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                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

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

                                    FORM 10-K

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

                   For the Fiscal Year ended December 31, 2001

|_|  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 Identification No.)
  Incorporation or Organization)

      100 Pine Street, Suite 500
           San Francisco, CA                                 94111
(Address of Principal Executive Offices)                   (Zip Code)

                                 (415) 274-5650
              (Registrant's Telephone Number, Including Area Code)

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

           Securities Registered Pursuant to Section 12(b) of the Act:

                         Common Stock, $0.0001 per share

        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. |_|

     The aggregate market value of the 17,669,449  shares of common stock of the
Registrant issued and outstanding as of March 28, 2002, excluding 742,900 shares
of common stock held by affiliates of the Registrant was $6,361,002. This amount
is based on the closing price of the common stock on the American Stock Exchange
of $0.36 per share on March 28, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

     Part III of this Form 10-K  incorporates by reference  certain  portions of
the Registrant's  proxy statement for its 2002 annual meeting of stockholders to
be filed with the Commission not later than 120 days after the end of the fiscal
year covered by this report.

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<PAGE>

                             Ratexchange Corporation
                                    Form 10-K
                      for the Year Ended December 31, 2001

PART I

          ITEM 1.  Business...............................................   3

          ITEM 2.  Properties.............................................   5

          ITEM 3.  Legal Proceedings......................................   5

          ITEM 4.  Submission of Matters to a Vote of Security Holders....   6

PART II

          ITEM 5.  Market for Registrant's Common Stock and Related
                   Stockholder Matters....................................   7

          ITEM 6.  Selected Consolidated Financial Data...................   7

          ITEM 7   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations....................   9

          ITEM 7A. Quantitative and Qualitative Disclosures About
                   Market Risk............................................  18

          ITEM 8.  Financial Statements and Supplementary Data............  19

                   Consolidated Balance Sheets............................  21

                   Consolidated Statements Of Operations..................  22

                   Consolidated Statements Of Stockholders' Equity
                   (Deficit)..............................................  23

                   Consolidated Statements of Cash Flows..................  24

                   Notes to Consolidated Financial Statements.............  25

PART III

          ITEM 9.  Changes in and Disagreements With Accountants On
                   Accounting and Financial Disclosure....................  40

          ITEM 10. Directors and Executive Officers of the Registrant.....  40

          ITEM 11. Executive Compensation.................................  42

          ITEM 12. Security Ownership of Certain Beneficial
                   Owners and Management..................................  42

          ITEM 13. Certain Relationships and Related Transactions.........  42

PART IV

          ITEM 14. Exhibits, Financial Statement Schedules, and
                   Reports on Form 8-K....................................  43

<PAGE>

Certain  statements  contained  in this  Annual  Report on Form  10-K  (Report),
including,  without  limitation,  statements  containing  the words  "believes,"
"anticipates,"  "estimates,"  "expects,"  "projections,"  and  words of  similar
import, constitute "forward-looking  statements." Readers should not place undue
reliance on these forward-looking statements. Ratexchange's actual results could
differ materially from those anticipated in these forward-looking statements for
many  reasons,  including  risks faced by the Company  described in this Report,
including  the  "Risk  Factors"  section  contained  in  Item 7,  and the  other
documents  Ratexchange files with the Securities and Exchange  Commission (SEC),
including  its most  recent  reports on Form 8-K and Form 10-Q,  and  amendments
thereto.

                                     PART I

ITEM 1. BUSINESS

Overview

     Ratexchange  is an  innovative  brokerage  services  firm that combines its
expertise in bandwidth  and other  emerging  commodity  markets with  securities
brokerage and investment  banking  activities.  Our RTX  Securities  Corporation
subsidiary is a NASD licensed,  fully disclosed broker-dealer offering sales and
trading services to institutions  and private  clients,  as well as advisory and
investment  banking  services to our  corporate  clients.  Through our  emerging
commodities  division,  we  are  developing  channels  to  maximize  profits  by
providing valuable and marketable information to RTX Securities.

     Ratexchange  Corporation  expects to generate  revenues from  brokerage and
investment banking activities through RTX Securities and to a lesser extent from
consulting and information services through our emerging  commodities  division.
We get paid for our  investment  banking and  brokerage  services in the form of
commissions,  transaction fees, merger and acquisition advisory fees and capital
markets  services  fees.  We also believe that our  consulting  and  information
services  will begin to  generate  revenues  in the form of  subscription  fees,
transaction fees, professional services fees and management fees.

RTX Securities

     The  consolidation  and  downsizing  of investment  banks serving  emerging
growth  companies,   particularly  in  San  Francisco,   has  created  a  timely
opportunity  for  Ratexchange  to  enter  this  voided  market  through  its RTX
Securities  subsidiary.  It is  contemplated  that the  potential  products  and
services   that  we  will  focus  on  within   RTX   Securities   will   include
trading/execution services, market making, private placement services for public
companies (PIPEs),  initial public offerings,  secondary offerings,  mergers and
acquisitions advisory, soft dollar services and asset management.

     In  addition,  given the  telecommunications  sector  bankruptcies  and the
market volatility in telecommunications debt and equity securities,  Ratexchange
has seen considerable interest in bandwidth pricing and other telecommunications
related data from asset managers and corporations.  We believe that the need for
information in the distressed  telecommunications  sector has never been greater
and our  brokerage  operation is an additional  channel to derive  revenues from
providing  that  information.  A key  aspect  to the value  proposition  for our
growing  brokerage and investment  banking  businesses is specialized,  in-depth
information.  We intend to leverage  our internal  capabilities  to analyze that
information with an eye to creating  marketable  research  products.  Additional
market  sectors for our investment  banking  services and research focus include
technology,  telecommunications,  life sciences,  consumer  growth and financial
services.

Emerging Commodities

     We believe that  opportunity  will arise from the chaos  experienced in the
telecommunications  and energy merchant  sectors during 2001,  punctuated by the
unraveling of Enron,  Winstar,  and Global Crossing,  among many others. Even in
the face of these company and market disruptions, there appears to be increasing
demand for bandwidth from both the residential and commercial sectors,  which we
believe  will  provoke  a  reordering  of  the  telecommunications   sector  and
subsequent market  conditions which will, over time,  reinvigorate the awareness
and trading of bandwidth  that was beginning to show higher daily volumes during
the summer and early fall of 2001.  We believe that the market for the brokering
of bandwidth will eventually  take hold as has been  demonstrated in the markets
for other recently  commoditized  products such as natural gas and  electricity.
Despite the uncertainty  relative to the timing of marketplace  adoption and the
magnitude  of  eventual  trading  volumes  for  bandwidth,  we believe  that our
investment  to date in  technology  and  brand  presence  has  positioned  us to
capitalize on that investment.  We are not currently  brokering  bandwidth,  but
when  market  activity  rebounds  we  are  positioned  to  resume  brokering  of
bandwidth.  We have  shifted  our focus to  aggregating  price and  market  data
related to bandwidth and other emerging commodities for sale to third parties.


                                       3
<PAGE>

Data Aggregation Model

     Through  the  investment  in a  flexible  design  and  architecture  of the
Ratexchange  Trading  System  (RTS),  we now have the  capability  to  aggregate
pricing  and  market  data  not  only  related  to   bandwidth,   but  in  other
telecommunications  and  non-telecommunications   arenas  as  well.  Information
service providers,  telecommunications companies, energy merchants and financial
institutions   need  real  time  access  to  current  market  data  and  pricing
information to be able to effectively manage risk and maximize a return on their
assets.  In response to this need, we intend to make this type of data available
to the marketplace  through the Specialist Data Agreement we signed with Reuters
Limited in 2001. We intend to develop relationships with operating companies and
other data  providers who would be  interested  in  leveraging  the business and
technical  infrastructure  we have  developed  with  Reuters.  By  working  with
Ratexchange  to channel  their data through the RTS, we are  providing  our data
aggregation  partners a  cost-effective  and rapid  solution  for tapping into a
potential new global customer base represented by Reuters' significant installed
subscriber   base  worldwide.   Ratexchange   will  earn  a  percentage  of  the
subscription  fees that Reuters charges to its Specialist Data customers who pay
for the Ratexchange data. Our data aggregation  partners then share a portion of
the fees we receive from Reuters.

Ratexchange Trading System

     Proprietary   Ratexchange  trading  software  powers  the  trading  system,
designed  with  input  from  energy  merchants,   telecommunication   companies,
commodity traders and brokers.  The RTS is analogous to trading platforms in the
on-line natural gas and electricity  commodity  markets.  The RTS enables market
participants  to buy and sell fiber  optic,  Internet  and  satellite  bandwidth
capacity globally.  The RTS serves not only as a platform for bandwidth trading,
but for the  aggregation  of data from third parties as well. We have  developed
the technical  infrastructure,  using the RTS as a platform,  to execute inbound
and outbound  data  transfers  from our data  aggregation  partners and Reuters,
effectively  converting the RTS into a data aggregation hub as well as a trading
platform. We believe we have developed  intellectual property with regard to our
RTS,  including  certain  processes  and  innovations  that  we  believe  can be
patented.

     Trades  executed on the RTS can be  delivered  between  any two  city-pairs
globally.  Market  participants  can trade  any  number  of city  pairs.  As the
bandwidth  trading  market  evolves,  notwithstanding  the year-end  2001 market
turmoil,  participants will likely adopt a standardized contract, similar to the
evolution  that occurred in other  commodity  markets.  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.

OffXchange Trading

     In  addition  to trading  directly  over the  Ratexchange  Trading  System,
Ratexchange, in an agreement with Amerex Bandwidth, Ltd. (Amerex), also executed
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.

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-related  assets.  Institutions  within  the
financial  community  have become  aware of the  opportunities  presented by the
evolving  telecommuncations  and bandwidth  markets 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.

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


                                       4
<PAGE>

Analytics

     With  increasing  liquidity and resulting  price discovery in the bandwidth
market,  buyers and sellers are able to identify and build forward price curves.
We offer, through our RateXlabs consulting service, pricing strategy and develop
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.

Risk Management Group

     RMG Partners  Corporation (RMG) is a wholly owned Delaware subsidiary which
provides  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.

     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 RMG:

     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

     As noted in Item 7.  "Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations"  and Item 8.  "Financial  Statements  and
Supplemental  Data",  we intend  to sell the RMG  subsidiary  in April  2002 and
discontinue the offering of these consulting services.

Employees

     Ratexchange  and its  subsidiaries  employed  seventeen  (17) persons as of
December 31, 2001.

ITEM 2. PROPERTIES

     Not applicable.

ITEM 3. LEGAL PROCEEDINGS

     Martin v.  Ratexchange  - On October 3, 2001,  Gregory  Martin and Patricia
Whitney filed a lawsuit  against  Ratexchange  Corporation  in the United States
District Court for the Western District of Washington, C01-1565R alleging breach
of  contract.  In 1998,  Mr.  Martin  was the  President  and CEO of  NetAmerica
International  Corporation (NAMI), a predecessor of Ratexchange Corporation.  In
December of 1998, Mr. Martin was terminated  from his employment  with NAMI. The
claims allege breach of agreements associated with Mr. Martin's employment.  The
complaint asks for damages of approximately  $150,000. Mr. Martin had filed suit
previously in the Washington State court. That matter was dismissed  following a
settlement  in May of  1999.  Mr.  Martin  has now  revived  his  claim  against
Ratexchange.  The  matter  is  being  defended  by  Ratexchange  and  is in  the
preliminary  stages of litigation.  We have recorded the estimated loss exposure
in the consolidated balance sheet as of December 31, 2001.

     YellowBrix,   Inc.  v.  Ratexchange  Corporation  -  On  October  2,  2001,
YellowBrix,  Inc. filed a lawsuit against Ratexchange Corporation in the Circuit
Court  for  the  City of  Alexandria,  Virginia  alleging  breach  of  contract.
YellowBrix,  Inc. provided news wire information to us in 2001. In January 2002,
we  settled  this case for a cash  payment  of  $19,250.  We have  recorded  the
settlement in the consolidated balance sheet as of December 31, 2001.


                                       5
<PAGE>

     Ratexchange  I, Inc. v.  PWREF/MCC-China  Basin,  LLC - In September  2001,
Ratexchange I, Inc., one of our Delaware subsidiaries,  terminated its lease and
filed a lawsuit  against  PWREF/MCC-China  Basin,  LLC, its  previous  landlord,
alleging  constructive  eviction and seeking declaratory relief. The allegations
of the complaint  arise from the lease for commercial  space between the parties
for the property  located at 185 Berry  Street,  in San  Francisco,  California.
PWREF/MCC-China   Basin,   LLC   responded   to  the   complaint   and  filed  a
cross-complaint  against  Ratexchange  I, Inc.  In March  2002,  we settled  the
cross-complaint  and  dismissed  our action.  We paid $195,937 and issued 50,000
shares of our restricted  common stock to  PWREF/MCC-China  Basin,  LLC. We have
recorded the  settlement  in the  consolidated  balance sheet as of December 31,
2001.

     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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 2001.


                                       6
<PAGE>

                                     PART II

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

     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.

                                                    High               Low
                                                    ----               ---
      2001
      Fourth Quarter......................         $ 0.75            $ 0.20
      Third Quarter.......................           1.40              0.20
      Second Quarter .....................           2.05              0.70
      First Quarter.......................           3.05              1.15

      2000
      Fourth Quarter......................         $ 4.00            $ 1.19
      Third Quarter.......................           6.38              3.00
      Second Quarter .....................          22.13              5.19
      First Quarter.......................          43.25              5.63

     The  closing  sale price for our common  stock on March 28, 2002 was $0.36.
The market price of our common  stock has  fluctuated  significantly  and may be
subject to significant  fluctuations  in the future.  See Item 7.  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

     As of March 28, 2002, there were  approximately  273 stockholders of record
of our common stock and 18,412,349 shares of common stock outstanding.

     Ratexchange  has  never  paid  cash  dividends  on its  capital  stock.  We
currently  intend  to  retain  earnings  for  use  in  our  business  and do not
anticipate paying any cash dividends in the foreseeable future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The  following  selected  consolidated  financial  data  should  be read in
conjunction  with Item 7.  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations" and the consolidated  financial  statements
and  the  notes  thereto   included  in  Item  8.   "Financial   Statements  and
Supplementary Data."

<TABLE>
<CAPTION>
                                                                                  As of December 31,
                                                      2001             2000              1999              1998             1997
                                                      ----             ----              ----              ----             ----
<S>                                               <C>               <C>              <C>               <C>              <C>
Balance Sheet Data:
Cash and cash equivalents ..................      $ 5,806,725       $ 2,115,152      $   536,615       $   528,516      $        --
Working capital ............................        3,339,174        12,001,202          (48,367)          700,654             (200)
Total assets ...............................        7,506,781        16,263,816        3,043,885           830,154               --
Long-term obligations ......................        8,375,892                --               --                --               --
Stockholders' equity (deficit) .............      $(3,441,733)      $13,662,946      $   318,829       $   700,654      $      (200)
</TABLE>


                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                   2001              2000              1999              1998              1997
                                                   ----              ----              ----              ----              ----
<S>                                            <C>               <C>               <C>               <C>               <C>
Statement of Operations Data:
Revenue ..................................     $  2,194,811      $     91,223      $         --      $         --      $         --
Operating expenses:
   Selling, general and
      administrative .....................       18,967,242        41,969,950         7,491,447         2,161,253               200
  Depreciation and amortization ..........        1,570,622           222,115            18,676                --                --
  Settlement of lease obligations ........        7,315,360                --                --                --                --
  Write-down of software assets ..........        3,010,371                --                --                --                --
  Acquisition of subsidiary ..............               --                --         1,507,408            89,710                --
  Write-off of advances to
      potential investee .................               --                --           413,681           885,000                --
                                               ------------      ------------      ------------      ------------      ------------
         Total operating expenses ........       30,863,595        42,192,065         9,431,212         3,135,963               200
                                               ------------      ------------      ------------      ------------      ------------
Operating loss ...........................      (28,668,784)      (42,100,842)       (9,431,212)       (3,135,963)             (200)
Interest income ..........................          330,772         1,017,482           151,496             2,214                --
Interest expense .........................         (265,089)         (164,671)          (19,073)          (10,773)               --
Interest expense (non-cash) ..............          (74,124)       (1,657,988)               --                --                --
Loss on securities .......................         (744,197)               --                --                --                --
Other expense, net .......................         (650,754)       (1,822,875)               --                --                --
                                               ------------      ------------      ------------      ------------      ------------
Net loss .................................     $(30,072,176)     $(44,728,894)     $ (9,298,789)     $ (3,144,522)     $       (200)
                                               ============      ============      ============      ============      ============
Basic and diluted net loss per
      common share .......................     $      (1.69)     $      (2.69)     $      (0.72)     $      (1.92)              $--
                                               ============      ============      ============      ============      ============
Weighted average number of
      common shares outstanding ..........       17,913,546        16,633,611        12,863,020         1,639,919           200,000
</TABLE>

Adjusted Statement of Operations Data:

     Ratexchange provides adjusted net loss and adjusted net loss per share data
to assist readers in understanding our operating results.  These adjustments are
not in accordance  with, or an alternative  to,  generally  accepted  accounting
principles and may be different for the  presentation  of financial  information
provided by other companies. See Item 8. "Financial Statements and Supplementary
Data" for Ratexchange's  complete financial statements presented under generally
accepted accounting principles.

