  dividends on all  securities  are included in interest
           income, net.

           Nonmonetary Transactions

           Nonmonetary  transactions  are  transactions  for  which  no cash was
           exchanged and for which shares of common stock or options or warrants
           to purchase common stock were exchanged for goods and services. These
           transactions  are  recorded  at the fair  market  value of the equity
           instruments issued at the time of the transaction and reported in the
           statement of operations as services are rendered.

           Revenue Recognition

           The Company  recognizes  trading  revenue once a trade is consummated
           and the earnings  process is  complete.  Consulting  and  advertising
           revenue is recognized as the related services are performed.

           Loss Per Share and Weighted Average Shares Outstanding

           Basic  loss per share is  computed  by  dividing  the net loss by the
           weighted  average  number of common shares  outstanding.  Options and
           warrants on shares of common  stock were not  included  in  computing
           diluted  loss per  share  because  their  effects  were  antidilutive
           (10,582,772 options and 5,472,043 warrants).

           Deposits

           The Company issued a letter of credit as security in connection  with
           an operating lease of its office. This letter of credit is secured by
           several certificates of deposit totaling $153,856.

           Comprehensive loss

           Comprehensive loss includes the net loss reported on the statement of
           operations and changes in the fair value of investments classified as
           available for sale, which is reported as a component of stockholders'
           equity.

           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  reported
           amounts of assets and  liabilities.  Actual results could differ from
           those estimates.


                                       37
<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

            New Accounting Standards

            Statement of Financial  Accounting Standards No. 133, Accounting for
            Derivative  Instruments  and  Hedging  Activities  ("FAS  133"),  as
            amended by FAS 137 and 138,  establishes  accounting  and  reporting
            standards requiring that every derivative  instrument be recorded in
            the balance  sheet as either an asset or as a liability  measured at
            its fair value.  The Company is required to adopt the  provisions of
            this new standard  effective  with its 2001 fiscal year. The Company
            does not  currently  use any  derivative  instruments  or  engage in
            hedging  activities,  and therefore  management does not believe the
            adoption  of the new  statement  will have a  significant  effect on
            consolidated  results of  operations or the  consolidated  financial
            position of the Company.

NOTE 3       INVESTMENT SECURITIES AVAILABLE FOR SALE

            The carrying  amount and estimated fair value of debt  securities at
            December  31, 2000 are shown below.  During the year ended  December
            31, 2000, the Company collected $766,501 in interest.

            2000

                         Amortized      Gross          Gross      Estimated Fair
                           Cost       Unrealized     Unrealized       Value
                                         Gains         Loss
                        -----------   -----------   -----------    -----------
US Government agencies  $ 4,628,382   $     5,057   $      --      $ 4,633,439
Corporate bonds           7,452,920        21,161          --        7,474,081
Corporate stocks            757,846          --        (740,731)        17,115
                        -----------   -----------   -----------    -----------
Available for sale      $12,839,148   $    26,218   $  (740,731)   $12,124,635
                        ===========   ===========   ===========    ===========

           1999
                                                                      Estimated
                        Amortized       Gross           Gross            Fair
                           Cost       Unrealized      Unrealized        Value
                                          Gains          Loss
                        -----------   -----------   ---------------    --------
Corporate stocks        $   631,250   $      --     $      (243,750)   $387,500
                        ===========   ===========   ===============    ========


           All  investments  in debt  securities  have  maturity  dates prior to
December 31, 2001.

NOTE 4     INCOME TAXES

           As of December 31, 2000, the Company had a federal net operating loss
           carryforward  of  $13,321,866,  which  will  expire in the years 2007
           through 2021 for state and federal purposes.  This net operating loss
           carryforward has not been reflected in the financial  statements,  as
           the  likelihood of realizing a future tax benefit from such operating
           loss carryforwards is remote. Accordingly, the potential tax benefits
           of the net operating loss carryforwards, estimated based upon current
           tax rates at  December  31,  2000,  have been  offset by a  valuation
           allowance in the same amount.


                                       38
<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

            Significant  components of the Company's  deferred tax assets are as
follows:

                                                     December 31,
                                                     2000            1999
                                             ------------    ------------
Deferred tax assets:
         Net operating loss carryforward     $  5,450,910    $  3,773,063
         Options and warrants for services     10,948,508         603,097
         Start up cost carryforward             8,265,212       1,726,967
         Unrealized loss on securities            290,092          98,861
                                             ------------    ------------
         Gross deferred tax assets             24,954,614       6,201,988
Valuation allowance                           (24,954,614)     (6,201,988)
                                             ------------    ------------
Net deferred tax asset                       $       --      $       --
                                             ============    ============

           The net change in the valuation allowance for the year ended December
           31, 2000 and 1999 was an increase of $18,752,626 and $4,813,654.


NOTE 5     PROPERTY AND EQUIPMENT

           The  Company  capitalizes  purchases  of  long-lived  assets that are
           expected to give  benefit to the Company  over the life of the asset.
           The Company also capitalizes improvements and costs that increase the
           value of or extend the life of the asset.

           Capitalized assets are depreciated over the estimated useful lives of
           the assets (5 years for furniture and fixtures,  3 years for computer
           equipment and software) on a straight-line basis.

           Property and Equipment consists of the following:

                                          December 31,
                                      2000           1999
                                  -----------    -----------
Furniture and fixtures            $    38,097    $    10,520
Computer equipment and software     1,604,582        197,047
                                  -----------    -----------
                                    1,642,679        207,567

Less:  Accumulated depreciation      (240,791)       (18,676)
                                  -----------    -----------
                                  $ 1,401,888    $   188,891
                                  ===========    ===========

           Depreciation  expense  for  2000,  1999,  and 1998 was  $222,115  and
           $18,676, and $0.

NOTE 6     ACQUISITION OF SUBSIDIARY

           In 1999, the Company  purchased all the  outstanding  common stock of
           Rate Exchange,  Inc., a Colorado corporation,  seeking to develop new
           exchange services for the telecommunications market. The Company paid
           574,998 in shares of common  stock and $450,000 in a note for a total
           cost of $1,395,000 ($920,000 in stock and $450,000 in a note plus out
           of pocket expenses of $25,000).  Under the terms of the  transaction,
           two of the  owners/employees  of RateXchange  became employees of the
           Company responsible for exploring the development of the business. On
           the date of purchase, RateXchange had negative net worth of $112,408.
           The Company expensed a total of $1,507,408 representing the excess of
           consideration  given in  shares  and  notes  issued  and  liabilities
           assumed for the assets of RateXchange.


                                       39
<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

           On September 30, 1998, the Company  purchased all of the  outstanding
           stock of PolarCap,  Inc. for 2,400,000  shares of stock. At September
           30, 1998 PolarCap had negative net worth of $87,310. The value of the
           stock was issued at $.001,  for a total  purchase  price of $2,400 in
           1998.  The  Company  expensed  $89,710  representing  the  excess  of
           consideration  given in shares issued and liabilities assumed for the
           assets of PolarCap.

