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

                                 FORM 10-K


        /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT of 1934 for the fiscal year
                        ended December 31, 2000, or


        / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                            SECURITIES EXCHANGE
                                    Act
                 of 1934 for the transition period from to

                       Commission file number 0-13865

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

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


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

              Registrant's former name--ICC Technologies, Inc.

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

      SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                        Common Stock, $.01 par value

                              (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

                               Yes /x/ No / /

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

The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 6, 2001 was $101,897,708.

As of March 6, 2001, 63,675,019 shares of our common stock were
outstanding.



                                   PART I

FORWARD-LOOKING STATEMENTS

     This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve risks and uncertainties, including
statements regarding our capital needs, business strategy, expectations and
intentions. We urge you to consider that statements that use the terms
"believe," "do not believe," "anticipate," "expect," "plan," "estimate,"
"intend" and similar expressions are intended to identify forward-looking
statements. These statements reflect our current views with respect to
future events and because our business is subject to numerous risks,
uncertainties and risk factors, our actual results could differ materially
from those anticipated in the forward-looking statements, including those
set forth below under "Item 1. Business," "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
elsewhere in this report. Actual results will most likely differ from those
reflected in these statements, and the differences could be substantial. We
disclaim any obligation to publicly update these statements, or disclose
any difference between our actual results and those reflected in these
statements. The information constitutes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
factors set forth below under "Item 1. Business," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and other cautionary statements made in this report should be read and
understood as being applicable to all related forward-looking statements
wherever they appear in this report.

ITEM 1. BUSINESS

OVERVIEW

     We are an Internet-focused company that:

     o  provides Internet professional services to companies;

     o  develops, manages and operates companies in selected Internet-focused
        market segments; and

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

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

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

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

     We were incorporated in Delaware in 1985 as ICC Technologies, Inc.

OUR PROFESSIONAL SERVICES BUSINESS

   OUR SOLUTIONS

     We believe the following elements distinguish us as an Internet
services provider:

     Vertically Focused Strategic Expertise.  Many members of our management
team are experts in the following industries and disciplines:

     o   Retail/Manufacturing;
     o   Finance/Banking;
     o   Hospitality/Travel;
     o   Media/Entertainment;
     o   Communications/Utilities;
     o   Sales force automation; and
     o   Internet-enabled customer relationship management.

These professionals have valuable contacts in these industries as well as
substantial Internet business experience. We are able to draw upon this
collective experience to more efficiently develop business solutions that
are tailored to meet the unique needs of companies in these targeted
industries.

     Broad Skill Set. We complement our industry specialization with
expertise in areas such as e-commerce, supply chain management and
interactive marketing. Our multi-disciplinary team of Internet
professionals is comprised of individuals with strategic, creative and
technical expertise. This expertise enables us to provide our clients with
comprehensive solutions that address a wide range of business challenges
such as introducing new Internet brands, optimizing distribution systems
and streamlining internal communications. We believe by providing our
clients with these comprehensive services we are able to meet substantially
all their online needs on an ongoing basis.

     Rapid Time to Value. Our unique combination of industry expertise,
strategic thinking, creativity and technological expertise enables us to
rapidly develop powerful, reliable and meaningful Internet solutions for
our clients. This rapid development capability enables us to deliver these
solutions to our clients quickly through our specialized competency centers
so that our clients may, in turn, more rapidly deploy these solutions in
the marketplace.

     Our LiveMarket Initiative. Through our LiveMarket group, we have
recently begun to offer solutions to the business-to-business and other
markets. The LiveMarket model allows businesses seeking to create an
on-line marketplace to obtain state-of-the-art applications that they would
not otherwise be able to afford. We also believe that by using our
LiveMarket solutions these companies will be able to achieve faster
time-to-market for their products and an increased focus on their core
competencies.

   OUR SERVICES STRATEGY

     Our goal is to enhance our position as an Internet services firm
providing complete e-business solutions. Our strategy to achieve this
objective is to:

     Retain a Highly Specialized Workforce. We intend to continue to ensure
that our employees have the requisite expertise to provide our clients with
a comprehensive range of Internet services. We plan to retain and motivate
our employees by giving them the opportunity to work with cutting-edge
technologies, paying competitive compensation packages and granting stock
options, and encouraging a corporate culture that is results-driven and
rewards creativity, communication and cooperation.

     Expand and Develop Industry-Specific Expertise. Through our experience
in designing, developing, implementing and managing Internet and e-business
solutions for a wide variety of companies, we have gained significant
strategic knowledge and created industry-specific reusable business
solutions. This expertise significantly enhances our ability to help other
companies in the same industries successfully adopt Internet and e-business
solutions. We have developed reusable business solutions for industries
such as retail/manufacturing, finance/banking, hospitality/travel,
media/entertainment and communications/utilities industries. We intend to
broaden the range of industries in which we have specialized knowledge and
maximize the benefits to our clients of such knowledge by creating
additional industry-specific solution templates and reusable software. Our
strategic consultants, sales, marketing and technical staff have expertise
in industries that we believe can realize significant benefits from
Internet and e-business solutions. Further developing and enhancing this
expertise will increase our knowledge of industry specific business
challenges and increase the industry-targeted services we can offer,
thereby improving our ability to penetrate specific industries.

     Leverage Our Relationship with Apollo. Affiliates of Apollo Advisors,
LP, our largest shareholder, own approximately 37% of our outstanding
common stock on a fully diluted basis as of December 31, 2000. Apollo has
significant stakes in more than 50 medium to large traditional enterprises,
in a wide range of industries including manufacturing, consumer products,
financial services, media and telecommunications. Through our relationship
with Apollo, we have been introduced to many of these "brick and mortar"
businesses and several of these companies are currently clients.

     Increase Repeat and Recurring Revenues. We plan to increase the
proportion of our revenues that represents repeat business with the same
clients. We intend to generate repeat revenues by cross-selling services
and entering into multiple engagements with our existing clients. In
addition, we plan to increase recurring revenues by selling our LiveMarket
solution to our new and existing clients. We plan to charge clients who use
our LiveMarket solution either a fixed monthly rate or on a per transaction
basis, or both. Increasing repeat and recurring revenues will enable us to
predict our revenues with greater accuracy and improve our operating
margins.

     Leverage Best Practices and Create Operational Efficiencies. We have
implemented an enterprise-wide Intranet to facilitate corporate learning
and knowledge transfer across our various offices. At the conclusion of our
client engagements, our employees participate in post-engagement reviews
where "lessons learned" are discussed and new and innovative creative and
technology techniques are harvested and catalogued on our Intranet. We
leverage our experiences across our entire enterprise in order to allow us
to achieve operational efficiencies.

     Develop and Maintain Additional Strategic Relationships. We intend to
continue to develop and maintain strategic relationships in order to enable
us to enter new markets, gain early access to leading-edge technology,
cooperatively market products and services with leading technology vendors
and gain enhanced access to vendor training and support. We have developed
a number of strategic relationships, including relationships with IBM,
Microsoft, Sun Microsystems, iPlanet, Open Market, ATG and Interwoven.


OUR INVESTMENT BUSINESS

     Our investment business is currently focused on Internet companies
engaged in business-to-business e-commerce, Internet enabling tools,
enterprise-level software infrastructure and next generation communications
sectors. Through our investment process, we decide whether to take a
majority stake and incubate the business or a minority strategic position
as a venture investment.

   OUR INCUBATOR COMPANIES

     Currently, our major incubator companies are ChangeMusic Network,
Inc., ePrize, Inc. and NoticeNow.com, Inc.

   ChangeMusic Network

     ChangeMusic Network (also known as CMJ.com, Inc.) has a combination of
online and offline properties that deliver news, information, content and
services to music consumers, artists and the music industry. The
ChangeMusic Network also operates a business-to-business services group
under the CMJ brand. The business-to-business division offers the music
industry its CMJ New Music Report trade publication, one of the largest
music industry conferences in the world, and a website through which
subscribers can gain access to various exclusive data products. We own
approximately 74% of ChangeMusic Network on a fully diluted basis.

   ePrize

     ePrize.net is an online sweepstakes, direct marketing and promotions
company that offers end-to-end solutions for customer acquisition and
retention. ePrize uses its patent-pending Pooled eDrawings to help clients
attract new visitors to websites, increase retention and build long-term
online customer relationships. ePrize professionals help clients design,
administer and maintain successful online sweepstakes and other promotional
online efforts. Clients of ePrize include Ameritech, the New York Times,
CBS, Chase Bank and Mercedes-Benz. We own approximately 80% of ePrize on a
fully diluted basis.