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                   2001              2000              1999              1998              1997
                                                   ----              ----              ----              ----              ----
<S>                                            <C>               <C>               <C>               <C>               <C>
Net loss .................................     $(30,072,176)     $(44,728,894)     $ (9,298,789)     $ (3,144,522)     $       (200)
Adjustments:
Stock-based compensation .................        5,218,971        23,107,832         3,158,415         2,020,376                --
Settlement of leases and obligations .....        7,575,892                --                --                --                --
Write-off of property and equipment ......        3,235,454                --                --                --                --
Depreciation and amortization ............        1,570,622           222,115                --                --                --
Loss on write-down of security ...........          744,197                --                --                --                --
Employee severance .......................          400,000                --                --                --                --
Interest expense (non-cash) ..............           74,124         1,657,988                --                --                --
                                               ------------      ------------      ------------      ------------      ------------
Adjusted net loss ........................     $(11,252,916)     $(19,740,959)     $ (6,140,374)     $ (1,124,146)     $       (200)
                                               ============      ============      ============      ============      ============
Basic and diluted adjusted net
      loss per common share ..............     $      (0.64)     $      (1.19)     $      (0.48)     $      (0.69)     $      (0.00)
                                               ============      ============      ============      ============      ============
Weighted average number of
      common shares outstanding ..........       17,913,546        16,633,611        12,863,020         1,639,919           200,000
</TABLE>


                                       8
<PAGE>

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

     The following  discussion and analysis  should be read in conjunction  with
"Selected Consolidated Financial Data" and our consolidated financial statements
and notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

     Ratexchange  is an  innovative  brokerage  services  firm that combines its
expertise in bandwidth  and other  emerging  commodity  markets with  securities
brokerage and investment  banking  activities.  Our RTX  Securities  Corporation
subsidiary is a NASD licensed,  fully disclosed broker-dealer offering sales and
trading services to institutions  and private  clients,  as well as advisory and
investment  banking  services to our  corporate  clients.  Through our  emerging
commodities  division,  we  are  developing  channels  to  maximize  profits  by
providing valuable and marketable information to RTX Securities.

     In December 2001, we completed a private offering of convertible  notes, in
an aggregate principal amount of $3.5 million,  due December 31, 2011. The notes
bear interest at 12% per annum and may be converted  into shares of common stock
on  election  of the  holder  anytime  before  their  maturity  or  their  prior
redemption  or repurchase  by  Ratexchange.  The net proceeds from this offering
were approximately $3.1 million, after deducting offering expenses.  Pending the
use of the net proceeds,  we have invested them in interest bearing money market
accounts.

     In December  2001,  we acquired an inactive  broker-dealer  and changed the
name of the entity to RTX Securities Corporation (RTX Securities),  a California
corporation  and wholly owned  subsidiary of  Ratexchange.  RTX  Securities is a
registered,   fully  disclosed   broker-dealer  with  the  Securities   Exchange
Commission  and is a member of the National  Association  of Securities  Dealers
(NASD).  The membership  agreement with the NASD allows RTX Securities to engage
in various  business  activities  including  private  placement  of  securities,
trading  equity   securities   over-the-counter   and  selling   corporate  debt
securities.  In  2002,  RTX  Securities  intends  to apply  for a change  in its
membership  agreement  allowing RTX  Securities  to engage  additional  business
activities including proprietary trading,  options trading and making markets in
corporate securities over-the-counter.

     During 2001,  management  revised our business plan concerning the delivery
of telecommunications  bandwidth through our own network hubs. It was determined
that we did not have an alternative use for the network equipment in our ongoing
operations.  As a result, we recorded a $6.4 million charge for the acceleration
of remaining  contractual  obligations  and costs  associated  with the Forsythe
McArthur & Associates (Forsythe) lease arrangement.

     In November 2001, Forsythe agreed to forego all amounts owed by Ratexchange
under the lease  obligation in exchange for a convertible note payable and stock
warrants.  We issued a convertible note in an aggregate principal amount of $5.9
million, due August 31, 2006. The note bears interest at 9% per annum and may be
paid in cash or our common  stock at our  discretion.  The note may be converted
into  shares of common  stock on  election of Forsythe on August 31, 2006 with a
conversion price equal to 80% of the closing market price of the common stock at
that date.

     In March 2001,  we  acquired  Xpit.com,  Inc.  and merged it into our newly
created subsidiary Xpit Corporation. The acquisition enabled us to offer trading
and risk  management  systems to the  futures  industry.  Under the terms of the
transaction,  we acquired the  outstanding  common  shares of Xpit.com,  Inc. in
exchange for $500,000 in cash, a $500,000  two-year note bearing  interest at 7%
per year,  2,000,000  shares  of Series A  convertible  preferred  stock  with a
cumulative  dividend  of 6% based on a share  price of $2.75  per share and $4.9
million in future royalty payments tied to the achievement of Xpit Corporation's
projected  revenues  from 2001  through  2003.  The Series A preferred  stock is
convertible  on a one-for-one  basis into common stock at the  discretion of the
holders.   The  acquisition  price  was  allocated  primarily  to  the  software
technology acquired.

     In October 2001, we sold all of the material assets of our Xpit Corporation
subsidiary,  including the Ratexchange Futures System (RFS), to CQG, Inc. (CQG),
a  privately-held  quotation  services  company.  The assets were sold to CQG in
exchange for $1.5 million in cash. Additionally,  we can earn royalties of up to
$650,000 over the next four years if CQG achieves future revenue targets via the
RFS  platform.  In  connection  with the sale to CQG, we recorded a $3.0 million
non-cash  charge in the third quarter to reflect the  impairment in the value of
the Xpit Corporation assets, principally the carrying value of the RFS platform.
Additionally,  the $500,000 note payable  associated with the original Xpit.com,
Inc. purchase price was paid in full, plus accrued interest.  Net cash proceeds,
after payment of the note and expenses  associated  with the  transaction,  were
$902,000.


                                       9
<PAGE>

     In April 2001, we formed RMG Partners  Corporation  (RMG) as a wholly owned
subsidiary  which  provides  risk  management   solutions  through  the  use  of
derivative  trading  strategies.  Ratexchange  committed to capitalize the newly
formed  company with  $300,000 and 2.2 million  shares of  Ratexchange's  common
stock. RMG principals receive 85% of revenue, which is used to cover payroll and
operating  expenses of RMG. An affiliate of the  principals of RMG, BL Partners,
LLC,  has the right to  purchase  all of our  interest  in RMG,  except  for the
portion  of  Ratexchange  common  stock  used  to  capitalize  RMG  that  is not
"controlled" by the Chairman of RMG, for $300,000  commencing in April 2002. The
Chairman of RMG obtains control over the  Ratexchange  common stock based on the
achievement of revenue targets. As of December 31, 2001, the Chairman of RMG had
achieved control over approximately 1.1 million shares of the Ratexchange common
stock used to capitalize RMG.

     In February 2002, we received notice from BL Partners, LLC, that it intends
to exercise its right to purchase RMG in April 2002 in accordance with the terms
of the  agreement.  Our  consolidated  financial  statements  for 2001  properly
reflect the  activity of RMG.  The  following  adjustments  to our  consolidated
financial  statements would be appropriate to reflect our results "as if" we did
not own RMG during 2001. Our consolidated  balance sheet as of December 31, 2001
would have reflected the following  decreases:  (i) cash and cash equivalents by
$1,149,000,  (ii) prepaid  expenses and other current  assets by $16,000,  (iii)
other  investments  and  deposits by  $139,000,  and (iv)  accounts  payable and
accrued liabilities by $1,304,000.  The consolidated statement of income for the
year ended  December  31,  2001 would have  reflected  a decrease  in revenue of
$1,993,000 and a decrease in operating expenses of $1,832,000 in 2001.

Results of Operations

Revenue

     We  recognized  $2,195,000  and  $91,000 in revenue  during  2001 and 2000,
respectively.  We did not recognize revenue during 1999. The increase in revenue
of  approximately  $2,104,000,  or 2,312% from 2000 to 2001 was due primarily to
consulting  revenue  attributed  to the  activity of RMG.  During 2001, a single
customer  accounted  for 29% of our total  revenue.  During  2000,  no  customer
accounted for more than 10% of our revenue. Consulting revenue attributed to the
activity of RMG  represented  91% of the  consolidated  revenue  during 2001. As
discussed above, we expect to sell the RMG subsidiary  during the second quarter
of 2002 and will likely lose this source of revenue.  We anticipate  our revenue
for 2002 will increase  sequentially over the revenue recognized in 2001 related
primarily to activities of our RTX Securities broker-dealer subsidiary.

Selling, General and Administrative Expense

     Selling, general and administrative expenses were $18,967,000,  $41,970,000
and  $7,491,000  in  2001,  2000  and  1999,   respectively.   The  increase  of
approximately  $34,479,000,  or 460% from 1999 to 2000 was due to an increase in
(i) non-cash  stock-based  compensation  of $19,949,000,  (ii) outside  services
mostly  related to business  development  and marketing  activity of $4,159,000,
(iii) payroll costs of $3,994,000, and (iv) network equipment installation costs
of $3,970,000.  The decrease of approximately  $23,003,000,  or 55% from 2000 to
2001  related  to  a  decrease  in  (i)  non-cash  stock-based  compensation  of
$17,489,000  and (ii) outside  services of  $4,503,000.  We anticipate  selling,
general and administrative  expense,  both non-cash and in the aggregate,  to be
lower in 2002 as compared to 2001.

Depreciation and Amortization

     Depreciation and amortization  costs were $1,571,000,  $222,000 and $19,000
in 2001, 2000 and 1999, respectively. The increase of approximately $203,000, or
1,068% from 1999 to 2000 was due mostly to depreciation of the trading  platform
software  purchased  and  developed  in  2000.  The  increase  of  approximately
$1,349,000,  or 608% from 2000 to 2001 resulted  primarily from  depreciation of
the software  assets  acquired in the purchase of  Xpit.com,  Inc.  during March
2001. We expect  depreciation  and  amortization to decrease in absolute dollars
during 2002  because we sold the  software  assets  acquired in the  purchase of
Xpit.com, Inc. during October 2001.

Write-Down of Software Assets

     In March 2001, we acquired Xpit.com, Inc. for approximately $5.5 million in
preferred  stock,  notes payable and cash. The  acquisition  price was allocated
primarily to the software  technology  acquired,  the Ratexchange Futures System
trading  platform.  In October 2001,  we sold the RFS trading  platform for $1.5
million in cash. We recorded a $3.0 million non-cash charge in the third quarter
of 2001 to reflect the impairment in the value of the RFS software.


                                       10
<PAGE>

Settlement of Lease Obligations

     We have entered into various  operating leases associated with our delivery
hubs,   including  various   telecommunications   routing  equipment  and  other
infrastructure.  In addition,  we have  entered  into various  leases for office
space and related office  equipment,  including  computers and software.  During
2001, we revised our business plan concerning the delivery of telecommunications
bandwidth  through our own network hubs. It was determined  that we did not have
an  alternative  use for the network  equipment  in our ongoing  operations.  We
recorded a $6.4 million  charge for the  acceleration  of remaining  contractual
obligations and costs associated with the lease  arrangement  with Forsythe.  We
recorded expenses of approximately $900,000 in connection with the settlement or
restructure of the various operating leases.

Acquisition of Subsidiary

     In 1999,  the Company  purchased all the  outstanding  common stock of Rate
Exchange,   Inc.   seeking   to   develop   new   exchange   services   for  the
telecommunications  market. The purchase price included 574,998 shares of common
stock,  valued at  $920,000,  and a  $450,000  promissory  note.  On the date of
purchase,  Rate Exchange,  Inc. had negative net worth of $112,408.  The Company
recorded  an  expense  of  $1,507,408  representing  the  amount  by  which  the
consideration  provided  exceeded the net assets of Rate  Exchange,  Inc. at the
date of acquisition plus expenses associated with the transaction of $25,000.

Write-off of Advances to Potential Investee

     In September 1998, the Company,  then known as Venture World,  Ltd.,  began
negotiations to acquire NetAmerica, Inc., subsequently renamed A1 Internet, Inc.
The acquisition was never closed and negotiations were terminated in March 1999.
Between the time the Company negotiated to purchase NetAmerica, Inc and the time
the deal was  terminated  in March 1999,  the  Company  advanced  $1,738,769  to
NetAmerica,  Inc.  During 1999, the Company  determined  that  $1,507,408 of the
amount advanced to NetAmerica, Inc. was uncollectible and charged this amount to
expense.

Interest Income

     Interest  income was $331,000,  $1,017,000  and $151,000 in 2001,  2000 and
1999, respectively. The increase of approximately $866,000, or 574% from 1999 to
2000  was due to  interest  earned  on cash,  cash  equivalents  and  investment
securities acquired with the proceeds from the issuance of common stock in 2000.
The decrease of approximately $686,000, or 67% from 2000 to 2001 resulted from a
decrease in cash, cash equivalents and investment securities in 2001 as compared
to 2000.  We  expect  interest  income to be lower in 2002 as  compared  to 2001
because cash, cash equivalents and investment securities will be lower.

Interest Expense

     Interest expense was $265,000, $165,000 and $19,000 in 2001, 2000 and 1999,
respectively.  The increase of approximately $146,000, or 768% from 1999 to 2000
was due  primarily  to the $2 million  bridge loan  issued in February  2000 and
converted to common stock later in 2000. The increase of approximately $100,000,
or 61% from 2000 to 2001 was due to the convertible notes payable issued in late
2001 with an aggregate  balance of  approximately  $8.4  million.  We anticipate
interest  expense  will  increase in 2002 as a result of a full year of interest
expense associated with our convertible notes payable.

Interest Expense (Non-Cash Amortization)

     Interest expense (non-cash amortization) was $74,000,  $1,658,000 and $0 in
2001, 2000 and 1999,  respectively.  The 2000 non-cash  expense  represented the
fair value  charge in  connection  with the  conversion  of our bridge loan into
common  stock  and  stock  warrants.   The  2001  non-cash  expense  represented
amortization  of discounts  and debt issuance  costs related to the  convertible
notes payable issued during the fourth quarter 2001. We expect non-cash interest
expense to increase  during 2002 as we continue to amortize these  discounts and
debt issuance costs and record a full year affect of such amortization.

Loss on Securities

     As noted above in the  discussion  concerning  the write-off of advances to
potential  investee,  we  advanced  to A1  Internet,  Inc.  amounts  which  were
determined to be uncollectible. A1 Internet, Inc. agreed to repay certain of the
costs incurred by the Company prior to the  termination.  A1 Internet,  Inc. was
subsequently  sold to Halo Holdings of Nevada,  Inc.  (Halo),  a privately  held
company.  We received 100,000 shares of Halo common stock in our settlement with
Halo.  During  2001,  we sold a portion of the Halo common  stock for a realized
loss and recorded an impairment  loss for the remaining  shares of common stock.
The loss attributed to the Halo investment was $744,000 in 2001.


                                       11
<PAGE>

Other Expenses, net

     Other  expenses were $651,000,  $1,823,000  and $0 in 2001,  2000 and 1999,
respectively.  The 2000 expenses primarily represented a charge for common stock
and  stock  warrants  issued  as  settlement  of a  dispute.  The 2001  expenses
consisted  of  $225,000  for the  write-off  of fixed  assets not  utilized  and
$426,000 for the settlement of legal obligations.