NOTE 7     ADVANCES TO POTENTIAL INVESTEE

           On September 30, 1998 the Company negotiated, and later terminated by
           mutual agreement,  a purchase of 100% of the ownership of NetAmerica,
           Inc.,  subsequently  renamed A1 Internet,  Inc., an Internet services
           provider company based in Seattle,  Washington.  Between the time the
           Company  agreed to purchase  (September  30,  1998),  which was never
           consummated,  and the  time the  termination  agreement  was  reached
           (March 1999), the Company advanced $1,738,769 ($1,531,871 in cash and
           $206,898 in stock) the cash portion of which was  eventually  written
           off as bad debt.  After the March agreement was reached,  A1 Internet
           agreed  to  repay  certain  of  the  costs   incurred  prior  to  the
           termination.  As part of its plan to repay  the  costs,  A1  Internet
           informed  the Company  that it had  entered  into an  agreement  with
           another potential  acquiror,  Halo Holdings of Nevada,  Inc., to sell
           substantially  all of its  assets in  exchange  for  shares of common
           stock and assumption of certain liabilities,  including A1 Internet's
           obligations  to  the  Company.   In  September  1999,  after  further
           negotiations,  the Company  agreed with A1 Internet to the  following
           settlement:

           o   The Company retained certain rights to the name "NetAmerica;"

           o   A1 Internet  transferred  to the Company its  interest in 100,000
               shares of Halo restricted stock;

           o   The Company paid $85,000 of past due payroll taxes of A1 Internet
               from 1998; and

           o   All further  obligations of the Company to issue stock or options
               to A1 Internet were canceled.

NOTE 8     SUBSCRIPTIONS RECEIVABLE/NOTE RECEIVABLE-RELATED PARTY

           In January  1999,  the Company  sold  916,574  shares in exchange for
           $91,657 in notes payable to a related party and other  investors at a
           price of $.10 per share.

           In March 1999, the Company sold  3,112,500  shares to a related party
           and other  investors in exchange for $3,320,000 in notes payable at a
           price of $1.07 per share.

           Of the total subscriptions  receivable/note  receivable issued during
           1999 of  $3,411,657  and  $300,000  issued  in 1998,  $1,924,126  was
           collected  prior to December 31, 1999.  Interest was assessed at 6.5%
           and accrued interest on the  subscription  receivable was $150,608 at
           December  31,  1999.  The  Company  determined  that  $197,212 of the
           receivables were  un-collectible  and the Company wrote them off. The
           remaining receivables were collected in 2000.

           In 2000,  the Board of Directors  of the Company  waived the interest
           due (approximately $132,240) on the purchase of 3,112,500 shares when
           the notes were collected in full by February 25, 2000 (originally due
           by March 31, 2001).

NOTE 9     INVESTMENT IN AFFILIATE.

           During 1999, the Company created a wholly owned subsidiary, Telenisus
           Corporation,  a Delaware  corporation,  for the purpose of  providing
           Internet   services   to  small   to   mid-sized   corporations   and
           telecommunications  service providers. The Company funded the initial
           capital of Telenisus of $75,000.


                                       40
<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000


           It  subsequently   loaned   Telenisus   additional   funds  to  start
           operations.  Telenisus has funded  operations from its own equity and
           debt financing and has paid back the Company all loans except for the
           initial  capitalization  of  $75,000.  During  1999,  as a result  of
           Telenisus' sale of additional shares to new investors,  the Company's
           interest in Telenisus  had dropped to less than 10% ownership and the
           Company is recording its investment in Telenisus at the lower of cost
           or market value.

NOTE 10    SHORT TERM DEBT

           The Company  issued a note for $450,000 for the 1999 purchase of Rate
           Exchange,  Inc (Note 6). The note carried an interest rate of 6%. The
           note was paid in January 2000.

           During  December  1999,  RateXchange  I, Inc.  received  $435,000  in
           short-term  loans  in  connection  with  a  $2,000,000   bridge  loan
           agreement reached with various  investors.  The remaining  $1,565,000
           was received in January and February  2000.  The $2 million of bridge
           loans  were  used  as  interim   financing  of  RateXchange  I,  Inc.
           activities.  The loans  bore  interest  at 10% and were to mature six
           months  from the  completion  of the  funding of the loan  (completed
           February 2000).  The notes were  convertible into RateXchange I, Inc.
           common stock at a price per share to be determined in an  anticipated
           subsequent  financing of RateXchange I, Inc.  Purchasers of the notes
           also received  warrants to purchase  RateXchange I, Inc. common stock
           at $2.40 per share, subject to adjustment.

           In 2000,  as a result of the  Company's  new business  strategy,  the
           Company  offered to the  investors in the $2 million  bridge loan the
           right to convert  their  notes into  RateXchange  Corporation  common
           stock at an  exchange  rate of $5.00  per  share.  In  addition,  the
           Company  issued  such  holders an  aggregate  of 493,750  warrants to
           purchase RateXchange Corporation common stock at $5.00 per share. Any
           note holders who declined  this offer were  entitled to rescind their
           original  investment  and  receive  their  principal  back  in  full,
           including  accrued  interest.  As a result of this offer,  all notes,
           except  $25,000,  were  converted  into 395,000 shares of RateXchange
           Corporation common stock.

NOTE 11    COMMON STOCK TRANSACTIONS

            In general all stock  transactions  conducted  during the period for
            which no cash was  exchanged  and for  which  shares  of stock  were
            exchanged  for assets or goods and  services  were  recorded at fair
            market value. In 2000, 1999 and 1998, a number of options and shares
            as indicated  below were issued at below market values.  The Company
            recorded  expense  related to these issues of  $10,391,431  in 2000,
            $1,519,047 in 1999 and $2,007,203 in 1998.

            Commn stock transactions during 2000 were as follows:

           o   315,450  shares of stock  issued  for the  cashless  exercise  of
               325,000 warrants at $.05 and $2 per share. (January and April).

           o   In March 2000, the Company completed a private placement in which
               it  sold  2,733,329  shares  of  restricted  common  stock  at  a
               subscription  price of $12 per share plus  warrants  to  purchase
               1,366,673  shares of its  common  stock at an  exercise  price of
               $14.40 per share.  The warrants are  immediately  exercisable and
               expire  in three  years.  After  deducting  $2,665,00  for  costs
               associated with the offering, the Company received $30,135,000.

           o   227,000 shares were issued at $5.88 to settle third party claims.
               (August)

           o   395,000  shares  were  issued  to  convert   $2,103,000  of  debt
               principal  and  interest  to  equity  at $5  per  share.  493,750
               warrants with a fair value of $1,602,000  were also issued in the
               conversion.
               (August)


                                       41
<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

           o   25,000 shares issued for exercise of an option at $.05 per share.
               (August)

           o   80,000 shares  repurchased and  subsequently  issued to employees
               under stock program. See Note 15 for details. (July - December)

            Common stock transactions during 1999 were as follows:

           During the fourth  quarter of 1998,  the Board of Directors  approved
           several stock  transactions  that were not completed and issued until
           1999:

           o   916,574  shares of stock  issued for  $91,657 in notes to related
               parties.  ($0.10) (January). The Board has placed restrictions on
               this stock so that the stock  cannot be sold,  traded,  assigned,
               transferred or pledged until the Company  reaches  $10,000,000 in
               gross revenues in a one year time period.

           o   322,500  shares issued for cost  reimbursements  of $32,250 ($.10
               per share) (January).