   NoticeNow.com, Inc.

   NoticeNow.com, Inc. provides clients with private label Unified
Messaging technology and solutions. Users of NoticeNow technology receive a
personal, direct inward dial local telephone number. Users can keep this
number for life, regardless of the number of times they move. When someone
calls the telephone number, they can leave a voicemail message or send a
fax. The system will automatically detect whether the call is a voice or
fax connection. We own approximately 86% of NoticeNow on a fully diluted
basis.

   OUR VENTURE INVESTMENTS

     We hold investments in the following companies:
<TABLE>
<CAPTION>
                                                      Approximate
                                     Initial Date of     % of
Company Name                          Investment       Ownership                Description of Business
------------                         ---------------  -----------               -----------------------

<S>                                         <C>           <C>          <C>
Active Leisure                      October 1999          20%           Direct marketer of motorcycles, parts and accessories.
 (Competition Accessories)

Archive.com                         December 1999          5%           Provider of secure archival and retrieval services for
                                                                        business critical document management.

Cidera                              September 2000       Less than      Provider of broadband content and caching services
                                                           1%           to ISPs, Content Delivery Networks (CDNs), and
                                                                        enterprise customers through a satellite-based
                                                                        delivery system.

Commerce Dynamics                   October 1999           5%           Provider of enhanced, cost effective cooperative
   (GoShip.com)                                                         shipping and fulfillment solutions for e-commerce
                                                                        websites.

DataSynapse                         August 2000           20%           Provider of distributed computing solutions for
                                                                        solving computationally intensive tasks on an
                                                                        out-sourced basis.

Deltathree                          November 1999        Less than      Provider of Internet protocol telephony services,
                                                           1%           including voice and data transmission and enhanced
                                                                        Internet-based communication services.

Edmunds.com                         October 1999           4%           Provider of automotive information, including
                                                                        original editorial content, complete pricing and
                                                                        specification information and sales referrals for
                                                                        purchasing, finance, insurance, warranty and other
                                                                        ancillary services.

Essential.com                       February 2000          1%           Online marketplace enabling customers to shop for a
                                                                        broad range of energy and telecommunications
                                                                        services.

Emerging Vision                     February 2000          3%           Internet portal for the optical industry.

Expert Commerce                     June 2000              5%           Provider of dynamic decision-making and
                                                                        purchase evaluation tools.

iParty                              September 1999         2%           Internet-based merchant of party goods, party
                                                                        related services and party-planning advice.

L90                                 September 1999         5%           Provider of comprehensive online advertising
                                                                        and direct marketing solutions for advertisers
                                                                        and Web publishers.

Like.com                            September 1999         5%           Internet recommendation service highlighting
                                                                        celebrity style choices to drive e-commerce

Money Hunt                          October 1999          13%           Media company dedicated to entertaining, educating
                                                                        and empowering those entrepreneurs seeking capital.

Myteams (formerly                   November 1999          1%           Provider of amateur sports-related content and
MySportsGuru.com)                                                       services.

NextJet                             February 2000          3%           Non-asset-based, Next Flight Out (NFO), package
                                                                        delivery service.

Ntercept (f/k/a                     August 1999            5%           Developer of proprietary, Internet-based opinion
Speakout.com)                                                           research solutions.

QuickNet                            November 1999          8%           Provider of hardware and software low-density
                                                                        Internet telephony products.

RecoveryCare                        June 2000             32%           Provider of Internet-based products and services to
                                                                        Orthopedic physicians and their patients.

Safety Tips                         July 2000             11%           Information provider specializing in safety-and
                                                                        crime-related data.

ShareMax                            March 2000             7%           Provider of Internet-based strategic sourcing
                                                                        software.

Smart Online                        September 1999         1%           Provider of private-label business productivity
                                                                        applications and information resources for
                                                                        small businesses and entrepreneurs.

StreamSearch.com                    September 1999        15%           Provider of streaming media search tools.

Totality (f/k/a MimEcom)            June 2000              1%           Provider of Application and Infrastructure
                                                                        Management (AIM) services for Global 2000
                                                                        e-businesses.
</TABLE>


CUSTOMERS

     Our customers are engaged in a broad variety of industries, including
retail/manufacturing, finance/banking, hospitality/travel,
media/entertainment and communications/utilities industries. Our customers
include Corporate Express, Cablevision, Furniture Brands, Forbes, Wyndham
International, General Mills, Fox, Paramount, Microsoft, Epson, Interstate
Batteries, and Ritz Carlton. We estimate that our five largest clients in
2000 accounted for approximately 22% of our revenues and that no single
client accounted for more than 8% of our revenues.

COMPETITION

   Competition in the Internet Services Industry

     While the market for strategic Internet services is relatively new, it
is already highly competitive and characterized by an increasing number of
entrants that have introduced or developed products and services similar to
those offered by us. We believe that competition will intensify and
increase in the future.

     Our competitors can be divided into several groups:

     o Internet professional service providers, such as Proxicom, iXL
       Enterprises, Inc., Scient Corporation, MarchFirst and Viant Corporation;

     o large systems integrators, such as the consulting companies related to
       the top five U.S. accounting firms and Computer Sciences Corporation;

     o specialty systems integrators, such as Cambridge Technology Partners,
       Inc. and Sapient Corporation;

     o strategy consulting firms, such as Boston Consulting Group, Inc. and
       McKinsey & Company, Inc.; and

     o interactive marketing firms, such as Agency.com, Ltd., Modem Media, Inc.,
       Organic, Inc. and Razorfish, Inc.

     There are relatively low barriers to entry into the strategic Internet
services industry, and the costs to develop and provide Internet services
are low. Therefore, we expect that we will continually face additional
competition from new entrants into the market in the future, and we are
also subject to the risk that our employees may leave us and start
competing businesses.

   Competition for Venture Investments

     We face competition from numerous other capital providers seeking to
acquire interests in Internet-related businesses, including:

     o    other Internet companies;

     o    venture capital firms;

     o    large corporations; and

     o    other capital providers who also offer support services to companies.

     Traditionally, venture capital and private equity firms have dominated
investments in emerging technology companies, and many of these types of
competitors may have greater experience and financial resources than us. In
addition to competition from venture capital and private equity firms,
several public companies such as CMGI, Internet Capital Group and Safeguard
Scientifics, as well as private companies such as Idealab!, devote
significant resources to providing capital together with other resources to
Internet companies. Additionally, corporate strategic investors, including
Fortune 500 and other significant companies, are developing Internet
strategies and capabilities.

INTELLECTUAL PROPERTY RIGHTS

     We rely upon a combination of trade secret, nondisclosure and other
contractual arrangements, and copyright and trademark laws, to protect our
proprietary rights. We enter into confidentiality agreements with our
employees, generally require that our consultants and clients enter into
such agreements and limit access to and distribution of our proprietary
information. We cannot assure you that the steps taken by us in this regard
will be adequate to deter misappropriation of our proprietary information
or that we will be able to detect unauthorized use and take appropriate
steps to enforce our intellectual property rights.

     A portion of our business involves the development of software
applications for specific client engagements. Ownership of such software is
the subject of negotiation and is frequently assigned to our clients, with
a license frequently being retained by us for certain uses. Some of our
clients have prohibited us from marketing the applications developed for
them for specified periods of time or to specified third parties, and we
cannot assure you that our clients will not continue to demand similar or
other restrictions in the future. Issues relating to the ownership of and
rights to use software applications can be complicated, and we cannot
assure you that disputes will not arise that affect our ability to resell
such applications. In connection with projects which use our previously
developed solutions, we may, in some cases, obtain a license fee from the
client for use of our solution and a development fee from the client for
any required additional customization.