Liquidity and Capital Resources

     As of December 31, 2001, our principal source of liquidity was our cash and
cash equivalents,  amounting to $5.8 million. As noted in "Overview",  we expect
to sell RMG  during  the  second  quarter  of 2002 for  $300,000.  Cash and cash
equivalents in the RMG subsidiaries as of December 31, 2001 was $1,449,000.

     Cash used in our operating  activities  was  $11,762,000,  $17,161,000  and
$3,070,000 in 2001, 2000 and 1999, respectively.  Cash used in our operations in
2001 was primarily  attributable to a net loss adjusted for the non-cash charges
of stock-based compensation, loss on settlement of lease obligations, write-down
of software assets, loss on securities,  write-off of fixed assets, amortization
of discounts on convertible notes payable,  amortization of debt issuance costs,
an  increase in  interest  payable,  decreases  in  interest  receivable,  other
advances  and  deposits,  offset by  decreases  in accounts  payable and accrued
liabilities.

     Cash provided by our investing  activities in 2001 was  $12,349,000,  while
cash  used by our  investing  activities  in 2000 and 1999 was  $13,643,000  and
$914,000, respectively. Investment activities include the purchase of short-term
investments  of  $32,975,000  in  2000,   sale  of  short-term   investments  of
$20,767,000 in 2000 and $12,095,000 in 2001,  purchase of property and equipment
of $208,000 in 1999, $1,435,000 in 2000 and $1,043,000 in 2001, sale of software
assets of $1,422,000 in 2001, and investment in private companies of $706,000 in
1999 and $125,000 in 2001.

     Cash provided by our financing  activities was $3,105,000,  $32,382,000 and
$3,992,000 in 2001, 2000 and 1999,  respectively.  Financing  activities include
the  issuance of common stock of  $3,582,000  in 1999 and  $31,726,000  in 2000,
issuance  of  convertible  notes  payable  and other debt of  $410,000  in 1999,
$1,090,000  in 2000 and  $3,605,000  in 2001,  the repayment of notes payable of
$500,000 in 2001 and a loan to our employee stock  purchase  program of $434,000
in 2000.

     We  believe  that  our  existing  cash  balances  and  investments  will be
sufficient  to meet our  liquidity and capital  spending  requirements  at least
through the end of the first quarter 2003.  However,  we have been  unprofitable
since  inception,  have  incurred net losses in each year,  and to date, we have
generated only nominal revenues. Furthermore, our funding of working capital and
current and future operating losses may require additional  capital  investment.
We cannot be certain that additional debt or equity  financing will be available
when required or, if available,  that we can secure it on terms  satisfactory to
us.

Effects of Recent Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business  Combinations,  and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS  No.  141  addresses  financial   accounting  and  reporting  for  business
combinations.  This statement  requires the purchase  method of accounting to be
used for all  business  combinations,  and  prohibits  the  pooling-of-interests
method of accounting.  This statement is effective for all business combinations
initiated  after June 30,  2001 and  supercedes  APB  Opinion  No. 16,  Business
Combinations,   as  well  as  SFAS  No.  38,   Accounting   for   Preacquisition
Contingencies of Purchased Enterprises.

     SFAS No. 142 addresses how intangible assets that are acquired individually
or with a group of other assets should be accounted for in financial  statements
upon their acquisition.  This statement requires goodwill  amortization to cease
and for goodwill to be periodically  reviewed for  impairment,  for fiscal years
beginning  after October 31, 2001.  SFAS No. 142  supercedes APB Opinion No. 17,
Intangible  Assets.  We will adopt the provisions of this standard for its first
quarter of fiscal 2002, and do not expect the adoption to have a material effect
on our financial condition or results of operations.

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
143, Accounting for Asset Retirement  Obligation.  SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002, and will require companies to record
the fair value of a liability for asset retirement  obligations in the period in
which they are incurred,  which  typically  could be upon  completion or shortly
thereafter. The effect of adoption of this standard on our results of operations
and financial positions is being evaluated.

     In October 2001, the Financial  Accounting  Standards Board issued SFAS No.
144,  Accounting for the Impairment or Disposal of Long-Lived  Assets.  SFAS No.
144 is effective for fiscal years beginning after December 15, 2001. It provides
a single  accounting model for long-lived  assets to be disposed of and replaces
SFAS No. 121,  Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of. The effect of adoption of this standard on our results
of operations and financial positions is being evaluated.


                                       12
<PAGE>

Risk Factors

     Investing in our securities  involves a high degree of risk. In addition to
the other  information  contained in this annual  Report,  including  reports we
incorporate  by  reference,  you should  consider the following  factors  before
investing in our securities.

     We are a company with a limited operating  history in a changing  industry,
it is difficult to evaluate our business and prospects.

     Our  activities  to  date  have  concentrated  primarily  on  planning  and
developing  our  electronic  trading  system  for  brokering  telecommunications
bandwidth and other  telecommunications  products.  In September  2000, we began
operating  the  Ratexchange   Trading  System  for  trading   telecommunications
bandwidth and in December 2001 we  established  a securities  broker-dealer  and
investment  bank, RTX  Securities  Corporation.  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. 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.

     Our ability to attain a positive cash flow and become profitable depends on
our ability to generate and maintain greater revenues while incurring reasonable
expenses.  This, in turn,  depends,  among other things,  on the  development of
telecommunications  bandwidth trading as a viable commercial market, development
of securities trading and investment banking business as well as our ability to:

     o    establish, maintain and increase our client base;
     o    manage the quality of services delivered by us and third party brokers
          and customers  supporting our trading  system,  securities and banking
          businesses;
     o    compete effectively with existing and potential competitors;
     o    further develop our business model;
     o    manage expanding operations; and
     o    attract and retain qualified personnel.

     If we do  achieve  a  positive  cash flow and  profitability,  we cannot be
certain  that we will be able to  sustain or  increase  them on a  quarterly  or
annual basis in the future.  Our inability to achieve or maintain  profitability
or positive cash flow could result in disappointing  financial  results,  impede
implementation  of our growth  strategy or cause the market  price of our common
stock to  decrease.  Accordingly,  we cannot  assure you that we will be able to
generate profits, which makes our ability to implement successfully our business
plan uncertain.

     Because we are a developing company,  the factors upon which we are able to
base our  estimates  as to the gross  revenues  and the number of  participating
clients  that will be  required  for us to attain a  positive  cash flow and any
additional  financing that may be needed for this purpose, are unpredictable and
extremely  limited.  In  addition,  the  business in which we operate is new and
rapidly changing.  For these and other reasons, we can give no assurance that we
will not require higher gross revenues,  a greater number of clients,  a greater
numbers of securities  and banking  transactions,  a greater  number of emerging
commodity  transactions  and/or  more  time  in  order  for us to  complete  the
development that we believe we need to be able to cover our operating  expenses,
or obtain the funds  necessary to finance  this  development.  In fact,  because
actual  events more often than not differ from  anticipated  events,  it is more
likely than not that our estimates will prove to be inaccurate.  Furthermore, in
the event that  financing  is needed in  addition to the amount that is required
for this development,  we cannot assure that such financing will be available on
acceptable  terms, if at all.  Accordingly,  we can neither assure nor represent
that our business will ever generate a positive cash flow or be profitable.

We have a history of operating losses and we anticipate losses and negative cash
flow for the  foreseeable  future.  Unless we are able to  generate  profits and
positive cash flow we may not be able to continue operations.

     We have  incurred  net losses and  generated  only  nominal  revenues  from
operations  since our inception and financed our  operations  primarily  through
sales of  equity  and debt  securities.  We  incurred  net loss of  $30,072,000,
$44,729,000  and $9,299,000 in 2001, 2000 and 1999,  respectively,  and negative
cash flow from  operations of  $11,762,000,  $17,161,000 and $3,070,000 in 2001,
2000 and 1999,  respectively.  As of December 31, 2001, our accumulated  deficit
since inception was $87,731,000.  We expect net losses and negative cash flow to
continue,  at least  into the  fourth  quarter  of 2002.  We may  never  achieve
profitability  and  even  if we do,  we may  not  sustain  or  increase  it on a
quarterly or annual basis in the future.  If we are unable to achieve or sustain
profitability, we may be unable to continue our operations.


                                       13
<PAGE>

     We may require additional funding in the event our revenues do not meet our
projections,  our  expenses are greater  than we  anticipate,  or to finance the
further  development  of  our  business.  Our  inability  to  obtain  additional
financing, if required, would have an adverse effect on our business.

     We expect that our current liquidity,  together with our existing resources
will be  sufficient to meet our cash  requirements  for at least the next twelve
months.  However,  if  our  actual  costs  are  higher  than  projected  or  our
contemplated future revenues fall below our current expectations, we may require
additional  financing before the expiration of twelve months.  In such event, we
will be forced to seek additional financing, most likely from one or more public
or private equity or debt offerings. We currently have no commitments for any of
such  additional  funding  and may not be able to  raise  needed  cash on  terms
acceptable  to us or at all.  Financings  may be on terms that are  dilutive  or
potentially  dilutive to our stockholders.  Further, our lack of tangible assets
to pledge could prevent us from  establishing a source of financing.  If sources
of financing are required, but are insufficient or unavailable,  we will need to
modify our growth and operating plans to the extent of available funding,  which
would have an adverse  effect on the  successful  implementation  of our planned
business development.

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

     The  markets  for  securities   brokerage,   investment  banking  and  data
aggregation  for emerging  commodities  are highly  competitive.  Our ability to
compete  with other  companies  will depend  largely upon our ability to capture
market share by obtaining  sufficient  participants for the Ratexchange  Trading
System and customers for our brokerage and banking services.

     Increased pressure created by any current or future competitors,  or by our
competitors  collectively,  could have a material adverse effect on our business
and  results  of  operations.   Increased  competition  may  result  in  reduced
commissions and fees 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 also could have a
material  adverse  effect on our business and results of  operations.  We cannot
assure that we will be able to compete  successfully  against current and future
competitors.  In  addition,  new  technologies,  services  and the  expansion of
existing technologies or services may increase the competitive pressures on us.

We may become subject to regulation by the Commodity Futures Trading Commission,
depending on the types of products and services we eventually introduce.

     We  have  developed  an  electronic  trading  system  for  trading  futures
contracts,  options on futures  contracts  and swaps for the purchase or sale of
bandwidth and other emerging commodity  products.  Futures contracts and options
on futures  contracts  are  within the  jurisdiction  of the  Commodity  Futures
Trading Commission (CFTC).  Currently,  the Commodity Exchange Act provides that
futures  contracts  may be  entered  into only on a board of trade that has been
designated  by the CFTC as a  contract  market.  The CFTC has  never  determined
whether some or all swap agreements are futures or options  contracts subject to
regulation under the Commodity Exchange Act and the CFTC's regulations. The CFTC
has, however,  issued a policy statement stating that most swap transactions are
not appropriately  regulated as futures or options contracts under the Commodity
Exchange Act or the CFTC's regulations. The CFTC has also issued rules exempting
swap  agreements  from most  provisions  of the  Commodity  Exchange Act and the
CFTC's regulations  provided certain  conditions are satisfied.  These exemptive
rules do not permit  swaps to be traded on  traditional  exchanges.  Neither the
CFTC's policy  statement,  which is limited in its  application to  cash-settled
swaps,  nor the CFTC's  exemptive  rules  permit  swaps to be cleared,  and both
impose other restrictions on swaps. As a result, under the current statutory and
regulatory scheme applicable to swaps, should we elect in the future to list for
trading or clearing of swap agreements, we may need to request an exemption from
the CFTC to do so. The CFTC is under no obligation to reach a decision  within a
certain period or to grant an exemption.

We have  registered as a securities  broker-dealer  and, as such, are subject to
substantial  regulations.  Our  failure  to comply  with these  regulations  may
adversely affect our business.

     We registered  our wholly owned  subsidiary  with the SEC and the NASD as a
securities   broker-dealer  in  December  2001  and  are  subject  to  extensive
regulation under federal and state laws. The principal purpose of regulation and
discipline of  broker-dealers  is the protection of customers and the securities
markets rather than protection of creditors and stockholders of  broker-dealers.
The  SEC is the  federal  agency  charged  with  administration  of the  federal
securities  laws. Much of the regulation of  broker-dealers,  however,  has been
delegated  to  self-regulatory  organizations,  such as the  NASD  and  national
securities  exchanges.  The NASD is our  primary  self-regulatory  organization.
These  self-regulatory  organizations adopt rules (which are subject to approval
by the SEC) that govern the industry and conduct periodic examinations of member
broker-dealers.   Broker-dealers   are  also  subject  to  regulation  by  state
securities  commissions  in  the  states  in  which  they  are  registered.  The
regulations to


                                       14
<PAGE>

which  broker-dealers are subject cover all aspects of the securities  business,
including net capital  requirements,  sales  methods,  trading  practices  among
broker-dealers,  capital structure of securities  firms,  record keeping and the
conduct of directors,  officers and employees.  The SEC and the  self-regulatory
bodies may  conduct  administrative  proceedings,  which can result in  censure,
fine, suspension or expulsion of a broker-dealer,  its officers or employees. If
we fail to comply  with  these  rules and  regulations,  our  business  would be
materially and adversely affected.

If we lose the services of our executive  officers,  or if we cannot recruit and
retain additional skilled personnel, our business may suffer.

     We  depend  on  the  continued  services  and  performance  of D.  Jonathan
Merriman,  our Chairman and Chief Executive Officer,  for our future success. We
currently have an employment agreement with Mr. Merriman,  which ends on October
8, 2003 but can be terminated by either party on 60 day's notice.

     In addition to Mr. Merriman,  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 only
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
current  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,  integrate or retain other highly qualified employees in the future,
such failure may have a material  adverse  effect on our business and results of
operations.

We may be unable to  effectively  manage  rapid  growth that we may  experience,
which could place a continuous strain on our resources.

     We plan to expand our  operations.  Our growth,  if it occurs,  will impose
significant demands on our management, financial, technical and other resources.
To manage our future growth we must adapt to changing  business  conditions  and
improve  existing  systems  or  implement  new  systems  for our  financial  and
management  controls,  reporting  systems and procedures  and expand,  train and
manage a growing employee base.  Furthermore,  in order to achieve rapid growth,
we may acquire technologies or products or enter into strategic  alliances.  For
us to succeed we must make our  existing  technology,  business and systems work
effectively  with  those  of  any  strategic  partners  without  undue  expense,
management distraction or other disruptions to our business. In addition, we may
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 fail to manage any of the above growth
challenges  successfully,  we may be unable to implement  our business  plan. If
that  occurs,  our  financial  results  may  suffer  and we could be  materially
adversely affected.

We may not be able to protect  and  enforce our  intellectual  property  rights,
which  could  result in the loss of our rights,  loss of  business or  increased
costs.

     Our  performance  and  ability to compete is  dependent  to a degree on our
proprietary technology,  including, but not limited to the design of the trading
and data aggregation  capabilities of the Ratexchange  Trading System. We regard
our  copyrighted   material,   software   design,   trade  secrets  and  similar
intellectual  property as necessary 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. If we are unable to
secure or  protect  our marks and  systems,  it could  result in the loss of our
rights to our marks and  systems,  or the loss of business.  In addition,  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.


                                       15
<PAGE>

     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
results of operations.

     Third  parties may claim that our business  activities  infringe upon their
proprietary  rights. From time to time in the ordinary course of business we may
be subject to claims of  infringement  of third  parties'  trademarks  and other
intellectual  property  rights.  Such  claims  could  subject us to  significant
liability and result in  invalidation of our  proprietary  rights.  These claims
could also be time-consuming and expensive to defend,  even if we ultimately are
not found liable.  In addition,  these claims could divert our management's time
and attention from the operation of our business.

Our business is dependent on the  development  and  maintenance  of the Internet
infrastructure.

     Our success will depend,  in part,  upon the development and maintenance of
the Internet  infrastructure  as a reliable  network backbone with the necessary
speed, data capacity and security,  and timely development of enabling products,
such as high-speed  modems, for providing reliable Internet access and services.
We  cannot  assure  you  that  the  Internet  infrastructure  will  continue  to
effectively  support  the  demands  placed on it as the  Internet  continues  to
experience  increased  numbers of users,  greater  frequency of use or increased
bandwidth  requirements  of  users.  Even  if the  necessary  infrastructure  or
technologies  are  developed,  we may have to expend  considerable  resources to
adapt our  offerings  accordingly.  Furthermore,  in the past,  the Internet has
experienced a variety of outages and other delays.  Any future outages or delays
could affect our ability to use the Internet as a successful  trading medium. If
any of these events  occur,  our business,  results of operations  and financial
condition could be materially and adversely affected.