           The remaining stock issuances were approved and issued in 1999:

           o   758,438  shares of stock were issued for $728,100 (net of $80,900
               commissions). ($1.07) (February).

           o   3,112,500  shares  of stock  issued  for  $3,320,000  in notes to
               related parties and other investors. ($1.07) (March).

           o   268,500  shares  of  stock  issued  for  $287,233  of  legal  and
               consulting services. ($1.07) (March).

           o   193,186  shares of stock issued for $206,898 of debt to creditors
               of A1 Internet. ($1.07, average) (March and May).

           o   30,000  shares of stock issued  instead of a $30,000  outstanding
               note payable. ($1.00) (March).

           o   30,000 shares for services rendered of $31,998. ($1.07) (March).

           o   515,188 shares of stock issued for $1.60 per share, or a total of
               $628,272. (Net of $196,029 in commission paid in stock of 122,518
               shares - see below) (May and June).

           o   122,518  shares issued for  commissions  on private  placement at
               $1.60 per share. ($1.60 per share) (June).

           o   574,998  shares  of stock  issued  for  $1.60  per share for Rate
               Exchange, Inc. (July).

NOTE 12    COMMITMENTS AND CONTINGENCIES

           In connection with the Company's business activities,  it has entered
           into various  leases for office space and related  office  equipment,
           including  computers.  In  addition,  the Company  has  entered  into
           various operating leases associated with its delivery hubs, including
           various    telecommunications    routing    equipment    and    other
           infrastructure.


                                       42
<PAGE>

                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

            Future annual minimum lease payments related to equipment and office
            space under  noncancelable  operating leases as of December 31, 2000
            were:

                               Year
                               ----

                               2001   $2,236,273
                               2002    2,218,834
                               2003    1,815,766
                               2004    1,158,933
                               2005      173,600

                                      ----------
                                      $7,603,406
                                      ==========


           Rent expense totaled  $2,023,641.62  in 2000,  $42,000 and $0 in 1999
           and 1998.

           The  Company  is also  involved  in the  following  legal  matters as
           follows:

           Gregory K. Martin v. NetAmerica.,  Inc. et al. In the spring of 1999,
           Gregory K. Martin, a former officer of both NetAmerica (Seattle)(NAI)
           and the  Company,  brought suit against the Company and others in the
           Superior Court of Washington (Civil Action No. 99-2-09171-OSEA).  The
           suit  related  to,  among  other  things,  Mr.  Martin's  claims  for
           compensation,  reimbursement for business expenses, certain insurance
           benefits,  payment of certain  other  obligations  guaranteed  by Mr.
           Martin  (or  reimbursement  of  payments  made by him as  guarantor),
           payment of certain tax and other obligations of a company referred to
           as SRG/Quantum that were purportedly  assumed by NAI and the Company,
           issuance  of  options  to  purchase  stock of the  Company  and other
           remedies   relating   to  the   terminated   acquisition   and  other
           transactions.  The suit was  conditionally  settled  by an  agreement
           dated May 22,  1999 among NAI  (referred  to  therein  as "A1"),  the
           Company and Mr.  Martin  (with  William  Fritts  undertaking  certain
           limited obligations).  Pursuant to that agreement,  Mr. Martin took a
           voluntary  non-suit,  i.e. dismissed his suit without prejudice.  Mr.
           Martin  may have  the  ability  to  attempt  to void  the  settlement
           pursuant  to  noncompliance  on the part of NAI to their  part of the
           settlement. As of December 31, 2000, the Company has fulfilled all of
           its current obligations under the settlement agreement.

           On February 24, 2000,  Concentric Network Corporation filed a lawsuit
           against NetAmerica,  Inc., aka A1 Internet,  Inc., and the Company in
           the  Superior  Court of  California  in the County of Santa Clara (CV
           784335).  The  lawsuit  involves  claims for breach of  contract  and
           common  counts  based on A1  Internet's  nonperformance  in a service
           agreement  between  A1  and  Concentric.  Concentric  is  asking  for
           compensatory  damages of at least  $167,794,  restitution,  costs and
           attorney fees. The matter is currently  pending in Superior Court and
           will soon proceed to arbitration. The Company has recorded an accrual
           for the estimated amount of this contingency.

           In 1999,  RateXchange  entered  into a term  sheet  agreement  with a
           vendor to provide specialized  consulting and computer programming to
           assist  in  RateXchange's   business  plans  and  operations  in  the
           e-commerce  niche  it  was  developing.  The  term  sheet  was  never
           finalized into a formal  agreement,  but some services were provided,
           and  certain  cash  payments  were  made for the  services  that were
           rendered.  The term sheet also  provided  for the vendor to receive a
           stock position in RateXchange of up to 10% for certain  services.  In
           early 2000,  the Company  entered  into  discussions  with the vendor
           concerning the 10% stock  position in RateXchange  because the formal
           agreement was never completed and the contemplated  services were not
           fully provided.  In August 2000, the Company reached an agreement for
           settlement of the dispute with the vendor, whereby the Company issued
           175,000 shares of common


                                       43
<PAGE>

                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

           stock,  175,000 warrants and $100,000 in cash. The total market value
           of the  settlement  of $1.8  million  is  recorded  in the  Company's
           statement of operations for the year-ended December 31, 2000.

NOTE 13    AGREEMENT WITH AMEREX

           On September 17, 2000, the Company entered into an alliance agreement
           with Amerex Bandwidth, Ltd. Under this agreement, Amerex brokers will
           execute  trades  for the  sales  or  purchase  of  Internet  protocol
           products,      telecommunications      capacity      and/or     other
           telecommunications-related  products  over the  Company's  electronic
           trading  system and we will share in the  revenues  generated  by the
           electronic  trading system.  In connection  with this  agreement,  we
           issued to Amerex five  warrants for an aggregate of 2,300,000  shares
           of our  common  stock with a fair  market  value of  $7,368,000.  Two
           warrants,  one for 300,000  shares and one for 500,000  shares,  with
           exercise  prices  of  $4.47  and  $4.70  per  share,   are  currently
           exercisable by Amerex.  The remaining three warrants each for 500,000
           shares and with exercise  prices of $4.92 per share,  $5.14 per share
           and $5.37 per share,  will  become  exercisable  upon the  earlier of
           September  17,  2005 or Amerex  executing  a  cumulative  minimum  of
           $2,000,000, $5,000,000 and $10,000,000, in value of transactions over
           our online electronic trading system.

NOTE 14    OPTIONS/WARRANTS FOR PURCHASE OF COMMON STOCK

           Stock Option Plans -  Shareholders  authorized  the 1999 Stock Option
           Plan during 1999.  Shareholders authorized the 2000 Stock Option Plan
           on April 20,  2000.  There are options to purchase  8,000,000  shares
           authorized for issuance  under both plans.  On February 24, 2000, the
           Board  authorized  additional  options to purchase  4,290,000  shares
           outside of either plan. Total options granted to employees during the
           first quarter of 2000 for less than fair market value were  3,940,000
           for which the Company is recognizing  related  compensation  expense,
           over the option vesting periods,  for the difference between the fair
           value of the  stock  on the date of  grant,  which  was $12,  and the
           strike price of the options, which is $7.

           The Company has also  granted  options and  warrants to  non-employee
           consultants  totaling  874,620  for which the  Company  has  recorded
           related expense of $4,302,000 in 2000.

           In  September  2000,  the Board of  Directors  approved  and issued 2
           million options to the Company's new Chief Executive  Officer.  These
           options  were  granted with a strike price equal to the fair value of
           the  Company's  stock  on the date of grant  and  vest  over  various
           periods.