EMPLOYEES

     As of December 31, 2000, we had 929 employees. We believe our
relationship with our employees is good. None of our employees are
represented by a union. Generally, our employees are retained on an at-will
basis. We have entered into employment agreements, however, with many of
our key employees. We require all of our senior managers, as well as most
of our key employees, to sign confidentiality agreements and
non-competition agreements that prohibit them from competing with us during
their employment and for various periods thereafter.

GOVERNMENT REGULATION

     Currently, we are not subject to any direct governmental regulation
other than the securities laws and regulations applicable to all publicly
owned companies, and laws and regulations applicable to businesses
generally. Few laws or regulations are directly applicable to access to, or
commerce on, the Internet. Due to the increasing popularity and use of the
Internet, it is likely that a number of laws and regulations may be adopted
at the local, state, national or international levels with respect to the
Internet, including the possible levying of tax on e-commerce transactions.
Any new legislation could inhibit the growth in use of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium, which could in turn decrease the demand for our services or
otherwise have a material adverse effect on our future operating
performance and business. See "- Risk Factors - Governmental regulation of
the Internet could impact our operations."

RISK FACTORS

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

   WE HAVE REPORTED OPERATING LOSSES AND CANNOT ASSURE YOU THAT WE WILL
ATTAIN PROFITABILITY.

     We had a loss before discontinued operations of $19.7 million, $49.5
million and $124.7 million for the years ended December 31, 1998, 1999 and
2000, respectively. Although we have experienced recent revenue growth, and
had revenues of $110.1 million for the year ended December 31, 2000
compared to $36.7 million for the year ended December 31, 1999, in the
current environment, we do not believe that this growth will be sustainable
or indicative of future operating results. In addition, we have incurred
substantial costs to expand and integrate our operations. Our ongoing
integration costs from our prior acquisitions will include the combination
of the financial, information and communications systems of the various
companies that we have acquired and may acquire in the future. As a result
of these and other costs, we may incur operating losses in the future, and
we cannot assure you that we will attain profitability.

   WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT MORE DIFFICULT TO
   PREDICT WHETHER OR NOT WE WILL ULTIMATELY HAVE SUCCESSFUL BUSINESS
   OPERATIONS.

     Our business has a limited operating history. Our prospects must be
considered in light of the risks and difficulties frequently encountered by
companies operating in a new and rapidly evolving area such as Internet
services, including, but not limited to, an untested business model. You
should evaluate our business operations in view of the risks,
uncertainties, delays and difficulties associated with starting a new
business, many of which may be beyond our control. We cannot assure you
that we will be successful in meeting the challenges and addressing the
risks that we face in a new and rapidly changing market such as Internet
services and other Internet related products and services and making select
venture investments and developing incubator companies.

   COMPETITION FOR INTERNET SERVICES IS INTENSE WITH LOW BARRIERS TO ENTRY
   THAT MAY AFFECT OUR FINANCIAL CONDITION, OPERATING RESULTS AND BUSINESS.

     The market for Internet services is relatively new, intensely
competitive, rapidly evolving and subject to rapid technological change.
While relatively new, the market is already highly competitive and
characterized by an increasing number of entrants who have introduced or
developed products and services similar to those offered by us. We expect
competition not only to persist but to increase. Increased competition may
result in price reductions, reduced margins and loss of market share.

     Our competitors can be divided into the following groups:

     o   Internet services providers;

     o   large systems integrators;

     o   specialty systems integrators;

     o   strategy consulting firms; and

     o   interactive marketing firms.

     Many of our current and potential competitors have longer operating
histories, larger installed customer bases, greater name recognition,
longer relationships with clients and significantly greater financial,
technical, marketing and public relations resources than we do. At any time
our current and potential competitors could increase their resource
commitments to our markets. We expect to face additional competition from
new market entrants in the future as the barriers to entry into our
business are also relatively low. Our current or future competitors may
also be better positioned to address technological and market developments
or may react more favorably to technological changes. We compete on the
basis of a number of factors, including the attractiveness of the Internet
services offered, the breadth and quality of these services, creative
design and systems engineering expertise, pricing, technological innovation
and understanding clients' strategies and needs. Many of these factors are
beyond our control. Existing or future competitors may develop or offer
strategic Internet services that provide significant technological,
creative, performance, price or other advantages over the services offered
by us. As a result, our financial condition, operating results and business
could be adversely affected.

   WE GENERALLY DO NOT HAVE LONG-TERM CONTRACTS AND OUR NEED TO ESTABLISH
   RELATIONSHIPS WITH NEW CLIENTS CREATES AN UNCERTAIN REVENUE STREAM.

     Our clients generally retain us on a project-by-project basis, rather
than under long-term contracts. As a result, a client may or may not engage
us for further services once a project is completed. Establishment and
development of relationships with additional companies and other users of
information technology and securing repeat engagements with existing
clients are important components of our business operations. The absence of
long-term contracts and the need for new clients creates an uncertain
revenue stream. A client that accounts for a significant portion of our
revenues in a given period may not generate a similar amount of revenues,
if any, in subsequent periods. We cannot assure you that we will be able to
add new major clients or secure new engagements with existing clients. In
addition, some of our existing clients may unilaterally reduce the scope
of, or terminate, existing projects. We cannot assure you that we will be
able to maintain our business relationship with or avoid a material
reduction in the use of our services by any of our significant existing
clients.

   WE MAY NEED ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE TO US.

     We may need to raise additional funds through public or private debt
or equity financings in order to:

     o   take advantage of opportunities, including acquisitions of, or
         investments in, businesses or technologies;

     o   develop new services; or

     o   respond to competitive pressures.

     We cannot assure you that any additional financing we may need will be
available on terms favorable to us, or at all. In such case, our financial
condition, operating results and business may be materially and adversely
affected.

   SOME OF OUR CLIENTS MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL NEEDED TO
   RETAIN OUR SERVICE OR PAY US FOR SERVICES PERFORMED.

     Some of our current and potential clients, particularly those clients
funded primarily by venture capital, need to raise additional funds in
order to continue their business and operations as planned. We cannot be
certain that these companies will be able to obtain additional financing on
favorable terms or at all. As a result of their inability to raise
additional financing, some client may be unable to pay us for services we
have already provided them or they may terminate our services earlier than
planned, either of which could seriously harm our business, financial
condition and operating results. In particular, some of our current and
potential clients in this category have recently encountered greater
difficulty obtaining needed financing.

   OUR ACQUISITIONS DURING THE PAST THREE YEARS HAVE CREATED FINANCIAL AND
   OTHER CHALLENGES, WHICH, IF NOT ADDRESSED OR RESOLVED, COULD HAVE AN
   ADVERSE EFFECT ON OUR FINANCIAL CONDITION, OPERATING RESULTS AND
   BUSINESS.

     We acquired or made controlling equity investments in 29 businesses
during the past three fiscal years. To the extent our management must
devote significant time and attention to the integration of technology,
operations, businesses and personnel as a result of our services and
incubator acquisitions, our business may suffer. In addition, our senior
management faces the difficult and potentially time consuming challenge of
implementing uniform standards, controls, procedures and policies
throughout our current and future acquisitions. We could also experience
financial or other setbacks if any of the acquired businesses experienced
problems in the past of which our management is not presently aware. For
example, if an acquired business had dissatisfied customers or had any
performance problems, our reputation could suffer as a result of our
association with that business. In addition, we may experience disputes
with the sellers of acquired businesses and may fail to retain key acquired
personnel. To the extent any customer or other third party asserts any
material legal claims against any of the acquired companies, our financial
condition, operating results and business could be materially and adversely
affected.

   WE MAY SUFFER ADVERSE CONSEQUENCES IF WE ARE DEEMED TO BE AN INVESTMENT
COMPANY.

     We may suffer adverse consequences if we are deemed to be an
investment company under the Investment Company Act of 1940. Some equity
investments made by us may constitute investment securities under the 1940
Act. A company may be deemed to be an investment company if it owns
investment securities with a value exceeding 40% of its total assets,
subject to certain exclusions. Investment companies are subject to
registration under, and compliance with, the 1940 Act unless a particular
exclusion or SEC safe harbor applies. If we were to be deemed an investment
company, we would become subject to the requirements of the 1940 Act. As a
consequence, we would be prohibited from engaging in business or issuing
our securities as we have in the past and might be subject to civil and
criminal penalties for noncompliance. In addition, certain of our contracts
might be voidable, and a court-appointed receiver could take control of our
company and liquidate our business.