     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 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.  We would be materially  and adversely  affected
if:

     o    use of the Internet and online  services does not continue to grow, or
          grows more slowly than expected;
     o    the  infrastructure  for the  Internet  and online  services  does not
          effectively support growth that may occur; or
     o    the  Internet  and online  services do not become a viable  commercial
          marketplace.

We may be adversely affected by government  regulations and legal  uncertainties
associated with the Internet.

     Laws  and  regulations  directly  applicable  to  Internet  communications,
commerce and advertising  are becoming more  prevalent,  but the legislative and
regulatory  treatment  of the  Internet  remains  largely  unsettled.  The  U.S.
Congress  has  adopted  Internet  laws  regarding  copyright,  taxation  and the
protection of children.


                                       16
<PAGE>

     In addition,  a number of other legislative and regulatory  proposals under
consideration by federal,  state,  local and foreign  governments  could lead to
additional laws and regulations affecting, among other things:

     o    the right to collect and use personally identifiable information;
     o    pricing;
     o    intellectual property;
     o    online content;
     o    user privacy;
     o    taxation;
     o    access charges;
     o    distribution;
     o    liability for third-party activities; and
     o    characteristics and quality of products and services.

     For example, the growth and development of the market for Internet commerce
may  prompt  calls for more  stringent  consumer  protection  laws in the United
States that may impose additional burdens on companies  conducting business over
the Internet.

     The adoption of any additional  laws or regulations may decrease the growth
of the  Internet or other online  services,  which  could,  in turn,  reduce 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,  courts may seek to apply existing laws not explicitly relating to the
Internet  in ways that  could  impact  the  Internet,  and it may take  years to
determine  whether and how laws such as those governing  intellectual  property,
privacy, libel and taxation will affect the Internet and our use of it.

     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.

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

     Our success, in particular our ability to successfully facilitate bandwidth
and securities  brokerage 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 could 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 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.

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


                                       17
<PAGE>

Because our business  involves the  transmission  of  information,  we may incur
liability for information retrieved from or transmitted over the Internet.

     We may be subject to claims relating to information  that is posted or made
available  on  our  web  site,  including  claims  for  defamation,   obscenity,
negligence  or copyright or  trademark  infringement.  We also may be subject to
claims based on the nature,  publication or distribution of our content or based
on errors or false or  misleading  information  provided on our web site.  These
types of claims  have  been  brought,  sometimes  successfully,  against  online
services in the past.  We could also be sued for the content that is  accessible
from  our web site  through  links to other  Internet  sites.  Although  we have
commercial  liability insurance with $2 million coverage, a $5 million umbrella,
errors and  omissions and  directors  and officers  coverage,  awards may exceed
these  amounts.  Our insurance may not provide for coverage for certain of these
types of claims and,  therefore,  may not adequately protect us against them. In
addition,  we could incur  significant costs in investigating and defending such
claims,  even if we  ultimately  are not found  liable.  If any of these  events
occur,  our business,  results of operations  and financial  condition  could be
materially and adversely affected.

Computer viruses may cause our systems to incur delays or interruptions  and may
increase our expenses or liabilities.

     Computer  viruses  may cause our systems to incur  delays or other  service
interruptions,  which may cause us to incur  additional  operating  expenses  to
correct problems we may experience. In addition, the inadvertent transmission of
computer  viruses could expose us to a material  risk of loss or litigation  and
possible  liability.  Moreover,  if a  computer  virus  affecting  our system is
publicly  disclosed,  our reputation could be materially damaged and our visitor
traffic may decrease.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The   following   discussion   about  market  risk   disclosures   involves
forward-looking  statements.  Actual results could differ  materially from those
projected in the forward-looking  statements.  We may be exposed to market risks
related to changes in interest rates and foreign currency  exchange rates. We do
not use derivative financial instruments for speculative or trading purposes.

Interest Rate Risk

     Our  exposure  to market risk  resulting  from  changes in  interest  rates
relates  primarily to our investment  portfolio and long term debt  obligations.
Our  interest  income and cash flows may be  impacted  by changes in the general
level of U.S.  interest rates. We do not hedge this exposure  because we believe
that  we are  not  subject  to any  material  market  risk  exposure  due to the
short-term  nature of our  investments.  We would not  expect an  immediate  10%
increase or decrease in current  interest rates to have a material effect on the
fair market value of our investment portfolio.

     Our long term debt obligations bear interest at a fixed fate.  Accordingly,
an immediate 10% increase or decrease in current  interest  rates would not have
an impact on our  interest  expense or cash flows.  The fair market value of our
long term fixed interest rate debt is subject to interest rate risk.  Generally,
the fair  market  value of fixed  interest  rate debt will  increase as interest
rates fall and decrease as interest rates rise. We would not expect an immediate
10% increase or decrease in current  interest rates to have a material impact on
the fair market value of our long term debt obligations.

Foreign Currency Risk

     We do not have any foreign  currency  denominated  assets or liabilities or
purchase  commitments and have not entered into any foreign currency  contracts.
Accordingly,  we are not exposed to  fluctuations in foreign  currency  exchange
rates.


                                       18
<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 Sheets

     o    Consolidated Statements of Operations

     o    Consolidated Statements of Stockholders' Equity (Deficit)

     o    Consolidated Statements of Cash Flows

     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.


                                       19
<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)  and  Subsidiaries as of December 31, 2001
and 2000 and the related  consolidated  statements of operations,  stockholders'
equity  (deficit) and cash flows for each of the three years in the period ended
December 31, 2001.  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,  2001  and  2000,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting  principles  generally accepted
in the United States.

Arthur Andersen LLP

San Francisco, California
February 26, 2002


                                       20
<PAGE>

                             RATEXCHANGE CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                               December 31,
                                                                                                      -----------------------------
                                                                                                          2001             2000
                                                                                                          ----             ----
<S>                                                                                                   <C>              <C>
                                                              ASSETS
Current assets:
    Cash and cash equivalents ....................................................................    $  5,806,725     $  2,115,152
    Short-term investments .......................................................................              --       12,124,635
    Accounts receivable (net of allowance of $4,960) .............................................              --           41,170
    Notes receivable .............................................................................           6,197               --
    Interest receivable ..........................................................................              --          204,755
    Prepaid expenses and other current assets ....................................................          98,874          116,360
                                                                                                      ------------     ------------
        Total current assets .....................................................................       5,911,796       14,602,072
Property and equipment, net ......................................................................         674,618        1,401,888
Debt issuance costs ..............................................................................         658,434               --
Other investments ................................................................................         200,000           75,000
Deposits .........................................................................................          61,933          184,856
                                                                                                      ------------     ------------
        Total assets .............................................................................    $  7,506,781     $ 16,263,816
                                                                                                      ============     ============

                                             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable .............................................................................    $    474,971     $  1,538,910
    Accrued liabilities ..........................................................................       2,097,651        1,061,960
                                                                                                      ------------     ------------
        Total current liabilities ................................................................       2,572,622        2,600,870
Convertible notes payable, net ...................................................................       8,375,892               --
                                                                                                      ------------     ------------
        Total liabilities ........................................................................      10,948,514        2,600,870
                                                                                                      ------------     ------------

Commitments and contingencies (Note 9)
Stockholders' equity (deficit):
    Preferred stock, $0.0001 par value; 60,000,000 shares authorized;
        2,000,000 shares issued and outstanding as of December 31, 2001;
        aggregate liquidation preference of $5,764,917 ...........................................             200               --
    Common stock, $0.0001 par value; 300,000,000 shares authorized;
        18,328,204 and 17,783,204 shares issued and outstanding
        as of December 31, 2001 and 2000, respectively ...........................................           1,833            1,778
    Additional paid-in capital ...................................................................      84,516,375       72,132,890
    Accumulated deficit ..........................................................................     (87,730,641)     (57,393,548)
    Deferred compensation ........................................................................        (229,500)              --
    Notes receivable from stockholders ...........................................................              --         (363,661)
    Accumulated other comprehensive loss .........................................................              --         (714,513)
                                                                                                      ------------     ------------
        Total stockholders' equity (deficit) .....................................................      (3,441,733)      13,662,946
                                                                                                      ------------     ------------
        Total liabilities and stockholders' equity ...............................................    $  7,506,781     $ 16,263,816
                                                                                                      ============     ============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       21
<PAGE>

                             RATEXCHANGE CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                             Year ended December 31,
                                                                           ------------------------------------------------------
                                                                               2001                  2000                1999
                                                                               ----                  ----                ----
<S>                                                                        <C>                   <C>                   <C>
Brokerage and consulting revenue .................................         $  2,194,811          $     91,223          $         --

Operating expenses:
      Selling, general and administrative
            (inclusive of non-cash expenses of
            $5,618,971 in 2001, $23,107,832 in
            2000 and $3,158,414 in 1999) .........................           18,967,242            41,969,950             7,491,447
      Depreciation and amortization ..............................            1,570,622               222,115                18,676
      Write-down of software assets ..............................            3,010,371                    --                    --
      Settlement of lease obligations ............................            7,315,360                    --                    --
      Acquisition of subsidiary ..................................                   --                    --             1,507,408
      Write-off of advances to potential investee ................                   --                    --               413,681
                                                                           ------------          ------------          ------------
         Total operating expenses ................................           30,863,595            42,192,065             9,431,212
                                                                           ------------          ------------          ------------
Operating loss ...................................................          (28,668,784)          (42,100,842)           (9,431,212)
Interest income ..................................................              330,772             1,017,482               151,496
Interest expense .................................................             (265,089)             (164,671)              (19,073)
Interest expense (non-cash amortization) .........................              (74,124)           (1,657,988)                   --
Loss on securities ...............................................             (744,197)                   --                    --
Other expenses, net ..............................................             (650,754)           (1,822,875)                   --
                                                                           ------------          ------------          ------------
Net loss .........................................................         $(30,072,176)         $(44,728,894)         $ (9,298,789)
                                                                           ============          ============          ============

Basic and diluted net loss per share .............................         $      (1.69)         $      (2.69)         $      (0.72)
                                                                           ============          ============          ============

Weighted average number of common shares .........................           17,913,546            16,633,611            12,863,020
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       22
<PAGE>

                             RATEXCHANGE CORPORATION
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>

                                                      Preferred Stock                  Common Stock             Additional
                                                ----------------------------   ----------------------------      Paid-in
                                                   Shares          Amount         Shares          Amount          Capital
                                                ------------    ------------   ------------    ------------    ------------
<S>                                                <C>          <C>              <C>           <C>             <C>
Balance, December 31, 1998 ..................             --    $         --      7,243,023    $        724    $  4,065,795
Net loss ....................................             --              --             --              --              --
Change in unrealized loss on securities .....             --              --             --              --              --

Comprehensive loss ..........................

Common stock issued .........................             --              --      6,844,402             685       7,711,588
Stock options and warrants granted ..........             --              --             --              --       1,448,441
                                                ------------    ------------   ------------    ------------    ------------
Balance, December 31, 1999 ..................             --    $         --     14,087,425    $      1,409    $ 13,225,824

Net loss ....................................             --              --             --              --              --
Change in unrealized loss on securities .....             --              --             --              --              --

Comprehensive loss ..........................

Common stock and warrants issued in
      connection with financing .............             --              --      3,128,329             313      33,839,873
Common stock and warrants issued in
      connection with settlement of dispute .             --              --        227,000              22       2,028,372
Repurchase of common stock for stock
      purchase loan program .................             --              --        (80,000)             (8)       (433,881)
Common stock issued to employees pursuant
      to stock purchase loan program ........             --              --        102,712              10         487,183
Repurchase of common stock from employees
      pursuant to stock purchase loan program             --              --        (22,712)             (2)       (123,530)
Exercise of stock options and warrants ......             --              --        340,450              34           1,216
Stock warrants issued in connection with
      Amerex transaction ....................             --              --             --              --       7,368,000
Stock warrants issued for services ..........             --              --             --              --       2,170,704
Stock options modified for terminated
      employees .............................             --              --             --              --       1,046,458
Amortization of stock options granted to
      employees, Directors and consultants ..             --              --             --              --      12,522,671
                                                ------------    ------------   ------------    ------------    ------------
Balance, December 31, 2000 ..................             --    $         --     17,783,204    $      1,778    $ 72,132,890
Net loss ....................................             --              --             --              --              --
Change in unrealized loss on securities .....             --              --             --              --              --

Comprehensive loss ..........................

Preferred stock issued ......................      2,000,000             200             --              --       4,383,600
Preferred stock dividend ....................             --              --             --              --         264,917
Common stock issued for services ............             --              --        545,000              55         259,645
Repurchase of common stock from employees
      pursuant to stock purchase loan program             --              --             --              --        (363,661)
Stock options and warrants granted ..........             --              --             --              --         733,277
Warrants issued in connection with
      modification of lease obligations .....             --              --             --              --       1,654,564
Stock options modified for terminated
      employees .............................             --              --             --              --         546,875
Amortization of stock options granted to
      employees and Directors ...............             --              --             --              --       1,433,919
Deferred compensation .......................             --              --             --              --       1,163,117
Amortization of deferred compensation .......             --              --             --              --              --
Beneficial conversion feature and stock
      warrants issued in connection with
      convertible notes payable .............             --              --             --              --       2,307,232
                                                ------------    ------------   ------------    ------------    ------------
Balance, December 31, 2001 ..................      2,000,000    $        200     18,328,204    $      1,833    $ 84,516,375
                                                ============    ============   ============    ============    ============

<CAPTION>
                                                                                                Accumulated        Total
                                                                                Receivable         Other        Stockholders'
                                                Accumulated      Deferred          From        Comprehensive       Equity
                                                  Deficit      Compensation     Stockholders        Loss         (Deficit)
                                                ------------    ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>             <C>
Balance, December 31, 1998 ..................   $ (3,365,865)   $         --    $         --    $         --    $    700,654
Net loss ....................................     (9,298,789)             --              --              --      (9,298,789)
Change in unrealized loss on securities .....             --              --              --        (243,750)       (243,750)
                                                                                                                ------------
Comprehensive loss ..........................                                                                     (9,542,539)
                                                                                                                ------------
Common stock issued .........................             --              --              --              --       7,712,273
Stock options and warrants granted ..........             --              --              --              --       1,448,441
                                                ------------    ------------    ------------    ------------    ------------
Balance, December 31, 1999 ..................   $(12,664,654)   $         --    $         --    $   (243,750)   $    318,829

Net loss ....................................    (44,728,894)             --              --              --     (44,728,894)
Change in unrealized loss on securities .....             --              --              --        (470,763)       (470,763)
                                                                                                                ------------
Comprehensive loss ..........................                                                                    (45,199,657)
                                                                                                                ------------
Common stock and warrants issued in
      connection with financing .............             --              --              --              --      33,840,186
Common stock and warrants issued in
      connection with settlement of dispute .             --              --              --              --       2,028,394
Repurchase of common stock for stock
      purchase loan program .................             --              --              --              --        (433,889)
Common stock issued to employees pursuant
      to stock purchase loan program ........             --              --        (487,193)             --              --
Repurchase of common stock from employees
      pursuant to stock purchase loan program             --              --         123,532              --              --
Exercise of stock options and warrants ......             --              --              --              --           1,250
Stock warrants issued in connection with
      Amerex transaction ....................             --              --              --              --       7,368,000
Stock warrants issued for services ..........             --              --              --              --       2,170,704
Stock options modified for terminated
      employees .............................             --              --              --              --       1,046,458
Amortization of stock options granted to
      employees, Directors and consultants ..             --              --              --              --      12,522,671
                                                ------------    ------------    ------------    ------------    ------------
Balance, December 31, 2000 ..................   $(57,393,548)   $         --    $   (363,661)   $   (714,513)   $ 13,662,946
Net loss ....................................    (30,072,176)             --              --              --     (30,072,176)
Change in unrealized loss on securities .....             --              --              --         714,513         714,513
                                                                                                                ------------
Comprehensive loss ..........................                                                                    (29,357,663)
                                                                                                                ------------
Preferred stock issued ......................             --              --              --              --       4,383,800
Preferred stock dividend ....................       (264,917)             --              --              --              --
Common stock issued for services ............             --              --              --              --         259,700
Repurchase of common stock from employees
      pursuant to stock purchase loan program             --              --         363,661              --              --
Stock options and warrants granted ..........             --              --              --              --         733,277
Warrants issued in connection with
      modification of lease obligations .....             --              --              --              --       1,654,564
Stock options modified for terminated
      employees .............................             --              --              --              --         546,875
Amortization of stock options granted to
      employees and Directors ...............             --              --              --              --       1,433,919
Deferred compensation .......................             --      (1,163,117)             --              --              --
Amortization of deferred compensation .......             --         933,617              --              --         933,617
Beneficial conversion feature and stock
      warrants issued in connection with
      convertible notes payable .............             --              --              --              --       2,307,232
                                                ------------    ------------    ------------    ------------    ------------
Balance, December 31, 2001 ..................   $(87,730,641)   $   (229,500)   $         --    $         --    $ (3,441,733)
                                                ============    ============    ============    ============    ============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       23
<PAGE>