           Separate  from the 2000 and 1999  Plan the  Company  has also  issued
           warrants that generally expire five years from the date of grant.


                                       44
<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

<TABLE>
            A summary of option and warrant activity follows:
<CAPTION>
  Options:                                             2000                             1999
                                        --------------------------------  -------------------------------
                                          Number of     Weighted average   Number of     Weighted average
                                           shares        exercise price      shares       exercise price
                                        -------------  -----------------  ------------  -----------------
<S>                                       <C>                <C>            <C>                 <C>
  Outstanding at beginning of year         2,990,000         $     2.23             -           $      -
  Granted                                  8,516,900               5.47     3,050,000               2.24
  Exercised                                   25,000               0.05             -                  -
  Canceled                                   899,128               4.84        60,000               2.50
                                        -------------  -----------------  -----------   -----------------
  Outstanding at end of year              10,582,772               4.62     2,990,000               2.23
                                        =============  =================  ============  =================
  Exercisable at end of year               4,819,767               4.12     1,287,500               1.96
                                        =============  =================  ============  =================


  Warrants:                                            2000                             1999
                                        --------------------------------  -------------------------------
                                          Number of     Weighted average   Number of     Weighted average
                                           shares        exercise price      shares       exercise price
                                        -------------  -----------------  ------------  -----------------
  Outstanding at beginning of year           625,000          $    1.74       100,000          $    2.00
  Granted                                  5,172,043               8.74       525,000               1.69
  Exercised                                  325,000               0.80             -                  -
  Canceled                                         -                  -             -                  -
                                        -------------  -----------------  ------------  -----------------
  Outstanding at end of year               5,472,043               8.41       625,000               1.74
                                        =============  =================  ============  =================
  Exercisable at end of year               3,955,043               9.67       625,000               1.74
                                        =============  =================  ============  =================
</TABLE>

            As permitted by Financial  Accounting  Standard 123  "Accounting for
            Stock-Based  Compensation,"  (FAS 123) the  Company  has  elected to
            account for its stock  option plan under APB No.25  "Accounting  for
            Stock Issued to Employees."  Accordingly,  no compensation  cost has
            been  recognized  for these  plans when  options  were  issued  with
            exercise  prices  equal to or greater  than the fair market value of
            the Company's stock on the date of grant.

            Had  compensation  cost for the stock  option  plan been  determined
            based on FAS 123, the  Company's net earnings and earnings per share
            would have been:
<TABLE>
<CAPTION>
                                                    2000              1999             1998
                                          --------------    --------------    -------------
<S>                                       <C>               <C>               <C>
Net loss
         As reported                      $  (44,728,894)   $   (9,298,789)   $  (3,144,522)
         Pro Forma                        $  (56,341,485)   $  (10,275,351)   $  (3,144,522)

Net loss per share (basic and diluted)
         As reported                      $        (2.69)   $        (0.72)   $       (1.92)
         Pro forma                        $        (3.39)   $        (0.80)   $       (1.92)
                                          ==============    ==============    =============
</TABLE>

           The weighted  average  fair value of options and warrants  granted in
           2000 was $2.94 and $4.35.  The weighted average fair value of options
           and warrants granted in 1999 was $0.73 and $1.04. The weighted


                                       45
<PAGE>

                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

            average  fair value of  warrants  granted  in 1998 was  $0.74.  Each
            option grant was valued at the date of grant using the Black-Scholes
            option   pricing   model  with  the   following   weighted   average
            assumptions:

                                                          2000          1999
                                                     ------------    -----------
           Risk-free interest rate                        6.23%         5.7%
           Dividend yield                                    0%           0%
           Volatility                                      100%         100%
           Average expected term (years)                     2            2
                                                    ============    ============



<TABLE>
           Summary of the outstanding options and warrants issued to third party
           service  providers  and to  employees as of December 31, 2000 were as
           follows:
<CAPTION>
                                                      Outstanding                                Exercisable
                                    -------------------------------------------------    -----------------------------
                                                                          Weighted
                                                        Weighted          Average                          Weighted
                                                         Average         Remaining                          Average
            Rante of exercise         Warrants/         Exercise        Contractual        Warrants/       Exercise
                  prices               Options            Price         Life (years)       Options           Price
           ---------------------    --------------    --------------    -------------    -------------    ------------
<S>                                    <C>                  <C>                 <C>         <C>             <C>
           Third Parties

                  $0.05 -  $4.00        1,337,000           $  2.18             3.54        1,182,500       $  2.15
                  $4.01 -  $8.00        3,291,870           $  5.14             4.78        1,665,828       $  4.99
                  $8.01 - $11.00                -           $     -                -                -       $     -
                 $11.01 - $14.40        2,123,173           $ 14.18             3.95        2,123,173       $ 14.18
                                    --------------                                       -------------
           Third Parties                6,752,043                                           4,971,501

           Employees
                  $1.56 - $3.00         2,509,233           $ 2.25              5.22        1,517,476       $  2.16
                  $3.01 - $4.50         2,100,000           $ 3.23              9.77          500,000       $  3.19
                  $4.51 - $5.50                 -           $    -                 -                -       $     -
                  $5.51 - $7.00         4,693,539           $ 6.72              9.21        1,785,833       $  6.87
                                    --------------                                       -------------
           Employees                    9,302,772                                           3,803,309
                                    --------------                                       -------------
           Total                       16,054,815                                           8,774,810
                                    ==============                                       =============
</TABLE>

NOTE 15    OTHER EMPLOYEE STOCK PLANS

           In addition to the Stock Option Plans previously discussed,  in 2000,
           the Company  implemented  an Employee  Stock  Purchase  Loan Program,
           under this Program,  employees  are eligible to purchase,  subject to
           specified limits, common shares of the Company in exchange for a note
           payable to the Company.  The face amount of this note  receivable  is
           non-recourse while interest payments,  at a fixed 9%, are recourse to
           the employee.  During the year, the Company  purchased  80,000 of its
           common shares and immediately


                                       46
<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000

           sold them to  employees  under  this  Program  for  notes  receivable
           totaling  $487,193 with maturity  dates two years from date of issue.
           During the year,  the Company  acquired  22,712  shares from  certain
           employees in satisfaction of notes receivable  totaling  $123,532 and
           subsequently sold these shares to other employees at the then current
           market price totaling $53,302.

NOTE 16    RELATED PARTY TRANSACTIONS

           During 1998,  the Company  entered into a consulting  contract with a
           major  shareholder  that  pays  a  monthly  consulting  fee  plus  an
           incentive  bonus  for  1)  any  successful  acquisition  of  business
           enterprises,  or 2) successful capital funding of at least $5,000,000
           in 1998 or 1999. The incentive awards are $250,000 in cash,  warrants
           to purchase  250,000  shares of common stock at $1.00,  and a mergers
           and acquisition fee for any acquisition  during 1998 or 1999.  During
           1999, the Company  recorded  $315,800 in cash incentives  relating to
           completed  financing and merger's and  acquisitions  fee based on the
           value  of the  RateXchange  acquisition.  During  2000,  the  Company
           recorded  $259,266  in  connection  with  financing   activities  and
           securing various operating leases.