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

   OUR VENTURE INVESTMENTS ARE RISKY.

     An element of our strategy is to make selected minority equity
investments in Internet start-up companies in which we already have equity
positions or, in certain instances, in other companies we believe possess
superior business models and are strategic to our business. As of December
31, 2000, we have venture investments in a total of 22 companies, with our
equity stakes in these companies ranging from less than 1% to 32%. As of
December 31, 2000, the aggregate cost of our venture investments totaled
approximately $61.5 million. Decreases in the value of these companies will
have an adverse effect on our business. Because we own less than a majority
of the shares of these companies, we are not involved in the day-to-day
operations of any of these companies and may not be able to control the
policies or directions that these companies take.

     All of the companies in which we have made venture investments are in
the early stages of development and many of these companies have been
adversely affected by the economic downturn in the Internet environment.
Therefore, we cannot assure you that these companies will be able to
successfully achieve their business goals in a timely manner or at all. Our
strategy has been to realize capital return on our investments in these
companies by liquidating these investments through sales of equity or
otherwise. Recently, the unfavorable conditions surrounding sales of
securities in Internet companies, on the public market or otherwise, has
negatively impacted this strategy. Therefore, we cannot assure you that we
will realize any return on any of these investments. The failure of one or
more of these companies in which we have invested, and the timing of any
dispositions of our investments in these companies, could have a material
adverse effect on our financial condition, operating results and business.

   COMPETITION FOR VENTURE INVESTMENT IS INTENSE.

     To the extent that we make selective strategic investments, we will
face competition from numerous other capital providers seeking to acquire
interests in Internet-related businesses, including:

     o   other Internet companies;

     o   venture capital firms;

     o   large corporations; and

     o   other capital providers who also offer support services to companies.

     Traditionally, venture capital and private equity firms have dominated
investments in emerging technology companies, and many of these types of
competitors may have greater experience and financial resources than we
have. In addition to competition from venture capital and private equity
firms, several public companies such as CMGI, Internet Capital Group and
Safeguard Scientifics, as well as private companies such as Idealab!,
devote significant resources to providing capital together with other
resources to Internet companies. Additionally, corporate strategic
investors, including Fortune 500 and other significant companies, are
developing Internet strategies and capabilities. Many of these competitors
have greater financial resources and brand name recognition than we do, and
the barriers to entry for companies wishing to provide capital and other
resources to entrepreneurs and their emerging technology companies are
minimal. We expect that competition from both private and public companies
with business models similar to our own model will intensify. Among other
adverse consequences, this competition may diminish the pool of potential
investment opportunities and raise the cost of making any future
investments. As a result, our financial condition, operating results and
business could be adversely affected.

   A PORTION OF OUR BUSINESS DEPENDS ON THE PERFORMANCE OF OUR INCUBATOR
COMPANIES, WHICH IS UNCERTAIN.

     We cannot assure you that our incubator companies will be able to
successfully achieve their business goals in a timely manner or at all. Our
strategy is to realize capital return on our investment in these companies
by liquidating the investments through sales of equity or otherwise.
Recently, the unfavorable conditions surrounding sales of securities and
other financing methods for Internet companies, on the public market or
otherwise, has negatively impacted this strategy. Therefore, we cannot
assure you that we will realize any return on any of these investments.The
failure of one or more of our incubator companies could have a material
adverse effect on our financial condition, operating results and business.

   THE LOSS OF EXECUTIVE MANAGEMENT OR OTHER KEY PERSONNEL MAY HARM OUR
   ABILITY TO OBTAIN AND RETAIN CLIENT ENGAGEMENTS AND COMPETE EFFECTIVELY.

     Our business operations depend largely on the skills of our key
management and technical personnel as well as key management and technical
personnel of companies we have acquired. If one or more members of our
executive management or other key personnel were unable or unwilling to
continue in their present positions, these persons would be very difficult
to replace. In addition, if any of these persons joined a competitor or
formed a competing company, some of our clients might choose to use the
services of that competitor or new company instead of ours. Furthermore,
our clients or other companies seeking management talent may hire away some
members of our executive management or other key personnel. This could
result in the loss of our client relationships or new business
opportunities and impede our ability to implement our business strategy. In
addition, except for Glenn S. Meyers, our Chairman and Chief Executive
Officer, we do not maintain key man insurance for any of our employees.

   WE ARE DEPENDENT ON OUR ABILITY TO RETAIN HIGHLY QUALIFIED INTERNET
   PROFESSIONALS WHO ARE IN SHORT SUPPLY.

     Our business operations depend in large part on our ability to retain
highly qualified Internet professionals who can provide the technical,
strategic consulting, creative, marketing and audience development skills
required by clients. There is a shortage of these highly qualified
personnel and we compete with other companies for this limited pool of
persons. We cannot assure you that we will be able to retain qualified
personnel. Failure to do so could have a material adverse effect on our
financial condition, operating results and business.

   FLUCTUATIONS IN OUR FINANCIAL PERFORMANCE COULD ADVERSELY AFFECT THE
   TRADING PRICE OF OUR COMMON STOCK.

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

     o   the number, size and scope of our client engagements;

     o   reductions, cancellations or completions of major projects;

     o   the loss of significant clients or a change of scope in a significant
         client engagement;

     o   the opening or closing of an office;

     o   our relative mix of business;

     o   changes in pricing by us or our competitors;

     o   pricing pressure from our clients;

     o   the efficiency with which we utilize our billable professionals, plan
         and manage our existing and new client engagements and manage our
         future growth;

     o   variability in market demand for Internet services;

     o   our ability to retain qualified professionals;

     o   our ability to complete fixed-fee engagements within the assigned
         budget;

     o   costs related to the integration of our acquired businesses;

     o   increased competition;

     o   marketing budget decisions by our clients;

     o   costs associated with rightsizing the number of our employees; and

     o   general economic conditions.

     As a result of these possible fluctuations, period-to-period
comparisons of our operating results may not be reliable indicators of
future performance. A high percentage of our expenses, including those
related to employee compensation and facilities, are fixed. If the number
and size of our projects decreases in any period, then our revenues and
operating results may also decrease. In some quarters, our operating
results may fall below the expectations of securities analysts and
investors due to many factors, including those factors described above

   THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE.

     The market price of our common stock has been, and is likely to
continue to be, volatile, experiencing wide fluctuations. In recent years,
the stock market has experienced significant price and volume fluctuations
that have particularly affected the market prices of equity securities of
many companies providing Internet-related products and services. Some of
these fluctuations appear to be unrelated or disproportionate to the
operating performance of such companies. Future market movements may
materially and adversely affect the market price of our common stock.

   OUR FIXED PRICE CONTRACTS INVOLVE FINANCIAL RISK.

     Many of our contracts are currently on a fixed price basis, rather
than a time and materials basis. Further, the average size of our contracts
is currently increasing, which results in a corresponding increase in our
exposure to the financial risks of fixed price contracts. We assume greater
financial risk on fixed price contracts than on time and materials
engagements because our source of revenue remains fixed while our costs may
be rising. We have only a limited history in estimating our costs for our
engagements, particularly for larger projects. We have had to commit
unanticipated resources to complete some of our projects, resulting in
lower gross margins on such contracts. We may experience similar situations
in the future. In addition, we typically assume the fixed price contracts
of the companies we acquire. If we fail to estimate accurately the
resources and time required for an engagement, to manage client
expectations effectively or to complete fixed price engagements within our
budget, on time and to our clients' satisfaction, we would be exposed to
cost overruns, potentially leading to losses on these engagements.

   OUR REVENUES COULD BE NEGATIVELY AFFECTED BY THE LOSS OF MAJOR CLIENTS.

     We derive a significant portion of our revenues from a limited number
of clients. In 2000, we estimate that our five largest clients accounted
for approximately 22% of our revenues. The loss of major clients could
significantly reduce our revenues, which could have a material adverse
effect on our financial condition, operating results and business.