                             RATEXCHANGE CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                  Year ended December 31,
                                                                                       --------------------------------------------
                                                                                           2001            2000            1999
                                                                                       ------------    ------------    ------------
<S>                                                                                    <C>             <C>             <C>
Cash flows from operating activities:
    Net loss .......................................................................   $(30,072,176)   $(44,728,894)   $ (9,298,789)
    Adjustments to reconcile net loss to net cash used in
        operating activities:
        Depreciation and amortization ..............................................      1,570,622         222,115          18,676
        Common stock issued for services ...........................................        259,700              --              --
        Stock options and warrants granted to service
            providers and strategic partners .......................................        390,296      13,770,883       3,158,415
        Stock warrants issued in connection with
            modification of lease obligations ......................................      1,654,564              --              --
        Amortization of stock options granted to employees,
            Directors and consultants ..............................................      1,433,919      10,391,432              --
        Stock options modified for terminated employees ............................        546,875       1,046,458              --
        Stock warrants issued in relation to bridge financing ......................             --       1,657,988              --
        Amortization of deferred compensation ......................................        933,617              --              --
        Note payable issued in connection with employee severance ..................        400,000              --              --
        Loss on settlement of lease obligations ....................................      7,315,360              --              --
        Acquisition of subsidiary ..................................................             --              --       1,507,408
        Write-down of software assets ..............................................      3,010,371              --              --
        Write-off of property and equipment ........................................        225,083              --              --
        Write-off of advances to potential investee ................................             --              --         206,898
        Loss on securities .........................................................        744,197              --              --
        Amortization of discounts on convertible notes payable .....................         68,637              --              --
        Amortization of debt issuance costs ........................................          5,487              --              --
        Increase in interest payable on debt .......................................        234,188              --              --
        Changes in operating assets and liabilities:
            Interest receivable and other advances .................................        257,214        (200,030)       (160,617)
            Deposits ...............................................................        122,923         (81,551)       (103,305)
            Accounts payable and accrued expenses ..................................       (863,309)        760,814       1,601,241
                                                                                       ------------    ------------    ------------
               Net cash used in operating activities ...............................    (11,762,432)    (17,160,785)     (3,070,073)
Cash flows from investing activities:
    Purchase of property and equipment .............................................     (1,042,900)     (1,435,112)       (207,568)
    Proceeds from sale of software assets ..........................................      1,422,179              --              --
    Investment in Halo common stock ................................................             --              --        (631,251)
    Purchase of short-term investments .............................................             --     (32,975,313)             --
    Proceeds from sale of short-term investments ...................................     12,094,951      20,767,415              --
    Other investments ..............................................................       (125,000)             --         (75,000)
                                                                                       ------------    ------------    ------------
        Net cash provided by (used in) investing activities ........................     12,349,230     (13,643,010)       (913,819)
Cash flows from financing activities:
        Proceeds from issuance of common stock, net ................................             --      30,135,902       3,581,991
        Convertible notes payable and other debt, net ..............................      3,604,775       1,090,000         410,000
        Proceeds from notes receivable .............................................             --       1,590,319              --
        Repayment of promissory notes ..............................................       (500,000)             --              --
        Loan to employee stock purchase program ....................................             --        (433,889)             --
                                                                                       ------------    ------------    ------------
Net cash provided by financing activities ..........................................      3,104,775      32,382,332       3,991,991
                                                                                       ------------    ------------    ------------
Increase in cash and cash equivalents ..............................................      3,691,573       1,578,537           8,099
Cash and cash equivalents at beginning of year .....................................      2,115,152         536,615         528,516
                                                                                       ------------    ------------    ------------
Cash and cash equivalents at end of year ...........................................   $  5,806,725    $  2,115,152    $    536,615
                                                                                       ============    ============    ============

Supplementary disclosure of cash flow information:
    Cash paid during the year:
        Interest ...................................................................   $     22,151    $    164,671    $         --
        Income taxes ...............................................................   $         --    $         --    $         --
    Non-cash investing and financing activities:
        Preferred stock issued to purchase software assets .........................   $  4,383,800    $         --    $         --
        Preferred stock dividends ..................................................   $    264,917    $         --    $         --
        Warrants issued in connection with debt issuance ...........................   $    268,696    $         --    $         --
        Stock options issued for purchase of software assets .......................   $     74,285    $         --    $         --
        Beneficial conversion feature and stock warrants issued
            in connection with convertible notes payable ...........................   $  2,307,232    $         --    $         --
        Stock issued in connection with settlement of bridge loan ..................   $         --    $  1,975,000    $         --
        Purchase of outstanding shares of Ratexchange ..............................   $         --    $         --    $    920,000
        Stock issued in connection with commission on stock sales ..................   $         --    $         --    $    196,029
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       24
<PAGE>

                             RATEXCHANGE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Description of Business

     Ratexchange  Corporation  is a brokerage  services  firm that  combines its
knowledge of bandwidth  and other  emerging  commodity  markets with  securities
brokerage and  investment  banking  activities.  The  Company's  RTX  Securities
Corporation  subsidiary  is  a  NASD  licensed,  fully  disclosed  broker-dealer
offering sales and trading services to institutions and private clients, as well
as advisory and investment  banking services to corporate  clients.  Through the
Company's emerging commodities  division, we are developing channels to maximize
profits by providing valuable and marketable information to RTX Securities.

     Ratexchange   Corporation   (Ratexchange   or   the   Company),    formerly
NetAmerica.com  Corporation  and formerly  Venture  World,  Ltd.,  is a Delaware
corporation organized on May 6, 1987.  NetAmerica.com  Corporation acquired Rate
Exchange,  Inc.,  a Colorado  corporation,  in June 1999.  On April 24, 2000 the
Company  changed its name from  NetAmerica.com  to  Ratexchange  Corporation  to
better  reflect its focus as an online  trading  system for  bandwidth.  In July
2000,  the Company's  common stock was listed on the American Stock Exchange and
currently  trades  under the symbol  "RTX".  The  Company had no  operations  or
business  before  September 30, 1998.  The Company is located in San  Francisco,
California.

     From inception,  the Company has been primarily  engaged in  organizational
activities,  including recruiting  personnel,  developing its electronic trading
platform,   developing  its  broker-dealer   operations,   establishing   office
facilities,  developing  infrastructure,  designing and  developing its website,
raising capital,  and  establishing its marketing plan and service  offerings to
seek  meaningful  revenue  generating  capacity.  The Company began  recognizing
revenue in 2000 and  achieved  the bulk of its  revenue in 2001 from  consulting
activities of RMG. As discussed in Note 13, the Company plans to sell RMG during
the second quarter of 2002. The Company  expects to generate most of its revenue
in 2002 from its RTX Securities broker-dealer.

     Since inception,  the Company has generated  significant  recurring losses.
Successful completion of the Company's  development  activities and, ultimately,
the  attainment  of  profitable  operations  is  dependent  upon future  events,
implementing  and  successfully  executing its business and marketing  strategy,
increasing  its customer  base,  and hiring and retaining  qualified  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.

2.   Summary of Significant Accounting Policies

Principles of Consolidation

     Ratexchange  has four  wholly  owned  U.S.  subsidiaries  which  have  been
consolidated in the accompanying financial statements.  The subsidiaries include
Ratexchange I, Inc., RMG Partners  Corporation  (RMG), Xpit Corporation  (Xpit),
and RTX Securities  Corporation  (RTX  Securities).  PolarCap was a wholly owned
subsidiary of the Company but has since been dissolved in 2001. The consolidated
financial  statements  include the accounts of Ratexchange  Corporation  and its
wholly  owned   subsidiaries.   All   significant   intercompany   accounts  and
transactions have been eliminated.

Cash and Cash Equivalents

     The Company considers all highly liquid investments purchased with original
maturities of ninety days or less to be cash equivalents.

Investments

     Ratexchange's  short-term  and  long-term  investments  are  classified  as
available-for-sale  and are reported at fair value,  with  unrealized  gains and
losses, net of tax, recorded in accumulated other  comprehensive  loss. Realized
gains or losses and declines in value determined to be other than temporary,  if
any,  on  available-for-sale  securities  will be  reported  in other  income or
expense as  incurred.  As of December  31,  2001,  Ratexchange  did not have any
short-term or long-term investments.

     Ratexchange   also  has  certain  other  minority  equity   investments  in
non-publicly  traded companies.  These investments are generally carried at cost
as the  Company  owns less than 20% of the  voting  equity and does not have the
ability to exercise significant  influence over these companies.  As of December
31, 2001 and 2000,  $200,000  and $75,000 of these  investments  are included in
long-term  other   investments,   respectively.   The  Company   monitors  these
investments for impairment and makes  appropriate  reductions in carrying values
when necessary. No write-downs were recorded during 2001 or 2000.


                                       25
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Property and Equipment

     Property and equipment are recorded at cost.  Depreciation and amortization
are computed using the  straight-line  method over useful lives of three to five
years.

     Internal use software and web site  development  costs are  capitalized  in
accordance  with Statement of Position (SOP) No. 98-1,  Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, and Emerging Issues
Task Force (EITF) Issue No. 00-02,  Accounting for Web Site  Development  Costs.
Qualifying costs incurred during  application  development  stage, which consist
primarily  of  outside  services  and  purchased  software  license  costs,  are
capitalized and amortized over the estimated useful life of the asset.

Long-Lived Assets

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

Revenue Recognition

     The Company  recognizes  brokerage  revenue once a trade is consummated and
the  earnings  process  is  complete.  Consulting  and  advertising  revenue  is
recognized when the related  services are performed,  fees for such services are
fixed or determinable, and its collection is probable.

Income Taxes

     The Company uses the asset and liability  method of  accounting  for income
taxes.  Deferred tax assets and  liabilities  are  recognized  for the estimated
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  tax rates  expected  to apply to  taxable  income in the years in which
those temporary differences are expected to be recovered or settled. A valuation
allowance  is  recorded  to  reduce  deferred  tax  assets  to an  amount  whose
realization  is more  likely  than not.  The effect on  deferred  tax assets and
liabilities  of a  change  in  tax  rates  is  recognized  in  the  consolidated
statements of operations in the period that includes the enactment date.

Stock-Based Compensation

     The  Company  uses the  intrinsic  value-based  method in  accordance  with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees,  to  account  for  employee  stock-based  compensation.  Accordingly,
compensation  cost is recorded on the date of grant to the extent the fair value
of the  underlying  share of common stock exceeds the exercise price for a stock
option or the purchase price for a share of common stock. Such compensation cost
is amortized on a straight-line  basis over the vesting period of the individual
award.  Pursuant to Statement of Financial  Accounting Standards (SFAS) No. 123,
Accounting for  Stock-Based  Compensation,  the Company  discloses the pro forma
effect of using the fair value method of  accounting  for  employee  stock-based
compensation.

     Stock-based  awards granted to  nonemployees  are accounted for pursuant to
the fair value method in SFAS No. 123 and Issue No. 96-18 of the Emerging Issues
Task Force.  The  associated  expense is measured and  recognized by the Company
over the period the services are performed by the nonemployee.

Net Loss Per Share

     The Company  computes net loss per share in  accordance  with SFAS No. 128,
Earnings per Share,  and SEC Staff  Accounting  Bulletin (SAB) No. 98. Under the
provisions  of SFAS No.  128 and SAB No. 98 basic  net loss per  share  excludes
dilution and is computed by dividing net loss  available to common  stockholders
(net loss after  subtracting  dividends due on preferred  stock) by the weighted
average number of common shares outstanding for the period. Diluted net loss per
common  share was the same as basic net loss per  common  share for all  periods
presented since the effect of any potentially dilutive securities is excluded as
they are anti-dilutive because of the Company's net losses.


                                       26
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Comprehensive loss

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

Concentrations

     Substantially  all of the Company's cash and cash  equivalents  are held at
three major U.S.  financial  institutions.  The majority of the  Company's  cash
equivalents  consist of  short-term  marketable  securities.  Deposits held with
banks may exceed the amount of insurance  provided on such  deposits.  Generally
these deposits may be redeemed upon demand.

     Historically, Ratexchange has relied on a limited number of customers for a
substantial  portion of its consulting  revenue.  During 2001, a single customer
accounted  for 29% of the  Company's  total  revenue.  During 2000, no customers
accounted  for  more  than  10% of the  Company's  revenue.  Consulting  revenue
attributed to the activities of RMG, a wholly owned  subsidiary of  Ratexchange,
represented  91%  of the  consolidated  revenue  during  2001.  Pursuant  to the
agreement  between  Ratexchange  and  BL  Partners,  LLC,  an  affiliate  of the
principals of RMG, which is more fully described in Note 13, the Company expects
to sell RMG during the second  quarter of 2002 and will  likely lose this source
of revenue.

Fair Value of Financial Instruments

     The carrying amounts of the Company's financial instruments,  which include
short-term and long-term investments, accounts receivable, accounts payable, and
other  accrued  expenses,  approximate  their  fair  values  due to their  short
maturities.  The fair value of the Company's long-term convertible notes payable
is estimated  based on the current  rates offered to the Company for debt of the
same remaining maturities.

Segment Reporting

     The Company has adopted the provisions of SFAS No. 131,  Disclosures  about
Segments of an  Enterprise  and Related  Information.  SFAS No. 131  establishes
annual and interim reporting  standards for operating segments of a company.  It
also requires entity-wide  disclosures about the products and services an entity
provides,  the material countries in which it holds assets and reports revenues,
and its major  customers.  The Company is not  organized  by multiple  operating
segments for the purpose of making operating decisions or assessing performance.
Accordingly,  the Company  operates in one reportable  operating  segment in the
United States.

Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities,  revenue  and  expenses.  Actual  results  could  differ from those
estimates.

Reclassification

     Certain prior year amounts have been  reclassified  to conform with current
year consolidated financial statement presentation.  These reclassifications had
no impact on previously reported net loss or total stockholders' equity.

New Accounting Standards

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business  Combinations,  and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS  No.  141  addresses  financial   accounting  and  reporting  for  business
combinations.  This statement  requires the purchase  method of accounting to be
used for all  business  combinations,  and  prohibits  the  pooling-of-interests
method of accounting.  This statement is effective for all business combinations
initiated  after June 30,  2001 and  supercedes  APB  Opinion  No. 16,  Business
Combinations,   as  well  as  SFAS  No.  38,   Accounting   for   Preacquisition
Contingencies of Purchased Enterprises.


                                       27
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     SFAS No. 142 addresses how intangible assets that are acquired individually
or with a group of other assets should be accounted for in financial  statements
upon their acquisition.  This statement requires goodwill  amortization to cease
and for goodwill to be periodically  reviewed for  impairment,  for fiscal years
beginning  after October 31, 2001.  SFAS No. 142  supercedes APB Opinion No. 17,
Intangible  Assets.  The company will adopt the  provisions of this standard for
its first  quarter of fiscal  2002,  and does not expect the  adoption to have a
material effect on its financial condition or results of operations.

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
143, Accounting for Asset Retirement  Obligation.  SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002, and will require companies to record
the fair value of a liability for asset retirement  obligations in the period in
which they are incurred,  which  typically  could be upon  completion or shortly
thereafter. The effect of adoption of this standard on our results of operations
and financial positions is being evaluated.