NOTE 17    MINORITY INTEREST

           During 1999, the Company issued 10% of the outstanding  shares of its
           subsidiary,   RateXchange,   to  the  chief   executive   officer  of
           RateXchange as an incentive for employment. The shares were issued at
           fair  value  based upon the value of  RateXchange  at the time of its
           acquisition.  In 2000, the Company  reacquired  these shares from the
           officer after his departure from the Company.

NOTE 18    SUBSEQUENT EVENTS

           On March 12, 2001, the Company completed the acquisition of Xpit.com,
           Inc., a privately held Idaho Corporation. The acquisition enables the
           Company to offer trading and risk  management  systems to the futures
           industry.   Xpit  will  operate  as  a  wholly-owned   subsidiary  of
           RateXchange.  Under the terms of the  transaction,  the  Company  has
           acquired  100% of the  outstanding  common shares of Xpit in exchange
           for $500,000 in cash; a $500,000  two-year  note bearing  interest at
           7%; 2,000,000 Convertible Preferred Shares with a cumulative dividend
           of 6% based on a share price of $2.75 per share;  and $4.9 million in
           royalty payments tied to the achievement of Xpit's projected revenues
           from 2001 through 2003. The Convertible Preferred Shares will convert
           on a  one-for-one  basis  into  common  shares of the  Company at the
           discretion of the holders.

           On April 9, 2001, the Company created a new subsidiary, RMG Partners,
           Inc., to provide market based solutions through the use of derivative
           trading strategies.

           In April,  2001, the Company received an irrevocable  commitment from
           two  investors to acquire $9.0 million of newly issued  common shares
           of the Company.  The sale of shares will settle on or before July 10,
           2001.


                                       47
<PAGE>


                                    FORM 10-K

                                    PART III

ITEM 9   CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         Not applicable.

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Directors of the corporation are listed below.

        Name                Age                               Position
--------------------       ---------       -------------------------------------
D. Jonathan Merriman        40             President and Chief Executive Officer

Patrick Arbor               63             Director

Dean S. Barr                40             Director

David Boren                 41             Director

Michael Boren               38             Director

E. Russell Braziel          50             Director

Donald H. Sledge            60             Chairman of the Board of Directors

Ronald E. Spears            51             Director

Steven W. Town              40             Director



         D. Jonathan Merriman, 40, has served as our Chief Executive Officer and
President  since October 2000. He has served as a Director  since February 2000.
In June 1998,  Mr.  Merriman  became  Managing  Director  and Head of the Equity
Capital Markets Group and member of the Board of Directors at First Security Van
Kasper. In this capacity,  he oversaw the Research,  Institutional Sales, Equity
Trading,  Syndicate and Derivatives Trading departments.  He is currently on the
Boards of Directors of Leading Brands, Inc., Fiberstars, Inc., SSE Telecom, Inc.
and the Internet  Venture Fund,  LLC.  From June 1997,  Mr.  Merriman  served as
Managing  Director and head of Capital  Markets at The Seidler  Companies in Los
Angeles, where he also served on the firm's Board of Directors.  Before Seidler,
Mr. Merriman was Director of Equities for Dabney/Resnick/Imperial, LLC. In 1989,
Mr.  Merriman  co-founded  the  hedge  fund  company  Curhan,  Merriman  Capital
Management,  Inc.,  which  managed  money  for high net  worth  individuals  and
corporations. Before Curhan, Merriman Capital Management, Inc., he worked in the
Risk  Arbitrage  Department  at Bear Stearns & Co. as a  trader/analyst.  He has
completed coursework at New York University's  Graduate School of Business.  Mr.
Merriman received his Bachelor of Arts in Psychology from Dartmouth College.

         Patrick Arbor, 63, has served as Director of RateXchange since February
2001.  Currently an independent  futures trader, Mr. Arbor is a principal of the
trading  firm of  Shatkin,  Arbor,  Karlov & Co. He is a longtime  member of the
Chicago Board of Trade (CBOT), the world's oldest derivatives exchange,  serving
as the organization's  Chairman from 1993 to 1999. During that period, Mr. Arbor
also served on the Board of Directors of the National Futures Association. Prior
to that, he served as Vice Chairman of the CBOT for three years and ten years as
a Director.  Mr.  Arbor's other exchange  memberships  include the Chicago Board
Options  Exchange,  the  Mid-America  Commodity  Exchange and the Chicago  Stock
Exchange.  Mr. Arbor received his undergraduate degree in business and economics
from Loyola University.

         Michael Boren, 38, has served as one of our Directors since April 2001.
Mr.  Boren  is a  founder  of Xpit  and  co-owner  and  co-founder  of  Sawtooth
Investment  Management,  a limited liability  company  specializing in arbitrage
(low risk) and limited risk investment  strategies in government  debt,  foreign
currencies and related derivative securities.  Prior to the formation of Xpit in
1999 and Sawtooth in 1995,  Mr. Boren was a co-owner  and  co-founder



                                       48
<PAGE>


of Summit  Management,  which he sold to Refco. Prior to the formation of Summit
in 1992, Mr. Boren was a trader and  introducing  broker  specializing  in basis
trades  between  various  futures  and cash  securities.  Prior to  acting as an
independent  broker, Mr. Boren worked at the Geldermann Group where he developed
options trading strategies and hedging programs for institutional  accounts. Mr.
Boren has a B.A. in economics from Brigham Young University.

         David Boren,  41, has served as one of our Directors  since April 2001.
Mr.  Boren  is a  founder  of Xpit  and  co-owner  and  co-founder  of  Sawtooth
Investment  Management,  a limited liability  company  specializing in arbitrage
(low risk) and limited risk investment  strategies in government  debt,  foreign
currencies and related derivative securities.  Prior to the formation of Xpit in
1999 and Sawtooth in 1995, Mr. Boren was involved in a variety of  sophisticated
proprietary  trading  activities  for Goldman  Sachs in New York and Tokyo.  Mr.
Boren has a B.A. in Economics  from Brigham Young  University  and an M.B.A from
Harvard Business School.

         Donald H. Sledge,  60, has served as Chairman of our Board of Directors
since  February  2000. He also served as Chief  Executive  Officer from February
2000 until October 2000. He was a Director from September 1999 to February 2000,
and from  September  1999 until  February of 2000 he served as President,  Chief
Executive Officer and Chairman of our subsidiary  RateXchange I, Inc. Mr. Sledge
is  currently a general  partner in Fremont  Communications,  a venture  capital
fund,  based in San  Francisco.  From 1996 to  September  1999,  Mr.  Sledge was
president and Chief Executive Officer of TeleHub Communications  Corporation,  a
next generation  ATM-based  telecommunications  company.  From 1994 to 1995, Mr.
Sledge served as President and Chief  Operating  Officer of WCT, a  $160-million
long distance  telephone  company that was one of Fortune  Magazine's 25 fastest
growing public  companies before it was acquired by Frontier  Corporation.  From
1993 to 1994, Mr. Sledge was head of operations  for New T&T, a Hong  Kong-based
start-up.  He was Chairman and Chief  Executive  Officer of New Zealand  Telecom
International  from  1991 to 1993 and a member of the  executive  board of TCNZ,
where he led  privatization and public offerings and served as managing director
of New Zealand's largest operating telephone company,  Telecom Auckland Ltd. One
of  the  subsidiaries  of  Telehub  Communications,   Telehub  Network  Services
Corporation,  filed for bankruptcy several months after Mr. Sledge resigned from
Telehub.  Mr.  Sledge also served as president  and Chief  Executive  Officer of
Pacific Telesis  International.  Since November 1997, Mr. Sledge also has served
on the Board of Directors of eGlobe, Inc., a voice-based  applications  services
provider. Mr. Sledge holds a Masters of Business Administration and Batchelor of
Arts degree in industrial management from Texas Technological University.