   FAILURE TO MAINTAIN AND STRENGTHEN OUR REPUTATION AND EXPAND OUR NAME
   RECOGNITION COULD ADVERSELY AFFECT OUR OPERATIONS AND BUSINESS.

     We believe that maintaining and strengthening our reputation is an
important aspect of attracting and maintaining clients. In addition, we
believe the importance of expanding our name recognition will increase as
competition in the market for Internet services increases. Promotion and
enhancement of our name and reputation will depend largely on our success
in providing quality Internet services. Because we cannot ensure this
success in all our client engagements, even a single event involving client
dissatisfaction could tarnish the perception of Rare Medium as a whole
despite any efforts to maintain and strengthen our reputation. If clients
do not perceive our services to be of high quality, our reputation can be
materially and adversely affected.

   OUR SUCCESS DEPENDS UPON STRATEGIC RELATIONSHIPS.

     We have established strategic relationships with IBM, Microsoft, Sun
Microsystems, iPlanet, Open Market, ATG and Interwoven that may be
terminated at any time. The loss of any of these or other strategic
relationships would deprive us of the opportunity to:

     o   gain early access to leading-edge technology;

     o   cooperatively market products with these vendors;

     o   cross-sell additional services; or

     o   gain enhanced access to vendor training and support.

   OUR BUSINESS DEPENDS ON THE GROWING DEMAND FOR INTERNET SOLUTIONS.

     If the usage and volume of commercial transactions on the Internet
does not continue to increase, demand for our services may decrease and our
financial condition, operating results and business could be materially and
adversely affected. Our future success depends on the continued expansion
of, and reliance of consumers and businesses on, the Internet and related
technical solutions. The Internet may not be able to support an increased
number of users or an increase in the volume of data transmitted over it.
As a result, the performance or reliability of the Internet may be
adversely affected as use increases. The improvement of the Internet in
response to increased demands will require timely improvement of the high
speed modems and other communications equipment that form the Internet
infrastructure. The Internet has already experienced outages and delays as
a result of damage to portions of its infrastructure. The effectiveness of
the Internet may also decline due to delays in the development or adoption
of new technical standards and protocols designed to support increased
levels of activity. We cannot assure you that the infrastructure, products
or services necessary to maintain and expand the Internet will be
developed. Other factors that may adversely affect Internet usage or
e-commerce adoption include:

     o   actual or perceived lack of security of information;

     o   congestion of Internet traffic or other usage delays;

     o   inconsistent quality of service;

     o   increases in Internet access costs;

     o   increases in government regulation of the Internet;

     o   uncertainty regarding intellectual property ownership;

     o   reluctance to adopt new business methods;

     o   costs associated with the obsolescence of existing infrastructure; and

     o   economic viability of e-commerce models.

   OUR BUSINESS OPERATIONS DEPEND ON OUR ABILITY TO ADAPT TO TECHNOLOGICAL
INNOVATIONS.

     Our business operations depend, in part, on our ability to keep pace
with rapid technological change, new products and services embodying new
processes and technologies and industry standards and practices. Failure to
respond to these changes could render our existing service practices and
methodologies obsolete. We cannot assure you that we will be able to
respond quickly, cost-effectively or sufficiently to these developments.

   MISAPPROPRIATION OF OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS COULD
   HARM OUR REPUTATION, AFFECT OUR COMPETITIVE POSITION AND COST US MONEY.

     We believe our trademarks and other proprietary rights are important
to our success and competitive position. If we are unable to protect our
trademarks and other proprietary rights against unauthorized use by others,
our reputation among existing and potential clients could be damaged and
our competitive position adversely affected. We have registered or are
registering certain of our trademarks in the United States and abroad. We
attempt to limit access to and distribution of our proprietary information
as well as proprietary information licensed from third-parties.

     Our strategies to deter misappropriation could be inadequate in light
of the following risks:

     o   non-recognition or inadequate protection of our proprietary rights in
         certain foreign countries;

     o   undetected misappropriation of our proprietary information or
         materials; and

     o   development of similar software or applications by our competitors.

     We cannot assure you that these strategies will be adequate to deter
misappropriation of our proprietary information and material. If any of
these risks materialize, we could be required to pay significant amounts to
defend our rights or pay damages, and our managerial resources could be
diverted.

   OTHER PARTIES MAY CLAIM THAT WE HAVE INFRINGED UPON THEIR INTELLECTUAL
   PROPERTY RIGHTS, RESULTING IN SUBSTANTIAL COSTS TO US AND A DIVERSION OF
   OUR RESOURCES.

     It is possible that third parties, including our clients, may claim we
are infringing upon their intellectual property rights. While we believe
that currently there is no basis for such a claim, we cannot assure you
that an infringement claim will not be brought against us in the future.
The material and adverse consequences of a successful infringement claim
against us are as follows:

     o   liability for litigation costs and damages;

     o   we may be enjoined from using specific intellectual property in the
         future;

     o   we may incur costs for licensing specific intellectual property from
         others;

     o   we may incur significant costs associated with the development of
         non-infringing alternatives; and

     o   we may have to indemnify clients with respect to losses as a result
         of our infringement of the intellectual property.

     Even if we are successful in defending against an infringement claim,
we may incur substantial costs defending ourselves. Additionally, these
claims could divert needed resources, management's attention and could harm
our reputation.

   WE MAY BE SUBJECT TO LEGAL LIABILITY TO OUR CLIENTS.

     Many of our engagements involve the development and implementation of
Internet services that are important to our clients' businesses. Our
failure or inability to meet a client's expectations in the performance of
services could injure our business reputation or result in a claim for
substantial damages against us regardless of our responsibility for such
failure. In addition, the services we provide for our clients may include
confidential or proprietary client information. Although we have
implemented policies to prevent such client information from being
disclosed to unauthorized parties or used inappropriately, any such
unauthorized disclosure or use could result in a claim against us for
substantial damages. Our contractual provisions attempting to limit such
damages may not be enforceable in all instances or may otherwise fail to
protect us from liability for damages.

   OUR BUSINESS IS SUBJECT TO GENERAL ECONOMIC CONDITIONS. ECONOMIC
   DOWNTURNS COULD HAVE AN ADVERSE IMPACT ON THE DEMAND FOR OUR SERVICES.

     Our revenues and results of operations will be subject to fluctuations
based upon the general economic conditions in the United States and, to a
lesser extent, abroad. General economic downturns or a recession in the
United States could cause our customers and potential customers to
substantially reduce their budgets for, or delay implementation of,
Internet-focused business solutions. A deterioration in existing economic
conditions could therefore materially and adversely affect our financial
condition, operating results and business. Our operating results and
financial condition may also be adversely affected by difficulties we may
encounter in collecting our accounts receivable and maintaining our profit
margins during an economic downturn.

   GOVERNMENTAL REGULATION OF THE INTERNET COULD IMPACT OUR OPERATIONS.

     Currently, we are not subject to any direct governmental regulation
other than the securities laws and regulations applicable to all publicly
owned companies and laws and regulations applicable to businesses
generally. Few laws or regulations are directly applicable to access to, or
commerce on, the Internet. Due to the increasing popularity and use of the
Internet, it is likely that a number of laws and regulations may be adopted
at the local, state, national or international levels with respect to the
Internet, including the possible levying of tax on e-commerce transactions.
Importantly, the current moratorium on certain Internet taxes expires in
October 2001. If this moratorium is not extended, e-commerce businesses
could be faced with an array of state and local taxes. Any new legislation
could inhibit the growth in use of the Internet and decrease the acceptance
of the Internet as a communications and commercial medium, which could in
turn decrease the demand for our services or otherwise have a material
adverse effect on our future operating performance and business.

   APOLLO BENEFICIALLY OWNS A LARGE PERCENTAGE OF OUR VOTING STOCK.