     In October 2001, the Financial  Accounting  Standards Board issued SFAS No.
144,  Accounting for the Impairment or Disposal of Long-Lived  Assets.  SFAS No.
144 is effective for fiscal years beginning after December 15, 2001. It provides
a single  accounting model for long-lived  assets to be disposed of and replaces
SFAS No. 121,  Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of. The effect of adoption of this standard on our results
of operations and financial positions is being evaluated.

3.   Short-Term Investments

     Short-term  investments  as of  December  31,  2000  are  comprised  of the
following:

<TABLE>
<CAPTION>
                                                                             Gross                 Gross                   Estimated
                                                    Amortized             Unrealized             Unrealized                  Fair
                                                      Cost                   Gains                  Loss                     Value
                                                   -----------            -----------            -----------             -----------
<S>                                                <C>                    <C>                    <C>                     <C>
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
                                                   ===========            ===========            ===========             ===========
</TABLE>

     The  Company did not have any  short-term  investments  as of December  31,
2001.

4.   Property and Equipment

     Property and equipment consisted of the following:

                                                          December 31,
                                                -------------------------------
                                                   2001                 2000
                                                -----------         -----------
Furniture and fixtures .................        $     7,913         $    38,097
Computer equipment and software ........          1,223,142           1,604,582
                                                -----------         -----------
                                                  1,231,055           1,642,679
Less: Accumulated depreciation .........           (556,437)           (240,791)
                                                -----------         -----------
                                                $   674,618         $ 1,401,888
                                                ===========         ===========

     The Company purchased software assets amounting to $5.5 million during 2001
and later sold  these  assets  during the same year (see Note 12).  Depreciation
expense  related to the  software  assets  during 2001  amounted to  $1,026,000.
Additionally, the Company disposed of property and equipment not utilized during
2001 with a cost basis of $455,000 and accumulated depreciation of $230,000.


                                       28
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

5.   Convertible Notes Payable

     In November and December 2001,  Ratexchange  completed private offerings of
convertible  notes,  in an  aggregate  principal  amount  of $3.5  million,  due
December 31, 2011.  The notes bear  interest at 12% per annum payable on January
1, April 1, July 1 and  October 1 of each year  beginning  January 1, 2002.  The
notes may be converted into shares of Ratexchange's  common stock on election of
the holder anytime before their maturity or their prior redemption or repurchase
by the Company.  The  conversion  rate is 2,703 shares of the  Company's  common
stock per each  $1,000  principal  amount of notes,  subject  to  adjustment  in
certain circumstances.  The Company has the option to redeem all or a portion of
the  notes  that  have  not  been  previously  converted  subsequent  to (i) the
registration under the Securities Act of 1933 of the common stock underlying the
notes and (ii) the common stock  achieving a closing price at or above $1.59 for
20 consecutive trading days.

     In connection with this financing  transaction,  the Company granted to the
convertible  note investors  warrants to purchase a total of 1,000,000 shares of
common  stock at $0.37 per share.  The  convertible  notes are  presented on the
consolidated  balance  sheets net of discounts  resulting from the relative fair
value of the stock warrants and beneficial  conversion  feature in the amount of
$242,000 and $333,000,  respectively. The discounts are being amortized over the
ten-year term using the effective interest method. The discount  amortization is
included in the consolidated  statements of operations as interest expense which
amounted to  approximately  $2,000 in 2001.  Debt  issuance  costs  amounting to
$664,000,  includes the fair value of warrants  issued to the placement agent to
purchase a combination of the Company's  convertible notes or common stock, plus
stock warrants. The debt issuance costs are being amortized over a ten-year term
using the straight-line method.  Amortization of debt issuance costs during 2001
was approximately $5,000.

     As discussed in Note 9, Forsythe McArthur & Associates (Forsythe) agreed to
forego all amounts owed by  Ratexchange  under the lease  obligation in exchange
for a  convertible  note  payable  and  stock  warrants.  The  Company  issued a
convertible  note dated September 1, 2001, in an aggregate  principal  amount of
$5.9  million,  due August 31,  2006.  The note bears  interest  at 9% per annum
payable March 31, June 30,  September 30 and December 31 of each year  beginning
March  31,  2002 and may be paid in cash or  Ratexchange's  common  stock at the
discretion of the Company. The note may be converted into shares of common stock
on election of Forsythe at August 31, 2006 with a conversion  price equal to 80%
of the closing market price of the common stock.

     In connection with the convertible  note, the Company granted to Forsythe a
warrant to  purchase  520,833  shares of common  stock at $0.48 per  share.  The
convertible  note  is  presented  on  the  consolidated  balance  sheets  net of
discounts  resulting  from the  relative  fair  value of the stock  warrant  and
beneficial  conversion  feature  in  the  amount  of  $122,000  and  $1,078,000,
respectively.  The discounts are being  amortized  over the five-year term using
the effective interest method. The discount  amortization included with interest
expense amounted to approximately $67,000 in 2001.

     During 2001, the Company  renegotiated the terms of the severance  included
in its employment  agreement with Donald Sledge,  the former Chairman and CEO of
Ratexchange. Upon his leaving the Company in May 2001, the Company issued to Mr.
Sledge a 7% convertible note, in an aggregate principal amount of $400,000,  due
April 2003.  Interest is payable at the maturity of the two-year term. The notes
may be converted  into shares of  Ratexchange's  common stock on election of Mr.
Sledge anytime  before their maturity or their prior  repurchase by the Company.
The  conversion  rate is 364 shares per each $1,000  principal  amount of notes,
subject to adjustment in certain circumstances.

     Interest  payable in connection with the convertible  notes described above
is included  with the  convertible  notes  payable  balance in the  consolidated
balance sheets. As of December 31, 2001, interest payable amounted to $234,000.


                                       29
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

6.   Stockholders' Equity (Deficit)

Preferred Stock

     In April 2001, the Company issued  2,000,000 shares of Series A convertible
preferred stock at a price of $2.19 per share in connection with the purchase of
Xpit.com,  Inc. (see note 12). The rights,  preferences,  and  privileges of the
holders of Series A convertible preferred stock are as follows:

     o    Each share of preferred stock is convertible  into one share of common
          stock on  election  of the  holders,  subject to certain  antidilutive
          adjustments;

     o    Shares of preferred stock automatically convert to common stock on the
          first date after which all of the following  conditions  are satisfied
          (i) the fourth anniversary of the Xpit purchase has occurred, (ii) the
          Company's common stock is publicly traded on a national exchange,  and
          (iii) the closing price of the  Company's  common stock is equal to or
          exceeds $6.00 per share for ten consecutive trading days;

     o    Series A convertible preferred stock is not redeemable by the Company;

     o    Holders of preferred  stock are  entitled to  dividends of  additional
          shares of Series A convertible  preferred  stock at the rate of 6% per
          annum;

     o    Preferred  stock votes  equally  with the shares of common stock on an
          "as-if-converted" basis; and

     o    Holders of preferred stock have a liquidation  preference of $2.75 per
          share, or $5.5 million, plus all declared but unpaid dividends.

Common Stock

     Nonmonetary  transactions  for  which no cash was  exchanged  and for which
shares of common stock were exchanged for goods and services are recorded at the
fair market value of the common stock issued at the time of the  transaction and
reported in the statements of operations as services are rendered.

     During  2001,  the  Company  issued  common  stock in  connection  with the
following transactions:

     o    170,000  shares  issued for $71,700 to  employees in lieu of salaries;
          and

     o    375,000 shares issued for $188,000 for services rendered and to settle
          lease obligations.

     During  2000,  the  Company  issued  common  stock in  connection  with the
following transactions:

     o    The  Company  raised $2 million in  short-term  bridge  loans  between
          December  1999 and February  2000.  In 2000,  the Company  granted the
          investors  in the bridge  loan the right to convert  their  loans into
          Ratexchange's  common stock at a  conversion  rate of $5.00 per share.
          Additionally, the Company issued the investors warrants to purchase an
          aggregate  of  493,750  shares  of common  stock at $5.00  per  share.
          Investors  who  declined  this offer were  entitled  to rescind  their
          original   investment  and  receive  their  principal  back  in  full,
          including  accrued  interest.  As a result,  $1,975,000  of loans plus
          $128,000 of interest  payable were  converted  into 395,000  shares of
          common  stock.  The  warrants  were  valued  at  $1,602,000  which was
          included with additional paid-in capital.

     o    In March  2000,  the Company  issued  2,733,329  shares of  restricted
          common stock in a private placement for $32,799,  948. After deducting
          $2,665,000  for  costs  associated  with  the  offering,  the  Company
          received $30,135,000;

     o    227,000 shares issued for $1,334,760 to settle third party claims;

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

     o    25,000 shares issued for $1,250 from exercise of an option; and

     o    80,000 shares  repurchased and subsequently  issued to employees under
          stock purchase loan program;


                                       30
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     During  1999,  the  Company  issued  common  stock in  connection  with the
following transactions:

     o    916,574 shares issued for $91,657 to related parties.  The shares were
          issued with  restrictions  so that the stock  cannot be sold,  traded,
          assigned,  transferred  or pledged  until the Company  achieves  gross
          revenue of $10  million in a one-year  period.  As these  shares  were
          issued below fair market  value,  the Company  recorded an expense and
          increased additional paid-in capital by $886,053;

     o    322,500  shares  issued for  $32,250 as cost  reimbursement.  As these
          shares were issued below fair market  value,  the Company  recorded an
          expense and increased additional paid-in capital by $311,761;

     o    758,438 shares issued for $728,100, net of $80,900 for commissions;

     o    3,112,500  shares issued for  $3,320,000 to related  parties and other
          investors;

     o    268,500   shares  issued  for  $287,233  in  exchange  for  legal  and
          consulting services;

     o    193,186  shares  issued for  $206,917 to repay debt to creditors of A1
          Internet;

     o    30,000 shares issued for $32,001 to repay outstanding note payable;

     o    30,000 shares issued for $32,001 in exchange for services rendered;

     o    515,188  shares  issued for $628,272,  net of $196,029 in  commissions
          paid with 122,518 shares;

     o    122,518  shares  issued for  $196,029  as payment for  commissions  on
          private placement; and

     o    574,998  shares  issued for $920,000 to purchase Rate  Exchange,  Inc.
          (see note 16).

7.   Stock-Based Compensation

     Stock Options

     The 1999 Stock  Option Plan and the 2000 Stock  Option and  Incentive  Plan
(Option Plans) permit the Company to grant  employees,  outside  directors,  and
consultants  qualified  stock  options,  nonstatutory  stock  options  or  stock
purchase  rights to purchase  shares of the Company's  common stock.  The Option
Plans do not permit the exercise of non-vested  stock options,  and therefore as
of December 31, 2001 and 2000 there were no shares subject to repurchase.

     As of  December  31,  2001,  there  were  3,000,000  and  5,000,000  shares
authorized  for issuance  under the 1999 Stock Option Plan and 2000 Stock Option
Plan, respectively,  and 4,290,000 shares authorized for issuance outside of the
Option Plans. As of December 31, 2001,  964,943 shares were available for future
option grants under the Option Plans.  There were no shares available for future
option grants outside of the Options Plans.

     The  Company  uses  the  intrinsic-value   method  in  accounting  for  its
stock-based compensation  arrangements for employees,  whereby compensation cost
is  measured to the extent that the fair value of the  underlying  common  stock
exceeds the exercise  price of the stock options at the date of grant.  In 2000,
the Company granted to employees stock options to purchase 4,015,000 shares with
intrinsic value. These amounts are being amortized on a straight-line basis over
the  vesting  period,  generally  one year or four years.  Compensation  expense
resulting from option grants with  intrinsic  value amounted to $1.4 million and
$12.5  million in 2001 and 2000,  respectively.  As of December  31,  2001,  the
unamortized  expense  attributed  to  option  grants  with  intrinsic  value was
$406,000.

     During 2001 and 2000,  certain  employees who were  terminated  received an
extension  to the period of time their vested  stock  options were  exercisable.
This   modification   to  the  stock  options  grants   resulted  in  additional
compensation expense for the Company in the amount of $547,000 and $1,046,000 in
2001 and 2000, respectively.


                                       31
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
                                                               2001                       2000                       1999
                                                       ---------------------      ---------------------      ---------------------
                                                                      Wtd-Avg                    Wtd-Avg                    Wtd-Avg
                                                                     Exercise                    Exercise                   Exercise
                                                         Shares        Price        Shares        Price        Shares        Price
                                                       ----------    --------     ----------     --------    ----------     --------
<S>                                                    <C>             <C>         <C>            <C>                        <C>
Outstanding at beginning of year .................     10,582,772      $4.62       2,990,000      $2.23              --      $  --
Granted ..........................................      2,267,590       1.60       8,516,900       5.47       3,050,000       2.24
Exercised ........................................             --         --          25,000       0.05              --         --
Canceled .........................................      3,089,262       4.79         899,128       4.84          60,000       2.50
                                                       ----------      -----      ----------      -----      ----------      -----
Outstanding at end of year .......................      9,761,100       3.76      10,582,772       4.62       2,990,000       2.23
                                                       ==========      =====      ==========      =====      ==========      =====
Exercisable at end of year .......................      7,558,137       3.97       4,819,767       4.12       1,287,500       1.96
                                                       ==========      =====      ==========      =====      ==========      =====
</TABLE>

Stock Warrants

     In September  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   telecommunications   capacity  and/or  other
telecommunications-related products over the Company's electronic trading system
and Ratexchange will share in the revenues  generated by the electronic  trading
system. In connection with this agreement, the Company issued to Amerex warrants
to purchase an aggregate of 2,300,000  shares of common stock with a fair market
value of $7,368,000, which was charged to expense in 2000. 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 2005 or Amerex  executing  cumulative  value of transactions  over the
Company's  online  electronic  trading system of $2 million,  $5 million and $10
million, respectively. The warrants expire in September 2005.

     During 2001,  2000 and 1999,  the Company  issued  warrants to  third-party
service   providers  and  in  connection  with  the  settlement  of  contractual
obligations.  Stock-based  awards  granted to  nonemployees  are  accounted  for
pursuant to the fair value method in SFAS No. 123 and EITF Issue No. 96-18.  The
associated expense is measured and recognized by the Company over the period the
services are  performed by the  nonemployee.  During  2001,  2000 and 1999,  the
expense resulting from the issuance of these warrants was $2,388,000, $2,171,000
and $1,448,000, respectively.

     As discussed  in note 5, the Company  also issued  warrants to purchase its
common stock in connection  with the  convertible  notes payable to Forsythe and
the private  financing  investors during 2001.  Warrants were also issued to the
placement agent of the private financing. Such amounts are charged to expense as
discussed in Note 5.