         Dean S. Barr,  40, has served as one of our  Directors  since  November
2000.  Mr. Barr is  currently  the Global Chief  Investment  Officer of Deutsche
Asset  Management,  a position he has held since 1999. In this role, Mr. Barr is
responsible for $600 billion in investment  assets  worldwide for Deutsche Bank.
Before joining Deutsche Bank, Mr. Barr served as Global Chief Investment Officer
of Active  Strategies  and Global  Director of Research at State  Street  Global
Advisors where he was responsible for $120 billion in active investment  assets.
Mr. Barr co-founded and served from 1988 to 1997 as Chief  Executive  Officer of
Advanced Investment Technology,  a quantitative asset manager with $1 billion in
assets under management,  until State Street Global Advisors  purchased Advanced
Investment Technology.  Mr. Barr began his career in 1984 at Goldman Sachs where
he worked on early trading  applications for computer program trading.  Mr. Barr
received  his  undergraduate  degree from  Cornell  University  and received his
Masters in Business Administration from New York University.

         E. Russell "Rusty" Braziel, 50, has served as a Director of RateXchange
since  February  2001.  Mr.  Braziel  is  founder  and CEO of  Netrana,  LLC,  a
consulting and software venture that brings innovative market services, software
solutions and  liquidity  formation  methodologies  to a broad range of vertical
electronic  markets.  Previously,  in 1996,  Mr.  Braziel  founded  Altra Energy
Technologies,  a world leader in enterprise-wide business solutions,  delivering
electronic trading platforms,  transaction  management  products and integration
services for the energy  industry.  Under Mr. Braziel's  leadership,  Altra grew
from a small project team to a company  conducting  billions in e-commerce  each
month.  Mr. Braziel  serves on various Boards of Directors and advisory  boards,
providing   insight  into  the   development  of  a  number  of  B2B  exchanges,
professional  services firms, and software  companies.  Mr. Braziel received his
undergraduate degree in finance and his Masters in Business  Administration from
Stephen F. Austin University.

         Ronald E. Spears,  51, has served as one of our  Directors  since March
2000.  Throughout  his 20-year  career,  he has managed  telecommunications  and
professional   service   start-ups,   as  well  as  established   long  distance
powerhouses.   Since  June  2000,  Mr.  Spears  has  led  the   formulation  and
implementation  of  corporate-wide


                                       49
<PAGE>


development  related  to  strategic  planning,   marketing  and  communications,
business  alliances  as  Vaultus',  formerly  MobileLogic,  President  and Chief
Executive Officer.  Mr. Spears joined Vaultus after serving as the President and
Chief  Executive  Officer of CMGI  Solutions,  an  enterprise  focused  Internet
solutions  provider from April 1999 to May 2000.  Before joining CMGI Solutions,
Mr.  Spears served as president  and COO of e.spire  Communications,  one of the
nation's fastest growing integrated communications providers, from February 1998
to  April  1999  where  he  managed  day-to-day   business  operations  and  saw
significant  growth in revenue and market share.  From June 1995 to January 1998
he was corporate vice president at Citizens  Utilities,  managing that company's
independent  telephone  company  operations  in 13  states.  He also  served  as
President of MCI WorldCom,  Inc.'s Midwest Division from 1984 to 1990. A pioneer
of the  competitive  long  distance  industry,  Mr.  Spears  began his career in
telecommunications as a manager of AT&T Longlines in 1978, following eight years
as an officer in the U.S. Army. He is a graduate of the United Military  Academy
at West Point and also holds a Master's  Degree in Public  Service  from Western
Kentucky University.

         Steven W. Town,  40, has served as one of our  Directors  since October
2000.  Mr. Town  currently  serves as Co-Chief  Executive  Officer of the Amerex
Natural  Gas,  Amerex  Power and  Amerex  Bandwidth,  Ltd.  Mr.  Town  began his
commodities  career in 1987 in the retail futures  industry prior to joining the
Amerex Group of Companies.  He began the Amerex  futures and forwards  brokerage
group in natural gas in 1990, in Washington  D.C., and moved this unit of Amerex
to Houston in 1992. During Mr. Town's tenure as Co-Chief Executive Officer,  the
Amerex  companies  have  become the  leading  brokerage  organizations  in their
respective  industries.  Amerex currently  provides energy,  power and bandwidth
brokerage  services to many of the energy  companies.  Mr. Town is a graduate of
Oklahoma State University.

OTHER KEY EMPLOYEES

         Michael  Cairns,  41, is Senior  Vice  President  of Finance  and Chief
Accounting Officer for RateXchange.  He brings to RateXchange seventeen years of
experience  in  finance  and  accounting  with an  extensive  background  in the
financial  services  industry.  Mr. Cairns joined  RateXchange from Transamerica
Corporation where he worked from 1989 to 2000. While at Transamerica, Mr. Cairns
served  as the  Corporate  Director  of  Accounting  and  successfully  led many
cross-functional  projects,   including  systems  implementations,   derivatives
accounting  and  operations  and  financial  engineering   projects.   Prior  to
Transamerica, Mr. Cairns was an audit manager for Deloitte & Touche from 1987 to
1989 in New York  City  where  he  worked  primarily  on  audit  and  consulting
engagements for financial services companies. Mr. Cairns started his career with
KPMG  Peat  Marwick  in 1983.  Mr.  Cairns  received  his B.S.  degree  from the
University  of Hartford,  his MBA from the  University of California at Berkeley
and he is a CPA.

         Nick Cioll, 42, is our Senior Vice President of Trading Operations.  We
hired Mr. Cioll in 1999.  Mr.  Cioll  brings to us a broad range of  experience,
including business-to-business E-commerce, and trading and commodities expertise
from the electricity,  energy, chemicals and metals industries. He was the Chief
Financial  Officer of an affiliate of Freeport  McMoRan from 1993 to 1995.  From
1998 to 1999,  Mr.  Cioll  was the Vice  President  of  Marketing  and  Business
Development  for  Automated  Power  Exchange,  a  leading   business-to-business
exchange  in  electricity.  From 1988 to 1990,  Mr.  Cioll  was the  commodities
manager  at Kaiser  Aluminum.  Mr.  Cioll has a Bachelor  of  Science  degree in
economics,  a Masters in Business  Administration and a Master of Science degree
in finance equivalency, and is a licensed certified public accountant.

         Rob Ford, 41, serves as Chief  Operating  Officer for  Ratexchange.  He
brings 18 years of executive and operations experience to the Company.  Prior to
joining  RateXchange,  Mr. Ford was a  co-Founder  and CEO of Metacat,  Inc.,  a
content management ASP that specializes in enabling supplier catalogs for Global
2000 private exchanges and eMarketplaces.  Previously,  he was President/COO and
on the founding team of JobDirect.com, a leading resume and job matching service
for  university   students,   now  a  wholly-owned   subsidiary  of  Korn  Ferry
International.  Previously, Mr. Ford co-founded and managed an education content
company.  Prior to that, he headed up a turnaround and merger as General Manager
of a 65 year-old  manufacturing and distribution  company.  Mr. Ford started his
career   as   VP   of   Business    Development   at   Lazar   Enterprises,    a
technology-consulting  firm. He earned his Masters in International Business and
Law from the Fletcher  School of Law and Diplomacy at Tufts  University and a BA
with high distinction from Dartmouth College.