     Assuming that all currently outstanding shares of our Series A
convertible preferred stock are converted and all Series 1-A and Series 2-A
warrants are exercised, affiliates of Apollo would own approximately 37% of
our outstanding common stock. Additionally, Apollo's ownership interest in
our company may increase upon its conversion of additional shares of Series
A convertible preferred stock or its exercise of additional Series 1-A
warrants received as in-kind dividends on its shares of Series A
convertible preferred stock. Apollo currently owns all of the 977,838
outstanding shares of our Series A convertible preferred stock. As long as
Apollo owns at least 100,000 shares of these securities, we are precluded
from taking various corporate actions and entering into various
transactions, without Apollo's consent. These corporate actions and
transactions are described in our proxy statement for the stockholders'
meeting held on August 19, 1999. In addition, as long as Apollo owns at
least 100,000 shares of our Series A convertible preferred stock, the
holders of the Series A convertible preferred stock, voting as a separate
class, have the right to elect two of the members of our board of directors
and have certain approval rights with respect to additional members of our
board of directors in the event that the size of our board of directors is
increased.

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

   WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.

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

   THE ISSUANCE OF PREFERRED STOCK OR ADDITIONAL COMMON STOCK MAY ADVERSELY
AFFECT OUR STOCKHOLDERS.

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

   ANTI-TAKEOVER PROVISIONS COULD MAKE A THIRD-PARTY ACQUISITION OF OUR
COMPANY DIFFICULT.

     We are a Delaware corporation. The Delaware General Corporation Law
contains provisions that could make it more difficult for a third party to
acquire control of our company. In addition, we have a classified board of
directors, with each board member serving a staggered three-year term. The
existence of a classified board could make it more difficult for a
third-party to acquire control of our company.

   SHARES ELIGIBLE FOR FUTURE SALE COULD CAUSE OUR STOCK PRICE TO DECLINE.

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

ITEM 2.  PROPERTIES

     We conduct our administrative and operations activities from 22 leased
facilities totaling approximately 300,000 square feet, pursuant to leases
expiring through 2008. These facilities are located in New York, New York;
Dallas, Texas; Denver, Colorado; Los Angeles, California; Atlanta, Georgia;
Detroit, Michigan; San Francisco, California; San Antonio, Texas; Irvine,
California; Scottsdale, Arizona; Washington, D.C.; and London, England. We
believe that our facilities are suitable for our current business needs.
However, we routinely evaluate our facilities for adequacy and necessity in
light of our plans for the future. We do not anticipate purchasing property
in the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

     We are not a party to any pending material legal proceedings.

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 the fiscal year ended December 31, 2000.


                                  PART II

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

     Our common stock trades on The Nasdaq National Market under the symbol
"RRRR." Prior to February 15, 1996 our common stock was listed on The
Nasdaq Small Cap Market. Based on quotations reported by Nasdaq, the range
of high and low bids for our common stock for the two most recent fiscal
years is as follows:

<TABLE>
<CAPTION>

                                                                       2000
                                                                       ----
                                                   4th Qtr      3rd Qtr      2nd Qtr  1st Qtr
                                                   -------      -------      -------  -------
<S>                                                <C>           <C>         <C>       <C>
High Bid:.....................................     $7 5/8       $17 7/8      $44 7/8  $94 3/4
Low Bid:......................................      1 5/16       5 5/32       12 1/2   27


                                                                       1999
                                                                       ----
                                                   4th Qtr      3rd Qtr      2nd Qtr   1st Qtr
                                                   -------      -------      -------   -------
High Bid:.....................................     $44 1/16     $13 7/8      $20 1/8   $5 31/32
Low Bid:......................................       9 5/8        6 9/16       4 3/16   3 5/8
</TABLE>

     The above quotations reported by Nasdaq represent prices between
dealers and do not include retail mark-ups, mark-downs or commissions. Such
quotations may not represent actual transactions. On March 6, 2001, the
last reported sale price for our common stock was $2.00 per share.

     As of March 6, 2001, we had approximately 863 recordholders of our
common stock. This number was derived from our stockholder records, and
does not include beneficial owners of our common stock whose shares are
held in the names of various dealers, clearing agencies, banks, brokers,
and other fiduciaries. Holders of our common stock are entitled to share
ratably in dividends, if and when declared by our board of directors.

     We have not paid a dividend on our common stock for the fiscal years
ended December 31, 1999 and December 31, 2000, and it is unlikely that we
will pay any dividends in the foreseeable future. The payment of cash
dividends on our common stock will depend on, among other things, our
earnings, capital requirements and financial condition, and general
business conditions. Under the terms of the purchase agreement we entered
into with the holders of our Series A convertible preferred stock, for so
long as such holders beneficially own not less than 100,000 shares of
Series A convertible preferred stock, we are prohibited from declaring or
paying, and may not permit any of our subsidiaries to declare or pay, any
dividend or make any other distribution in respect of any other shares of
our capital stock without the prior written consent of such holders. In
addition, future borrowings or issuances of preferred stock may prohibit or
restrict our ability to pay or declare dividends.

ITEM 6. SELECTED FINANCIAL DATA

     The following historical selected financial data for the years ended
December 31, 1996, 1997, 1998, 1999 and 2000 have been derived from
financial statements that have been audited by our independent accountants.
There were no cash dividends paid to holders of our common stock in any of
these years. The data should be read in conjunction with our financial
statements and the notes thereto included elsewhere in this report. The
format of prior year data has been conformed to reflect the accounting for
discontinued operations.

<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                                       -----------------------
                                                    1996           1997          1998          1999          2000
                                                  ---------      ---------     ---------     ---------    ---------
                                                                   (In thousands except share data)
Statement of Operations Data:
<S>                                                 <C>             <C>         <C>           <C>          <C>
Revenues                                            $--             $--         $4,688        $36,694      $110,149
Cost of revenues                                     --              --          3,610         19,650        66,100
                                                     --              --          -----         ------        ------

   Gross profit                                      --              --          1,078         17,044        44,049
                                                     --              --          -----         ------        ------

Expenses:
   Sales and marketing                               --              --            897          5,450        25,800
   General and administrative                     1,546           1,992          5,673         32,407        92,002
   Depreciation and amortization                     --              --         12,584         25,993        49,360
                                                     --              --         ------         ------        ------

     Total expenses                               1,546           1,992         19,154         63,850       167,162
                                                  -----           -----         ------         ------       -------

Loss from operations                             (1,546)         (1,992)       (18,076)       (46,806)     (123,113)
Interest income (expense), net                      686             493         (1,279)        (1,396)       10,248
Loss on investments in affiliates                    --              --             --         (1,468)      (11,103)
Other income (expense)                               --              --             --            200          (777)
                                                     --              --             --            ---         -----

Loss before taxes and discontinued
   operation                                       (860)         (1,499)       (19,355)       (49,470)     (124,745)
   Income tax expense                                --              --            355             --            --
                                                     --              --            ---             --            --

     Loss before discontinued operation            (860)         (1,499)       (19,710)       (49,470)     (124,745)
                                                   -----         -------       --------       --------     ---------

Discontinued operation:
   Loss from discontinued operation              (6,295)        (11,985)        (5,166)            --            --
   Gain on restructuring Engelhard/ICC               --              --         24,257             --            --
                                                     --              --         ------             --            --

     (Loss) income from discontinued
        operation                                (6,295)        (11,985)        19,091             --            --
                                                -------        --------         ------             --            --

Net loss                                         (7,155)        (13,484)          (619)       (49,470)     (124,745)
   Deemed dividend attributable to
     issuance of convertible preferred
     stock                                           --              --             --        (29,879)           --
   Cumulative dividends and accretion of
     convertible preferred stock to
     liquidation value                              (49)             --             --        (13,895)      (22,718)
                                                   ----              --             --       --------      --------

Net loss attributable to common
   stockholders                                 $(7,204)       $(13,484)         $(619)      $(93,244)    $(147,463)
                                                ========       =========         ======      =========    ==========


Basic and diluted (loss) earnings per share:
   Continuing operations.                       $(0.04)         $(0.07)         $(0.78)        $(2.55)       $(2.76)
   Discontinued operation                        (0.31)          (0.56)           0.76             --            --
                                                 ------          ------           ----             --            --

Net loss per share                              $(0.35)         $(0.63)         $(0.02)        $(2.55)       $(2.76)
                                                =======         =======         =======        =======       =======