     A summary of stock warrant activity is as follows:

<TABLE>
<CAPTION>
                                                                   2001                     2000                      1999
                                                          ---------------------     ---------------------     ---------------------
                                                                        Wtd-Avg                  Wtd-Avg                    Wtd-Avg
                                                                       Exercise                  Exercise                  Exercise
                                                           Shares        Price       Shares        Price       Shares        Price
                                                          ---------    --------     ---------    --------     ---------    --------
<S>                                                       <C>            <C>          <C>          <C>          <C>          <C>
Outstanding at beginning of year ...................      5,472,043      $8.41        625,000      $1.74        100,000      $2.00
Granted ............................................      2,582,333       0.94      5,172,043       8.58        525,000       1.69
Exercised ..........................................             --         --        325,000       0.80             --         --
Canceled ...........................................             --         --             --         --             --         --
                                                          ---------      -----      ---------      -----      ---------      -----
Outstanding at end of year .........................      8,054,376       5.91      5,472,043       8.41        625,000       1.74
                                                          =========      =====      =========      =====      =========      =====
Exercisable at end of year .........................      6,554,376       6.09      3,955,043       9.67        625,000       1.74
                                                          =========      =====      =========      =====      =========      =====
</TABLE>


                                       32
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Stock Options and Warrants Outstanding

     Summary of the  outstanding  stock options and warrants issued to employees
and non-employees as of December 31, 2001 were as follows:

<TABLE>
<CAPTION>
                                                        Outstanding                                        Exercisable
                                     ---------------------------------------------------          ---------------------------------
                                                                              Weighted
                                                            Weighted           Average                                  Weighted
                                                             Average          Remaining                                  Average
                                       Warrants/            Exercise         Contractual           Warrants/            Exercise
Range of exercise prices                Options               Price         Life (years)            Options               Price
------------------------             -------------        ------------      ------------          ------------         ------------
<S>                                     <C>                 <C>                  <C>                <C>                  <C>
Employees
           $ 0.34-$ 2.00                1,690,949           $     1.19           8.90               1,272,449            $   1.17
           $ 2.01-$ 4.00                3,687,842           $     2.96           8.49               2,179,525            $   2.86
           $ 4.01-$ 6.00                  422,539           $     5.54           9.53                 341,810            $   5.51
           $ 6.01-$ 7.00                2,451,043           $     7.00           9.30               2,315,626            $   7.00
                                        ---------                                                   ---------
         Employees                      8,252,373                                                   6,109,410

Non-employees
           $ 0.33-$ 4.00                4,215,284           $     1.39           4.09               4,155,284            $   1.39
           $ 4.01-$ 7.00                3,294,146           $     5.13           5.12               1,794,146            $   5.13
           $ 7.01-$12.00                       --           $       --             --                      --            $     --
           $12.01-$14.40                2,053,673           $    14.18           3.39               2,053,673            $  14.18
                                        ---------                                                   ---------
         Non-employees                  9,563,103                                                   8,003,103
                                        ---------                                                   ---------
Total                                  17,815,476                                                  14,112,513
                                       ==========                                                  ==========
</TABLE>

Pro Forma Stock-Based Compensation

     Had compensation cost for the Company's stock options been determined based
on the fair value at the grant date for awards in 2001, 2000 and 1999 consistent
with the  provisions  of SFAS No. 123, the  Company's  net loss and net loss per
common share would have increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                        2001                 2000                 1999
                                                        ----                 ----                 ----
<S>                                                <C>                  <C>                  <C>
Net loss
      As reported ...........................      $  (30,072,176)      $  (44,728,894)      $   (9,298,789)
                                                   ==============       ==============       ==============
      Pro forma .............................      $  (32,954,415)      $  (56,341,485)      $  (10,275,351)
                                                   ==============       ==============       ==============

Net loss per common share (basic and diluted)
      As reported ...........................      $        (1.69)      $        (2.69)      $        (0.72)
                                                   ==============       ==============       ==============
      Pro forma .............................      $        (1.85)      $        (3.39)      $        (0.80)
                                                   ==============       ==============       ==============
</TABLE>

The  above pro  forma  disclosures  are not  necessarily  representative  of the
effects on reported net income or loss for future years.

     The weighted  average fair value of each option and warrant granted in 2001
was $0.86 and  $0.51,  respectively.  The  weighted  average  fair value of each
option  and  warrant  granted  in 2000 was $2.94 and  $4.35,  respectively.  The
weighted average fair value of each option and warrant granted in 1999 was $0.73
and $1.04, respectively. The fair value of each option grant is estimated on the
date of grant using the  Black-Scholes  option  pricing model with the following
weighted average assumptions for 2001, 2000 and 1999:

                                        2001             2000             1999
                                        ----             ----             ----
Risk-free interest rate.............    3.94%            6.23%            5.70%
Dividend yield......................     --               --               --
Volatility..........................    100%             100%             100%
Average expected term (years).......     2.0              2.0              2.0


                                       33
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     The Black-Scholes  option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable.  In addition,  option  pricing  models require the input of highly
subjective  assumptions  including  the  expected  stock price  volatility.  The
Company  uses  projected  volatility  rates,  which  are based  upon  historical
volatility rates trended into future years. The Company's employee stock options
have characteristics  significantly  different from those of traded options, and
changes in the subjective input assumptions can materially affect the fair value
estimates.

Common Stock Controlled by RMG

     As  discussed  in Note 13, RMG was  entitled to  approximately  1.1 million
shares of common stock used to capitalize  RMG as of December 31, 2001. The fair
value of the 1.1 million  shares of common  stock  amounting to $1.2 million was
recorded as deferred  compensation.  Amortization of deferred  compensation  was
$934,000 in 2001.

8.   Employee Benefit Plans

     During 2000,  the Company  implemented a Stock Purchase Loan Program (SPLP)
for employees.  The SPLP permitted  employees to purchase,  subject to specified
limits,  common stock of the Company in exchange for a two-year  note payable to
the  Company.  The face amount of the notes was  non-recourse,  while  interest,
which accrued at 9% per year,  was with  recourse to the employee.  During 2000,
the Company  purchased  80,000 of its common stock and immediately  sold them to
employees  under the SPLP for notes  totaling  $487,193.  Also during 2000,  the
Company acquired 22,712 shares of common stock from certain employees who repaid
their  notes  totaling  $123,532  and  subsequently  sold these  shares to other
employees at the then current  market price totaling  $53,302.  During 2001, all
participating  employees  relinquished their ownership claim to the common stock
to extinguish the related loans outstanding.

     During the year ended December 31, 2000, the Company adopted a 401(k) plan.
The 401(k) plan  allows  eligible  employees  to  contribute  up to 15% of their
compensation,   subject  to  a  statutory  prescribed  annual  limit.   Employee
contributions  and earnings thereon vest  immediately.  Although the Company may
make discretionary  contributions to the 401(k) plan, none have been made during
2001 and 2000.

9.   Commitments and Contingencies

     The Company leases its facilities  under a  noncancelable  operating  lease
which expires in June 2003. Future annual minimum lease payments related to this
operating lease as of December 31, 2001 are $93,600 in 2002 and $23,400 in 2003.
Rent  expense  was  $459,000,  $2,024,000  and  $42,000 in 2001,  2000 and 1999,
respectively.

     The Company had entered into various  operating leases  associated with its
delivery hubs, including various  telecommunications routing equipment and other
infrastructure. In addition, it had entered into various leases for office space
and related office equipment,  including computers and software. These operating
leases have since been settled or restructured, as described below.

     During 2001,  management  revised its business plan concerning the delivery
of telecommunications  bandwidth through its own network hubs. It was determined
that the Company did not have an  alternative  use for the network  equipment in
its ongoing operations.  As a result, the Company recorded a $6.4 million charge
for the acceleration of remaining  contractual  obligations and costs associated
with the Forsythe lease arrangement.

     In June 2001, the Company and Forsythe McArthur & Associates entered into a
restructure  agreement  with  respect  to an  equipment  lease of  delivery  hub
equipment.  The  terms of the  restructure  agreement  required  twelve  monthly
payments  of  $74,056  beginning  on May 1, 2001,  twelve  monthly  payments  of
$148,113  beginning on May 1, 2002  followed by one payment of $4,184,544 on May
1, 2003. In September  2001,  Forsythe  agreed to allow  Ratexchange to withhold
scheduled  payments  through  December 31, 2001,  subject to a proposed  further
restructuring  of the lease.  In November  2001,  Forsythe  agreed to forego all
amounts  owed by  Ratexchange  under  the lease  obligation  in  exchange  for a
convertible  note and stock  warrants.  In November  2001, the Company agreed to
issue the convertible note and stock warrants as described more fully in Note 5.


                                       34
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     During 2001,  the Company also settled  claims and  additional  outstanding
lease  obligations  related to assets and facilities that no longer fit with the
revised  operating  plan. In August 2001,  the Company  settled its  outstanding
litigation with Switch and Data Facilities  Company.  The settlement had a value
of $368,000,  including a cash payment of $250,000 and Ratexchange  common stock
valued at $118,000.  In August 2001, the Company settled its  co-location  lease
with Telecity by providing consideration of $275,000 in cash and an agreement to
pay $95,000 over six months in return for elimination of all liabilities related
to the lease, which totaled  approximately  $1.2 million.  In November 2001, the
Company settled an obligation to Science  Applications  International  Corp. for
goods and services associated with delivery hub equipment.  The settlement had a
value of  $158,000,  including a cash  payment of $50,000 and 175,000  shares of
restricted  Ratexchange common stock valued at $108,000. The Company had a lease
for accounting software that it no longer utilizes. As of December 31, 2001, the
Company has recorded an accrued  liability for the amount due under the original
lease term.

     The Company is involved in the following lawsuits:

     Martin v.  Ratexchange  - On October 3, 2001,  Gregory  Martin and Patricia
Whitney filed a lawsuit  against  Ratexchange  Corporation  in the United States
District Court for the Western District of Washington, C01-1565R alleging breach
of  contract.  In 1998,  Mr.  Martin  was the  President  and CEO of  NetAmerica
International  Corporation (NAMI), a predecessor of Ratexchange Corporation.  In
December of 1998 Mr. Martin was terminated  from his  employment  with NAMI. The
claims allege breach of agreements associated with Mr. Martin's employment.  The
complaint asks for damages of approximately  $150,000. Mr. Martin had filed suit
previously in the Washington State court. That matter was dismissed  following a
settlement  in May of  1999.  Mr.  Martin  has now  revived  his  claim  against
Ratexchange.  The  matter  is  being  defended  by  Ratexchange  and  is in  the
preliminary  stages of  litigation.  The Company has recorded the estimated loss
exposure in the consolidated balance sheet as of December 31, 2001.

     YellowBrix,   Inc.  v.  Ratexchange  Corporation  -  On  October  2,  2001,
YellowBrix,  Inc. filed a lawsuit against Ratexchange Corporation in the Circuit
Court  for  the  City of  Alexandria,  Virginia  alleging  breach  of  contract.
YellowBrix,  Inc.  provided  news wire  information  to the Company in 2001.  In
January 2002, the Company  settled this case for a cash payment of $19,250.  The
Company has recorded the  settlement  in the  consolidated  balance  sheet as of
December 31, 2001.

     Ratexchange I, Inc. v.  PWREF/MCC-China  Basin, LLC - In September of 2001,
Ratexchange I, Inc., one of the Company's Delaware subsidiaries,  terminated its
lease and filed a lawsuit  against  PWREF/MCC-China  Basin,  LLC,  its  previous
landlord,  alleging  constructive  eviction and seeking  declaratory relief. The
allegations of the complaint  arise from the lease for commercial  space between
the parties for the  property  located at 185 Berry  Street,  in San  Francisco,
California.  PWREF/MCC-China  Basin,  LLC responded to the complaint and filed a
cross-complaint  against  Ratexchange I, Inc. In March 2002, the Company settled
the  cross-complaint  and  dismissed  the action.  The Company paid $195,937 and
issued 50,000 shares of restricted common stock to  PWREF/MCC-China  Basin, LLC.
The Company has recorded the settlement in the consolidated  balance sheet as of
December 31, 2001.

10.  Income Taxes

     No provision for federal  income taxes was recorded  during the three years
ended December 31, 2001 as the Company  incurred net operating losses during the
period.

     Actual  income tax expense  differs from  expected tax benefit  computed by
applying the  statutory  federal  income tax rate of  approximately  34% for the
three years ended  December  31,  2001,  primarily  as a result of the change in
valuation allowance and stock based compensation.


                                       35
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     The tax  effect of  temporary  differences  that  give rise to  significant
portions  of the  deferred  tax  assets  as of  December  31,  2001  and 2000 is
presented as follows:

                                                         December 31,
                                                 -----------------------------
                                                     2001             2000
                                                     ----             ----
Deferred tax assets:
    Net operating loss carryforward .......      $ 12,330,095     $  5,450,910
    Stock options and warrants for services        13,177,848       10,948,508
    Start-up expenses .....................         6,612,170        8,265,212
    Write-down of equipment ...............         2,107,872               --
    Reserves and accruals .................           212,391               --
    Unrealized loss on securities .........                --          290,092
                                                 ------------     ------------
          Deferred tax assets .............        34,440,376       24,954,722
          Valuation allowance .............       (34,440,376)     (24,954,722)
                                                 ------------     ------------
                Net deferred tax asset ....      $         --     $         --
                                                 ============     ============

     The net change in the valuation  allowance for the years ended December 31,
2001 and 2000 was an increase of $9,485,654 and $18,752,626,  respectively.  The
Company has established a valuation  allowance  against that portion of deferred
tax assets where  management has determined that it is more likely than not that
the asset will not be realized.

     As of December 31, 2001, the Company had a net operating loss  carryforward
of approximately $30,519,828. If not earlier utilized, the federal net operating
loss  carryforward  will  expire in 2022 and the state  loss  carryforward  will
expire in 2006.

     Under the Tax Reform Act of 1986,  the amounts of and the benefit  from net
operating  losses  that  can be  carried  forward  may  be  limited  in  certain
circumstances.  Events  that may cause  limitations  in the  utilization  of net
operating  losses include a cumulative  stock ownership  change of more than 50%
over a three year period and other events.  Ratexchange  has not yet  determined
the extent that its net operating loss benefit will be limited.

11.  Net Loss per Share

     Basic loss per share is  computed by dividing  the net loss,  less  accrued
dividends on preferred  stock,  by the weighted  average number of common shares
outstanding.  Stock  options and  warrants  outstanding  to purchase  17,815,476
shares of common stock and 2,000,000  shares of convertible  preferred  stock at
December 31, 2001 were not included in computing  diluted loss per share because
their effects were anti-dilutive.

<TABLE>
<CAPTION>
                                                                    For the Years ended December 31,
                                                          2001                     2000                     1999
                                                          ----                     ----                     ----
<S>                                                   <C>                      <C>                      <C>
Net loss ..........................................   $(30,072,176)            $(44,728,894)            $ (9,298,789)
Preferred stock dividends .........................       (264,917)                      --                       --
                                                      ------------             ------------             ------------
Net loss available to common stockholders .........    (30,337,093)             (44,728,894)              (9,298,789)
Weighted-average number of common shares ..........     17,913,546               16,633,611               12,863,020
                                                      ------------             ------------             ------------
Basic and diluted net loss per common share .......   $      (1.69)            $      (2.69)            $      (0.72)
                                                      ============             ============             ============
</TABLE>

12.  Acquisition of Xpit Corporation

     On March 12, 2001, the Company  acquired  Xpit.com,  Inc., a privately held
Idaho Corporation for approximately $5.5 million in a transaction recorded under
the purchase  accounting method as a purchase of assets. The acquisition enabled
the  Company  to  offer  trading  and risk  management  systems  to the  futures
industry.  Xpit Corporation was a wholly owned subsidiary of Ratexchange.  Under
the terms of the transaction, the Company acquired the outstanding common shares
of Xpit.com,  Inc. in exchange for  $500,000 in cash, a $500,000  two-year  note
bearing interest at 7% per year, 2,000,000 shares of convertible preferred stock
with a cumulative  dividend of 6% based on a share price of $2.75 per share, and
$4.9  million  in  future  royalty  payments  tied  to the  achievement  of Xpit
Corporation's  projected revenues from 2001 through 2003. The preferred stock is
convertible  on a  one-for-one  basis into  common  stock of the  Company at the
discretion of the holders.  The acquisition price was allocated primarily to the
software technology acquired.


                                       36
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     On October 29, 2001,  the Company  sold all of the  material  assets of the
Company's Xpit Corporations subsidiary, including the Ratexchange Futures System
(RFS), to CQG, Inc. (CQG), a  privately-held  quotation  services  company.  The
assets were sold to CQG in exchange for $1.5 million in cash. Additionally,  the
Company can earn  royalties  of up to  $650,000  over the next four years if CQG
achieves  future  revenue  targets via the RFS platform.  In view of the sale to
CQG, the Company recorded a $3.0 million non-cash charge in the third quarter to
reflect the impairment in the value of the Xpit Corporation assets,  principally
the carrying value of the RFS platform.  Additionally, the $500,000 note payable
associated  with the original  Xpit.com,  Inc.  purchase price was paid in full,
plus accrued  interest.  Net cash proceeds to the Company,  after payment of the
note and expenses associated with the transaction, were $902,000.

13.  Formation of RMG Partners Corporation

     In April 2001,  the Company  formed RMG  Partners  Corporation  as a wholly
owned  subsidiary  which provides risk management  solutions  through the use of
derivative  trading  strategies.  Ratexchange  committed to capitalize the newly
formed  company with  $300,000 and 2.2 million  shares of  Ratexchange's  common
stock. RMG principals receive 85% of revenue, which is used to cover payroll and
operating expenses of RMG.

     An affiliate of the  principals of RMG, BL Partners,  LLC, has the right to
purchase  all of the  Company's  interest  in RMG,  except  for the  portion  of
Ratexchange  common stock used to capitalize RMG that is not "controlled" by the
Chairman of RMG,  for  $300,000  commencing  in April 2002.  The Chairman of RMG
obtains  control over the  Ratexchange  common stock based on the achievement of
revenue targets.  The accumulation of control of Ratexchange common stock by RMG
is  accounted  for as deferred  compensation  in the balance  sheet and is being
amortized  over a period of twelve  months.  As of December  31,  2001,  RMG was
entitled to  approximately  1.1 million shares of the  Ratexchange  common stock
used to capitalize  RMG. These shares were not issued or outstanding at December
31, 2001. The fair value of the 1.1 million shares of common stock  amounting to
$1.2  million was recorded as deferred  compensation  in 2001.  Amortization  of
deferred compensation was $934,000 in 2001.