                                       50
<PAGE>


         Stephen E.  Kanaval,  43, has served as our Senior  Vice  President  of
Derivatives  since 2000.  Before  joining us, Mr.  Kanaval served as Senior Vice
President of Equity Capital Markets Group at First Security Van Kasper from 1999
to 2000. In this  capacity,  he oversaw the Listed and OTC trading  departments,
and was  responsible  for capital  commitment for the firm. He was on the merger
committee for the Wells Fargo merger,  and directed the expansion of the trading
floor.  Mr. Kanaval  previously was director of Market Neutral trading for Husic
Capital  from 1997 to 1998 where he worked on a team  managing  $300  million in
assets within the firm.  Before Husic,  Mr.  Kanaval was Founder,  President and
Chief  Executive  Officer  of  Chicago  Arbitrage  Group  from  1988 to 1998,  a
derivatives trading firm in Chicago  specializing in developing trading strategy
and  execution  for  institutions  and high  net  worth  clients.  He was on the
original  Futures  Task Force at Morgan  Stanley from 1984 to 1987 and was floor
manager for Index Arbitrage Trading for Morgan Stanley at the Chicago Mercantile
Exchange.  He also was a market maker at the Chicago Mercantile  Exchange on and
off for two decades. Mr. Kanaval attended Franklin University School of Business
in Columbus Ohio.

         Russell   Matulich,   37,  is  our  Senior  Vice   President  of  Sales
Origination.  We hired Mr.  Matulich in 1999.  As the vice  president  of global
sales and  marketing  for  WorldPort  Communications  from 1998 until 1999,  Mr.
Matulich managed a global sales force that targeted carriers, high-end corporate
accounts and internet service providers,  primarily in Europe. From 1997 to 1998
Mr.  Matulich  held the position of Vice  President of Carrier Sales at Frontier
Telecommunications. Mr. Matulich is a sales and marketing executive with over 15
years  of  experience  in the  development,  implementation  and  management  of
innovative and highly successful sales and marketing  programs for both start-up
venture  and   world-leading   telecommunications   corporations   competing  in
international markets.

         There is no family  relationship among any of the foregoing officers or
between any of the foregoing officers and any director of the Corporation.

         The information set forth under the caption  "Section 16(a)  Beneficial
Ownership   Reporting   Compliance"  in  the  Proxy   Statement  of  RateXchange
Corporation dated April 20, 2001 is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

         The information set forth under the captions "Director Compensation and
Benefits"  and  "Executive  Compensation  and  Other  Information"  in the Proxy
Statement of RateXchange Corporation dated April 20, 2001 is incorporated herein
by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information set forth under the captions  "Principal  Stockholders"
and  "Stockholdings of Directors and Executive  Officers" in the Proxy Statement
of  RateXchange  Corporation  dated  April 20,  2001 is  incorporated  herein by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information set forth under the captions "Director Compensation and
Benefits,"  "Compensation  Committee  Interlocks and Insider  Participation" and
"Certain  Transactions" in the Proxy Statement of RateXchange  Corporation dated
April 20, 2001 is incorporated herein by reference.

                                     PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         The  following  constitutes a list of Financial  Statements,  Financial
Statement Schedules, and Exhibits required to be used in this report:

1.       Financial Statements - Included in Part II, Item 8 of this report:


                                       51
<PAGE>


         Reports of Independent Public Accountants

         Consolidated  Balance  Sheet as of December  31, 2000 and  December 31,
         1999

         Consolidated  Statement of Operations  for the years ended December 31,
         2000, December 31, 1999, and December 31, 1998

         Consolidated  Statement of Stockholders' Equity for the period December
         31, 1997 to December 31, 2000

         Consolidated  Statement of Cash Flows for the years ended  December 31,
         2000, December 31, 1999, and December 31, 1998

         Notes to Consolidated Financial Statements for the years ended December
         31, 2000, December 31, 1999, and December 31, 1998

2.       Financial Statement Schedules - included in Part IV of this report:

         The required schedules are omitted because of the absence of conditions
         under which they are  required or because the required  information  is
         presented in the financial statements or notes thereto.

3.       Exhibits

         The exhibits  filed with this report are listed in the exhibit index on
         page 54.

4.       Reports on Form 8-K:  None


                                       52
<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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.

                                       RATEXCHANGE CORPORATION

April 16, 2001                         By:      /S/  D. Jonathan Merriman
--------------                                  -------------------------------
                                                D. Jonathan Merriman, President,
                                                Chief Executive Officer and
                                                Director

<TABLE>
         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
the registrant and in the capacities and on the dates indicated.
<CAPTION>
<S>                                                 <C>                                      <C>
/S/  D. Jonathan Merriman                           President, Chief Executive               April 16, 2001
--------------------------------------------        Officer and Director                     --------------
D. JONATHAN MERRIMAN


/S/  Michael Cairns                                 Principal Financial and Accounting       April 16, 2001
--------------------------------------------        Officer                                  --------------
MICHAEL CAIRNS


/S/  Patrick Arbor                                  Director                                 April 16, 2001
--------------------------------------------                                                 --------------
PATRICK ARBOR


/S/  Dean Barr                                      Director                                 April 16, 2001
--------------------------------------------                                                 --------------
DEAN BARR


     Michael Boren                                  Director                                 April 16, 2001
--------------------------------------------                                                 --------------
MICHAEL BOREN


     David Boren                                    Director                                 April 16, 2001
--------------------------------------------                                                 --------------
DAVID BOREN


/S/  E. Russell Braziel                             Director                                 April 16, 2001
--------------------------------------------                                                 --------------
E. RUSSELL BRAZIEL


/S/  Steven Town                                    Director                                 April 14, 2001
--------------------------------------------                                                 --------------
STEVEN TOWN


/S/   Donald Sledge                                 Chairman of the Board                    April 16, 2001
--------------------------------------------                                                 --------------
DONALD SLEDGE


     Ronald Spears                                  Director                                 April 16, 2001
--------------------------------------------                                                 --------------
RONALD SPEARS
</TABLE>


                                       53
<PAGE>
                                 EXHIBIT INDEX
Exhibit
  No.                            Description
  ---                            -----------

2.1      Acquisition  agreement  between  RateXchange  Corporation  and Xpit.com
         Inc., date March 12, 2001.

3.1      Certificate of  Incorporation,  as  amended  (incorporated  herein   by
         reference  to Exhibit 3.1 to  RateXchange's  Registration  Statement on
         Form S-1 (Reg. No. 333-37004)).

3.3      Amended and Restated Bylaws, as amended.  (incorporated by reference to
         Exhibit 10.3 to RateXchange's  Registration Statement on Form S-1 (Reg.
         No. 333-53316)).

10.1+    Employment  Agreement between RateXchange and Edward Mooney dated April
         1, 1999  (incorporated  by reference  to Exhibit 10.3 to  RateXchange's
         Form 10-Q for the quarter ended September 30, 1999).