     See Note 20 for subsequent events involving RMG.

14.  Acquisition of Spider Securities, Inc.

     In December 2001, the Company acquired Spider Securities, Inc. (Spider) for
$50,000 in a transaction  recorded as  organization  costs and expensed in 2001.
The Company  changed the name of the entity to RTX  Securities  Corporation  and
contributed  $1,000,000  of  capital  to RTX  Securities.  RTX  Securities  is a
California corporation and a wholly owned subsidiary of Ratexchange.

     RTX  Securities   Corporation  is  a  registered   broker-dealer  with  the
Securities  Exchange  Commission and is a member of the National  Association of
Securities Dealers. The Company is a licensed  broker-dealer in all fifty states
and Washington, D.C. and is located in San Francisco, California.

15.  Acquisition of Rate Exchange, Inc.

     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 purchase price included 574,998 shares of
common stock,  valued at $920,000,  and a $450,000  promissory  note.  Under the
terms of the transaction,  two of the  owners/employees  of Rate Exchange,  Inc.
became employees of the Company responsible for exploring the development of the
business. On the date of purchase, Rate Exchange, Inc. had negative net worth of
$112,408. The Company recorded an expense of $1,507,408  representing the amount
by which the  consideration  provided  exceeded the net assets of Rate Exchange,
Inc. at the date of acquisition plus expenses associated with the transaction of
$25,000.


                                       37
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

16.  Advances to Potential Investee

     In September 1998, the Company,  then known as Venture World,  Ltd.,  began
negotiations to acquire NetAmerica, Inc., subsequently renamed A1 Internet, Inc.
The acquisition was never closed and negotiations were terminated in March 1999.
Between the time the Company negotiated to purchase NetAmerica, Inc and the time
the deal was  terminated  in March 1999,  the  Company  advanced  $1,738,769  to
NetAmerica,  Inc.  During 1999, the Company  determined  that  $1,507,408 of the
amount advanced to NetAmerica, Inc. was uncollectible and charged this amount to
expense. A1 Internet,  Inc. agreed to repay certain of the costs incurred by the
Company prior to the termination.  A1 Internet,  Inc. was  subsequently  sold to
Halo Holdings of Nevada,  Inc.  (Halo),  a privately  held company.  The Company
received  100,000 shares of Halo common stock and retained certain rights to the
name  "NetAmerica" in its settlement with Halo.  During 2001, the Company sold a
portion of the Halo common stock for a realized  loss and recorded an impairment
loss for the remaining  shares of common stock.  The loss attributed to the Halo
investment was $744,000 in 2001.

17.  Agreement with Amerex Bandwidth, Ltd.

     As discussed in Note 7, the Company entered into an alliance agreement with
Amerex Bandwidth,  Ltd. In July 2001, the Company began  negotiations to acquire
Amerex Bandwidth,  Ltd. (ABL),  however since this time these  negotiations have
ceased.  As of February  2002,  the Company has no plans to acquire ABL.  During
2001,  Ratexchange paid to ABL approximately  $650,000 to cover certain expenses
in accordance with the alliance agreement of September 2000.

18.  Net Capital Requirements of RTX Securities Corporation

     RTX Securities  Corporation,  a wholly owned subsidiary of the Company,  is
subject to the Uniform Net Capital Rule (Rule 5c3-1) of the SEC,  which requires
both the  maintenance  of minimum  net capital  and  requires  that the ratio of
aggregate  indebtedness to net capital, both as defined,  shall not exceed 15 to
1. As of December 31, 2001, RTX  Securities  had net capital of $891,099,  which
was $883,834 in excess of its required  net capital of $7,265.  RTX  Securities'
ratio of  aggregate  indebtedness  to net  capital was 0.12 to 1, which was less
than the 15.00 to 1 maximum ratio required of a broker-dealer.

     RTX Securities does not carry customer accounts,  nor does it hold customer
securities  or cash.  It is  exempt  from  Rules  15c3-3  and  17a-13  under the
Securities Act of 1934.

19.  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 (i)
any successful  acquisition of business enterprises,  or (ii) successful capital
funding  of at least  $5  million  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 merger and acquisition fee for any acquisition during 1998 or 1999. During
1999,  the  Company  recorded  $315,800  in  cash  fees  relating  to  completed
financing, mergers or acquisitions based on the value of the Rate Exchange, Inc.
acquisition.  During 2000,  the Company  recorded  $259,266 in  connection  with
financing activities and securing various operating leases.

     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 $0.10 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 amounting to $132,240
on the  purchase of  3,112,500  shares when the notes were  collected in full by
February 25, 2000. The notes were originally due by March 31, 2001.

     In  October  2001,  the  Company  successfully  completed  the  process  of
obtaining a broker-dealer  license for RMG, a wholly owned subsidiary.  Prior to
obtaining this  broker-dealer  license,  RMG completed certain of its consulting
and risk management transactions through a registered  broker-dealer  affiliated
with the principals of RMG.


                                       38
<PAGE>

                             RATEXCHANGE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

20.  Subsequent Events

     As  discussed in Note 13, an  affiliate  of the  principals  of RMG has the
right to purchase all of the Company's  interest in RMG,  except for the portion
of the Ratexchange  common stock used to capitalize RMG that is not "controlled"
by the Chairman of RMG, for $300,000 commencing in April 2002. In February 2002,
the Company  received notice from BL Partners,  LLC, that it intends to exercise
its right to  purchase  RMG in April  2002 in  accordance  with the terms of the
agreement.  The Company's  consolidated  financial  statements for 2001 properly
reflect the  activity of RMG.  The  following  adjustments  to the  consolidated
financial  statements would be appropriate to reflect the Company's  results "as
if" Ratexchange did not own RMG during 2001. The consolidated  balance sheets as
of December 31, 2001 would have reflected the following decreases:  (i) cash and
cash  equivalents by $1,149,000,  (ii) prepaid expenses and other current assets
by $16,000,  (iii) other investments and deposits by $139,000, and (iv) accounts
payable and accrued  liabilities by $1,304,000.  The consolidated  statements of
income for the year ended  December 31, 2001 would have  reflected a decrease in
revenue of  $1,993,000  and a decrease in operating  expenses of  $1,832,000  in
2001.


                                       39
<PAGE>

                                    PART III

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

     None.

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The table  below  sets forth  certain  information  concerning  each of the
Directors and executive officers of Ratexchange:

      Name                    Age                       Position
      -----                   ----                      -------
D. Jonathan Merriman           41          Chairman of the Board of Directors
                                           and Chief Executive Officer
Patrick Arbor                  64          Director
Dean S. Barr                   41          Director
E. Russell Braziel             51          Director
Gregory S. Curhan              40          Executive Vice President
                                           and Chief Financial Officer
Robert E. Ford                 41          President and Chief Operating Officer
John E. McConnaughy, Jr.       72          Director
Donald H. Sledge               61          Director
Ronald E. Spears               52          Director
Steven W. Town                 41          Director

     D.  Jonathan  Merriman  has  served as our Chief  Executive  Officer  since
October 2000 and served as our President from October 2000 through June 2001. He
has served as a Director since February 2000 and became Chairman of the Board in
June 2001. 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., and  Fiberstars,
Inc.  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 has served as Director of Ratexchange since February 2001 and
has served as a member of the audit  committee  since April 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.

     Dean S. Barr 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


                                       40
<PAGE>

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 has served as a Director of Ratexchange  since
February  2001 and has  served as a member of the audit  committee  since  April
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.

     Gregory S.  Curhan is our  Executive  Vice  President  and Chief  Financial
Officer.  Previously he served as Chief Financial  Officer of WorldRes.com  from
May 1999 through June 2001. Prior to joining WorldRes.com,  Mr. Curhan served as
Director of Global Technology Research Marketing and Managing Director Specialty
Technology  Institutional  Equity Sales at Merrill  Lynch & Co. from May 1998 to
May 1999.  Prior to  joining  Merrill  Lynch,  Mr.  Curhan  was a partner in the
investment  banking  firm of  Volpe  Brown  Whelan  & Co.,  serving  in  various
capacities including Internet research analyst and Director of Equities from May
1993 to May 1998.  Mr.  Curhan was a founder  and  principal  of the  investment
advisor Curhan,  Merriman  Capital  Management  from July 1998 through  December
1992.  Prior to  founding  Curhan,  Merriman,  Mr.  Curhan was a Vice  President
institutional equity sales for Montgomery Securities from June 1985 through June
1988.  From August 1983 to May 1985,  Mr. Curhan was a financial  analyst in the
investment  banking  group at Merrill  Lynch.  Mr. Curhan earned his Bachelor of
Arts degree from Dartmouth College.

     Robert E.  Ford  serves  as  President  and  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.

     John E. "Jack"  McConnaughy,  Jr. has served as one of our Directors  since
December 2001. Mr. McConnaughy is currently Chairman and Chief Executive Officer
of  JEMC  Corporation.   He  was  Chairman  and  CEO  of  Peabody  International
Corporation  from 1969 and in addition  Chairman and Chief Executive  Officer of
GEO  International  Corporation  when it spun off in 1981.  He retired  from the
former in 1986 and the latter in 1992. He was named  outstanding Chief Executive
Officer in his  industry for the years 1975,  1976  and1978 by  Financial  World
Magazine.   Prior  to  joining   Peabody,   Mr.   McConnaughy   served  as  Vice
President-European  Consumer  Products  with  the  Singer  Company  where he was
responsible  for  operations  in sixteen  countries.  A graduate  of the Denison
University  with a B.A.  in  economics,  Mr.  McConnaughy  earned his Masters in
Business Administration in marketing and finance at Harvard's Graduate School of
Business Administration.

     Donald H. Sledge has served as one of our Directors  since  September  1999
and Chairman of our Board of Directors  from  February 2000 to June 2001. He has
served as a member of the  compensation  committee  since  April  2001.  He also
served as Chief  Executive  Officer from February 2000 until October 2000.  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


                                       41
<PAGE>

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.

     Ronald E.  Spears has served as one of our  Directors  since March 2000 and
has served as a member of the audit committee  since April 2001.  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
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 has served as one of our  Directors  since  October 2000 and
has served as a member of the compensation  committee since April 2001. 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.

     There is no family  relationship  among any of the  foregoing  officers  or
between any of the foregoing executive officers and any Director of the Company.

     The  information  set forth under the  caption  "Section  16(a)  Beneficial
Ownership  Reporting  Compliance" is  incorporated by reference to the Company's
definitive 2002 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     The information is  incorporated  by reference to the Company's  definitive
2002 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information is  incorporated  by reference to the Company's  definitive
2002 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information is  incorporated  by reference to the Company's  definitive
2002 Proxy Statement.


                                       42
<PAGE>

                                     PART IV

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

(a)  1.   The information required by this item is included in Item 8 of Part II
          of this Annual Report on Form 10-K.

     2.   Financial Statement Schedules

          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 listed in the accompanying index to exhibits are filed or
          incorporated by reference as part of this Annual Report on Form 10-K.

(b)  Reports on Form 8-K

     Form 8-K (item 5 reported) filed on November 28, 2001.


                                       43
<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


March 28, 2002                 By: /s/ D. JONATHAN MERRIMAN
                                   ---------------------------------------------
                               D. Jonathan Merriman,
                               Chairman of the Board and Chief Executive Officer

     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.

        Signature                         Title                        Date
        ---------                         -----                        ----

/s/ D. JONATHAN MERRIMAN         Chairman of the Board and        March 28, 2002
--------------------------       Chief Executive Officer
    D. Jonathan Merriman

/s/ GREGORY CURHAN               Chief Financial Officer          March 28, 2002
--------------------------
    Gregory Curhan

/s/ PATRICK ARBOR                Director                         March 28, 2002
--------------------------
    Patrick Arbor

    DEAN BARR                    Director                         March 28, 2002
--------------------------
    Dean Barr

    E. RUSSELL BRAZIEL           Director                         March 28, 2002
--------------------------
    E. Russell Braziel

    JOHN MCCONNAGHY, JR.         Director                         March 28, 2002
--------------------------
    John E. McConnaghy, Jr.

/s/ DONALD SLEDGE                Director                         March 28, 2002
--------------------------
    Donald Sledge

/s/ RONALD SPEARS                Director                         March 28, 2002
--------------------------
    Ronald Spears

/s/ STEVEN TOWN                  Director                         March 28, 2002
--------------------------
    Steven Town


                                       44
<PAGE>

                                  EXHIBIT INDEX

 Exhibit
   No.                                   Description
 -------                                 -----------

   2.1           Acquisition  agreement  between  Ratexchange 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)).

   4.1           Form of  Convertible  Subordinated  Note related to Ratexchange
                 private financing, dated November 26, 2001.

   4.2           Form of Class A Redeemable  Warrant to Purchase Common Stock of
                 Ratexchange   related  to   Ratexchange   Corporation   private
                 financing, dated November 26, 2001.

  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 Statementon Form S-1
                 (Reg.No.333-53316)).

  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)).


                                       45
<PAGE>

  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 and Incentive 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).

  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   (incorporated  by
                 reference to Ratexchange's Form 10K for the year ended December
                 31, 2000).

  10.25          Multi  Site  Colocation  Commitment  Agreement  by and  between
                 Ratexchange and COLO.com dated February 17, 2000  (incorporated
                 by  reference  to  Ratexchange's  Form 10K for the  year  ended
                 December 31, 2000).

  10.26          Co-location  License by and  between  Ratexchange  and Switch &
                 Data Facilities  Company dated March 1, 2000  (incorporated  by
                 reference to Ratexchange's Form 10K for the year ended December
                 31, 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 (incorporated
                 by  reference  to  Ratexchange's  Form 10K for the  year  ended
                 December 31, 2000).

  10.29          Agreement  between  Ratexchange and BL Partners  related to RMG
                 Partners  Corporation,  dated  April 8, 2001  (incorporated  by
                 reference  to Exhibit 10.1 to  Ratexchange's  Form 10-Q for the
                 quarter ended June 30, 2001).

  10.30+         Offer of Employment  Agreement between Ratexchange  Corporation
                 and Robert E. Ford, dated February 19, 2001, is Exhibit 10.2 to
                 Form 10-Q for the quarter  ended June 30,  2001,  and is hereby
                 incorporated by reference.

  10.31          Ratexchange  Placement  Agreement  with Murphy & Durieu,  dated
                 November 28, 2001, for private financing transaction.

  10.32          Form of  Placement  Agent  Warrant  to Murphy &  Durieu,  dated
                 November 28, 2001.

  10.33          Convertible   Promissory   Note   held   by   Forsythe/McArthur
                 Associates,   Inc.,   dated  September  1,  2001,   related  to
                 restructure of Master Equipment Lease Agreement that is Exhibit
                 10.23 to Form 10K for the year ended December 31, 2000.

  10.34+         Employment Agreement between Ratexchange and Gregory S. Curhan,
                 dated January 9, 2002.

  10.35+         Employment Agreement between Ratexchange Corporation and Robert
                 E. Ford, dated January 1, 2002.

  10.36          Lease  Termination  and  Settlement  Agreement  by and  between
                 Ratexchange and PWREF/MCC-China  Basin, LLC, dated February 25,
                 2001.

  10.37          Stock Purchase  Agreement by and among Ratexchange and Instream
                 Securities,  Inc, (formerly known as Spider  Securities,  Inc.)
                 and Independent Advantage Financial & Insurance Services, Inc.,
                 dated December 7, 2001.

  10.38          Asset Purchase  Agreement by and among Xpit  Acquisition,  LLC,
                 CQG, Inc.,  Xpit  Corporation,  Ratexchange and certain Related
                 Parties, dated October 24, 2001.

  21.1           List of Subsidiaries of Ratexchange.

  22.1           Ratexchange  Proxy  Statement  pursuant to Section 14(a) of the
                 Securities Exchange Act of 1934, for the stockholders'  meeting
                 held on May 31, 2001 in San Francisco, California.

  99.1           Letter to Commission pursuant to Temporary Note 3T, dated March
                 28, 2002.

   +             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


                                       46