10.2     Promissory Note of Edward Mooney dated December 18, 1998  (incorporated
         herein by  reference  to  Exhibit  10.4 to  RateXchange's  Registration
         Statement on Form S-1 (Reg. No. 333-53316)).

10.3+    Form  of   Severance   Agreement   between   RateXchange   and   Edward
         Mooney(incorporated   herein   by   reference   to   Exhibit   10.5  to
         RateXchange's   Registration   Statement   on  Form   S-1   (Reg.   No.
         333-53316))..

10.4+    Employment  Agreement between  RateXchange and Douglas Cole dated April
         1,  1999   (incorporated   herein  by  reference  to  Exhibit  10.6  to
         RateXchange's Registration Statement on Form S-1 (Reg. No. 333-53316)).

10.5+    Form of  Severance  Agreement  between  RateXchange  and  Douglas  Cole
         (incorporated  herein by  reference  to Exhibit  10.7 to  RateXchange's
         Registration Statement on Form S-1 (Reg. No. 333-53316))..

10.6+    Employment  Agreement between  RateXchange I, Inc. and Donald H. Sledge
         dated September 15, 1999  (incorporated  herein by reference to Exhibit
         10.8 to RateXchange's Registration
         Statement on Form S-1 (Reg. No. 333-53316))..

10.7+    Amendment  No. 1 to  Employment  Agreement  of Donald H.  Sledge  dated
         October 5, 2000  (incorporated  herein by  reference to Exhibit 10.9 to
         RateXchange's   Registration   Statement   on  Form   S-1   (Reg.   No.
         333-53316)).



                                       54
<PAGE>


10.8+    Employment  Agreement between  RateXchange and Ross Mayfield dated July
         2,  1999  (incorporated   herein  by  reference  to  Exhibit  10.10  to
         RateXchange's Registration Statement on Form S-1 (Reg. No. 333-53316)).

10.9+    Separation Agreement between RateXchange and Ross Mayfield dated August
         18,  2000  (incorporated  herein  by  reference  to  Exhibit  10.11  to
         RateXchange's Registration Statement on Form S-1 (Reg. No. 333-53316)).

10.10+   Employment Agreement between RateXchange and Paul Wescott dated July 5,
         2000   (incorporated   herein  by   reference   to  Exhibit   10.12  to
         RateXchange's Registration Statement on Form S-1 (Reg. No. 333-53316)).

10.11+   Separation  Agreement between RateXchange and Paul Wescott dated August
         28,  2000  (incorporated  herein  by  reference  to  Exhibit  10.13  to
         RateXchange's Registration Statement on Form S-1 (Reg. No. 333-53316)).

10.12+   Employment Agreement between RateXchange and Philip Rice dated February
         29,  2000  (incorporated  herein  by  reference  to  Exhibit  10.14  to
         RateXchange's   Registration   Statement   on  Form   S-1   (Reg.   No.
         333-53316))..

10.13+   Employment Agreement between RateXchange and D. Jonathan Merriman dated
         October 5, 2000  (incorporated  herein by reference to Exhibit 10.15 to
         RateXchange's Registration Statement on Form S-1 (Reg. No. 333-53316)).

10.14+   1998  Employee/Consultant  Stock Compensation Plan (incorporated herein
         by reference to Exhibit 10.1 to RateXchange's Registration Statement on
         Form S-8 (Reg. No. 333-65729)).

10.15+   1999 Stock Option Plan (incorporated herein by reference to Exhibit 4.1
         to  RateXchange's   Registration   Statement  on  Form  S-8  (Reg.  No.
         333-43776)).

10.16+   Form of  Non-Qualified,  Non-Plan Stock Option Agreement dated February
         24, 2000  between  RateXchange  and  Phillip  Rice,  Nick  Cioll,  Paul
         Wescott,  Ross  Mayfield,  Russ  Matulich,  Terry Ginn,  Donald Sledge,
         Christopher  Vizas,  Douglas Cole,  Ronald Spears and Jonathan Merriman
         (incorporated by reference to Exhibit 4.2 to RateXchange's Registration
         Statement on Forms S-8 (Reg. No. 333-43776).

10.17+   Schedule of non-plan option grants made under  Non-Qualified,  Non-Plan
         Stock  Option   Agreements   to  directors   and   executive   officers
         (incorporated  herein by  reference to Exhibit  10.19 to  RateXchange's
         Registration Statement on Form S-1 (Reg. No. 333-53316)).

10.18+   2000 Stock Option Plan, as amended (incorporated herein by reference to
         Exhibit 10.20 to RateXchange's Registration Statement on Form S-1 (Reg.
         No. 333-53316)). .

10.19    Advisory  Agreement  between   RateXchange  and  Maroon  Bells  Capital
         Partners,  Inc. dated December 15, 1998  (incorporated  by reference to
         Exhibit 10.12 to RateXchange's  Form 10-K/A for the year ended December
         31, 1999).

10.20    Promissory   Note  of   Theodore   Swindells   dated   March  30,  1999
         (incorporated  by  reference  to Exhibit  10.13 to  RateXchange's  Form
         10-K/A for the year ended December 31, 1999).


                                       55
<PAGE>


10.21    Term Sheet dated July 23, 1999 between RateXchange I, Inc. and Ultimate
         Markets,   Inc.   (incorporated   by  reference  to  Exhibit  10.14  to
         RateXchange's Form 10-K/A for the year ended December 30, 1999)

10.22    Settlement  Agreement  and Full General  Mutual  Release by and between
         RateXchange  and  Ultimate   Markets,   Inc.,  dated  August  28,  2000
         (incorporated by reference to Exhibit 10.6 to  RateXchange's  Form 10-Q
         for the quarter ended September 30, 2000).

10.23    Master Equipment Lease Agreement dated March 16, 2000  (incorporated by
         reference to Exhibit 10.6 to  RateXchange's  Registration  Statement on
         Form S-1 (Reg. No. 333-37004)).

10.24*   Agreement  between   RateXchange  and  Amerex  Bandwidth,   Ltd.  Dated
         September 17, 2000, including Warrants.

10.25    Multi Site Colocation  Commitment  Agreement by and between RateXchange
         and COLO.com dated February 17, 2000.

10.26    Co-location  License  by and  between  RateXchange  and  Switch  & Data
         Facilities Company dated March 1, 2000.

10.27    Facilities  Management  Agreement  between  RateXchange and Telecity UK
         Limited dated July 11, 2000  (incorporated by reference to Exhibit 10.2
         to RateXchange's Form 10-Q for the quarter ended September 30, 2000).

10.28    Master   Agreement   between   RateXchange  and  Science   Applications
         International Corporation dated February 2, 2000.

21.1     List of Subsidiaries of RateXchange  (incorporated  herein by reference
         to Exhibit  21.1 to  RateXchange's  Registration  Statement on Form S-1
         (Reg. No. 333-37004)).

27.      Financial Data Schedule

+        Represents management contract or compensatory plan or arrangement.

*        Certain confidential  portions of this Exhibit were omitted by means of
         redacting a portion of the text. This Exhibit has been filed separately
         with the Secretary of the  Securities and Exchange  Commission  without
         such  redaction  pursuant to our  Application  Requesting  Confidential
         Treatment  under Rule 406 of the Securities Act, which request has been
         granted by the Securities Exchange Commission

                                       56