Basic weighted average common shares
   outstanding                               20,332,952      21,339,635      25,282,002    36,625,457     53,488,951
                                             ==========      ==========      ==========    ==========     ==========
</TABLE>



<TABLE>
<CAPTION>
                                                                        December 31,
                                                                 ------------------------
                                                                       (in thousands)

                                                     1996          1997        1998        1999        2000
                                                   ---------     ---------   ---------   ---------   ---------

<S>                                                   <C>           <C>         <C>         <C>       <C>
Balance Sheet Data:
Cash, cash equivalents, and short-term
     investments                                     $9,641       $1,257        $918      $28,540    $157,483
Investments in affiliates                                --           --          --       26,467      48,016
Total assets                                         12,251        4,522      44,743      160,423     321,168
Notes payable, less current portion                      --           --      10,592          997          --
Total liabilities                                     2,180        7,584      14,921       19,208      40,761
Series A convertible preferred stock                     --           --          --       36,224      47,621
Stockholders' equity (deficit)                       10,071       (3,062)     29,822      104,991     232,786
</TABLE>


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

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

OVERVIEW

     We are an Internet-focused company that:

     o   provides Internet professional services to companies;

     o   develops, manages and operates companies in selected Internet-focused
         market segments; and

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

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

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

     In addition, we have made minority investments in independently
managed companies that we believe possess superior business models. We
have co-invested in these companies with well-known financial and industry
partners such as Brentwood Associates, Compaq Computer Corp., Constellation
Ventures, GE Capital Corp., Hicks, Muse, Tate & Furst, Mayfield Partners
and Omnicom. In certain instances, we have selectively continued to invest
in these companies and seek to invest limited amounts of capital in other
companies that we believe possess sound business models and are strategic
to our business. The carrying value of our investment in these businesses
at December 31, 2000 amounted to $59.7 million of which $48.0 million is
reflected in our balance sheet as "investments in affiliates" and $11.7
million is included in "goodwill and intangibles, net" for our incubators
that are accounted for as consolidated subsidiaries.

     Our operating results are primarily driven by the Internet services
business. We evaluate the performance of this business as a separate
segment. Revenue and income (loss) before interest, taxes, depreciation and
amortization are used to measure and evaluate our financial results and
make relative comparisons to other entities that operate within the
Internet services industry. Our Internet service business revenue,
including revenue from services provided to our consolidated subsidiaries,
increased to $121.0 million in 2000 from $36.9 million in 1999. This
increase in revenue from the prior year was achieved primarily through
organic growth. Loss before interest, taxes, depreciation and amortization
decreased from $6.5 million to $4.7 million in 2000. Although our
sequential revenue remained relatively consistent from the third quarter
ended September 30, 2000, our earnings before interest, taxes, depreciation
and amortization increased to $0.9 million for the fourth quarter ended
December 31, 2000 from $0.2 million in the third quarter ended September
30, 2000.

     During the year ended December 31, 2000, we acquired two businesses,
one of which is in our Internet services business, for an aggregate of
857,322 shares of our common stock, which were issued in private
placements. Some of the shares issued in connection with these transactions
are held in escrow as security for covenants contained in the respective
merger agreements. Each of these transactions has been accounted for under
the purchase method of accounting. The purchase prices, which totaled $16.5
million in stock, were allocated to net tangible assets, which consisted
primarily of cash, accounts receivable, property and equipment, accounts
payable and notes payable. Intangible assets, which consist primarily of
goodwill, of $16.8 million resulting from these transactions are being
amortized over a three-year period.

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

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

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

     Prior to March 1999, our name was ICC Technologies, Inc. On April 15,
1998, ICC acquired Rare Medium, Inc., an Internet services business and
shortly thereafter changed its name to Rare Medium Group, Inc. Following
this acquisition, all non-Internet-related operations were divested and the
chief executive officer of Rare Medium, Inc. became the chief executive
officer of Rare Medium Group, Inc. As a result of these transactions, the
results of operations of the non-Internet-related business for all periods
have been accounted for as a discontinued operation. Accordingly, our
discussion in the section entitled "Results of Operations" focuses on our
Internet-related businesses, and operating results for 1998 are presented
on a pro forma basis to give effect to these transactions, including the
operating results of these Internet-related businesses for the three months
ended March 31, 1998. The amounts shown for the years ended December 31,
1999 and 2000 include our operations as they are reported. For information
related to the operations of the non-Internet-related businesses during the
first, second and third quarters of 1998, refer to our Forms 10-Q filed for
the applicable quarters.

     We have an equity participation plan that allows our Compensation
Committee to incentivize our employees by allocating to them up to 20% of
any profit we might recognize when and if our investments in portfolio and
incubator companies become liquid, subject to vesting and other
requirements. Upon a liquidation event, we will recognize a compensation
charge for that portion of the profit on the investment that is allocated
to the employees. We will have the right to pay such amount either in cash,
in our common stock or a combination thereof.


RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

REVENUES

     Revenue for the year ended December 31, 2000 increased to $110.1
million from $36.7 million for the year ended December 31, 1999, an
increase of $73.4 million. This increase reflects increases in both the
number and relative size of client engagements, which has been facilitated
by increases in our billable employees substantially as a result of our
aggressive hiring strategy during 1999 and the first half of 2000 and, to a
lesser extent, acquisitions.Our incubator companies generated revenues
totaling $7.8 million in the year ended December 31, 2000, compared to $1.6
million in the year ended December 31, 1999.

COST OF REVENUES

     Cost of revenues for the year ended December 31, 2000 increased to
$66.1 million from $19.7 million for the year ended December 31, 1999, an
increase of $46.4 million. This increase is due primarily to a substantial
increase in additional personnel in our Internet services business. Cost of
revenues as a percentage of revenue related to our Internet services
business amounted to 49.8% for the year ended December 31, 2000. The
increase in cost of revenues also reflects $5.9 million of costs related to
our incubator businesses.

SALES AND MARKETING EXPENSE

     Sales and marketing expense for the year ended December 31, 2000
increased to $25.8 million from $5.5 million for the year ended December
31, 1999, an increase of $20.3 million. The increase is primarily the
result of the implementation of a national marketing program to build the
"Rare Medium" brand, marketing with respect to our incubator companies and
an increase in our sales force. We do not expect sales and marketing
expenses to increase at this same level going forward.

GENERAL AND ADMINISTRATIVE EXPENSE

     General and administrative expense for the year ended December 31,
2000 increased to $92.0 million from $32.4 million for the year ended
December 31, 1999, an increase of $59.6 million. This increase is a result
of the cost of infrastructure needed to support the growth in revenue and
our continued expansion into new markets. The increase in general and
administrative expense also relates to the costs associated with required
resources with respect to our investment business.

DEPRECIATION AND AMORTIZATION EXPENSE

     Depreciation and amortization expense substantially consists of the
amortization of intangible assets. Depreciation and amortization expense
for the year ended December 31, 2000 increased to $49.4 million from $26.0
million for the year ended December 31, 1999, an increase of $23.4 million.
This increase resulted primarily from our acquisitions during 1999.

INTEREST EXPENSE, NET

     Interest expense, net for the year ended December 31, 2000 is mainly
compromised of the interest earned on the proceeds received from the sale
of our common stock during the first quarter of 2000 as described below in
"Liquidity and Capital Resources."

NET (LOSS) INCOME

     For the year ended December 31, 2000, we recorded a net loss of $124.7
million. Excluding $49.4 million in amortization and depreciation, the net
loss was $75.3 million. The loss was primarily due to the factors described
in "Cost of Revenues," "General and Administrative Expense" and "Sales and
Marketing Expense."

     Included in net loss attributable to common shareholders of $147.4
million was $22.7 million of non-cash deemed dividends and accretion
related to issuance of our Series A convertible preferred stock. Dividends
were accrued related to the pay-in-kind dividends payable quarterly on
Series A convertible preferred stock, and to the accretion of the carrying
amount of the Series A convertible preferred stock up to its face
redemption amount over 13 years.

YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998

                     Condensed Statements of Operations
<TABLE>
<CAPTION>

                                                                       Year Ended
                                                                      December 31,
                                                                      ------------

                                                                     1998         1999
                                                                     ----         ----
                                                                  Unaudited      Actual
                                                                  Pro Forma
                                                                       (In thousands)
<S>                                                                 <C>          <C>
Revenues                                                            $5,830       $36,694
Cost of revenues                                                     4,489        19,650
                                                                     -----        ------

   Gross profit                                                      1,341        17,044
                                                                     -----        ------

Expenses:
   Sales and marketing                                                 897         5,450
   General and administrative                                        6,210        32,407
   Depreciation and amortization                                    12,627        25,993
                                                                    ------        ------

   Total expenses                                                   19,734        63,850
                                                                    ------        ------

Loss from operations                                               (18,393)      (46,806)
Interest expense, net                                               (1,383)       (1,396)
Loss on investments in affiliates                                       --        (1,468)
Other income                                                            --           200
                                                                        --           ---

Loss before taxes and discontinued operation                       (19,776)      (49,470)
                                                                  --------      --------

Income tax expense                                                     355            --
                                                                       ---            --

Loss before discontinued operation                                 (20,131)      (49,470)
Discontinued operation:
   Loss from discontinued operation                                 (5,166)           --
   Gain on restructuring of Englehard/ICC                           24,257            --
                                                                    ------            --

Income from discontinued operation                                  19,091            --
                                                                    ------            --

Net loss                                                            (1,040)      (49,470)
Deemed dividend attributable to issuance of
  convertible preferred stock                                           --       (29,879)
Cumulative dividends and accretion of convertible
  preferred stock to liquidation value                                  --       (13,895)
                                                                        --      --------

Net loss attributable to common stockholders                       $(1,040)     $(93,244)
                                                                  ========     =========
</TABLE>


REVENUES

     Revenues for the year ended December 31, 1999 increased to $36.7
million from $5.8 million for the year ended December 31, 1998, an increase
of $30.9 million. The increase reflected the increase in our billable
employees as a result of acquisitions and aggressive hiring strategy, which
facilitated increases in both the number and relative size of client
engagements. All of the acquired Internet services businesses' operations
were integrated into the existing operations of Rare Medium, Inc. Our
incubator companies generated revenues totaling $1.6 million in 1999, their
first year of operations.

COST OF REVENUES

     Cost of revenues for the year ended December 31, 1999 increased to
$19.7 million from $4.5 million for the year ended December 31, 1998, an
increase of $15.2 million. The increase was due primarily to a substantial
increase in personnel added in our Internet services business. The increase
in cost of revenues also reflected $1.0 million of costs related to our
incubator businesses.

SALES AND MARKETING EXPENSE

     Sales and marketing expense for the year ended December 31, 1999
increased to $5.5 million from $0.9 million for the year ended December 31,
1998, an increase of $4.6 million. The increase was primarily the result of
implementation of a national marketing program to build the "Rare Medium"
brand and an advertising campaign for Rare Medium, Inc. during 1999.

GENERAL AND ADMINISTRATIVE EXPENSE

     General and administrative expense for the year ended December 31,
1999 increased to $32.4 million from $6.2 million for the year ended
December 31, 1998, an increase of $26.2 million. The increase was due to
our continued investment in building infrastructure to support our business
plan. During 1999, we also hired a president and senior operations managers
for our major offices in New York and Los Angeles for Rare Medium, Inc. and
expanded into new markets in Toronto, Dallas, San Francisco, San Antonio,
Detroit, Sydney, Houston and Atlanta. The increase in general and
administrative expense also related to the costs associated with required
resources to implement our venture/incubator strategy and the costs
associated with generating the substantial revenue increase from 1998.

DEPRECIATION AND AMORTIZATION EXPENSE

     Depreciation and amortization expense substantially consists of the
amortization of intangible assets. Depreciation and amortization expense
for the year ended December 31, 1999 increased to $26.0 million from $12.6
million for the year ended December 31, 1998, an increase of $13.4 million.
This increase resulted primarily from our acquisitions during 1999.

INTEREST EXPENSE, NET

     Interest expense, net for the year ended December 31, 1999 includes
$0.6 million of interest expense related to the Rare Medium Note, $1.4
million of interest expense related to the induced conversion of a portion
of the Rare Medium Note by certain holders into common stock, and $1.1
million of interest expense related to the convertible debentures held by
certain investors which were outstanding during part of 1999 prior to being
converted in connection with the Apollo transaction in June 1999. The
interest expense related to the Rare Medium Note represents the accrued
interest on our note payable to the original Rare Medium, Inc.
stockholders, payable in a combination of cash or shares of our common
stock, at our election, subject to some restrictions. The interest expense
relating to the convertible debentures includes $1.0 million for the
amortization of the debt discount and the beneficial conversion feature.
Total interest expense was partially offset by interest income of $1.7
million relating to the income earned on the net proceeds received from the
sale to Apollo of our Series A convertible preferred stock and Series 1-A
and Series 2-A warrants.

NET (LOSS) INCOME

     For the year ended December 31, 1999, we recorded a net loss of $49.5
million. Excluding $26.0 million in amortization and depreciation, the net
loss was $23.5 million. The loss was primarily due to the factors described
in "Cost of Revenues," "General and Administrative Expense" and "Sales and
Marketing Expense."

     Included in net loss attributable to common shareholders of $93.2
million was $43.8 million of non-cash deemed dividends and accretion
related to issuance of our Series A convertible preferred stock. These
dividends included a one-time non-cash deemed dividend resulting from the
difference between the market price of our common stock and the conversion
price of our Series A convertible preferred stock on the date of issuance
of the Series A convertible preferred stock. In addition to this non-cash
deemed dividend, dividends were accrued related to the pay-in-kind
dividends payable quarterly on the Series A convertible preferred stock,
and to the accretion of the $29.9 million carrying amount of the Series A
convertible preferred stock up to the $87.0 million face redemption amount
over 13 years.

LIQUIDITY AND CAPITAL RESOURCES

     We had $157.5 million in cash, cash equivalents, and short-term
investments at December 31, 2000. This amount is substantially a result of
the proceeds received from (1) the issuance of 2,500,000 shares of our
common stock on January 14, 2000, for gross proceeds of $70.1 million (net
proceeds $65.7 million) in a private transaction to a group of mutual funds
managed by Putnam Investments and Franklin Resources, Inc. and (2) the
issuance of 3,000,000 shares of our common stock on March 29, 2000 for
gross proceeds of $186.0 million (net proceeds of $175.2 million) in an
underwritten public offering.

     Cash used in operating activities was $65.9 million for the year ended
December 31, 2000 and resulted primarily from the net loss of $124.7
million, offset by non-cash charges of $56.0 million (which consists of
depreciation, amortization, loss on investments in affiliates and
investment in affiliates received for services rendered) and changes in
working capital.

     Cash used in investing activities was $51.3 million, net of the $44.5
million invested in short-term investments, for the year ended December 31,
2000, which primarily consists of the purchase of businesses and venture
investments of $27.8 million and capital expenditures of $24.5 million.
Capital expenditures have generally been comprised of purchases of computer
hardware and software, as well as leasehold improvements related to leased
facilities, and are not expected to increase at the same level in future
periods.

THE RARE MEDIUM NOTEHOLDERS

     During 1999, we issued 1,431,756 shares of common stock to certain
noteholders in exchange for their beneficial interest in $8.5 million of
the original principal amount of the Rare Medium Note. In 1999, we
recognized approximately $1.4 million of non-cash interest expense related
to the conversion to the extent the market value of the stock on the date
of conversion exceeded the conversion price. As of December 31, 1999, as a
result of these transactions, there is a remaining principal balance of
$2.0 million payable under the Rare Medium Note, which bears interest
payable semi-annually at the prime rate, and is due in two equal principal
installments on April 15, 2000 and April 15, 2001. In February 2000, the
remaining principal balance was converted into common stock at fair value.

THE APOLLO SECURITIES PURCHASE

     On June 4, 1999, we issued and sold to Apollo Investment Fund IV, LP,
Apollo Overseas Partners IV, LP and AIF IV/RRRR LLC, for an aggregate
purchase price of $87.0 million, 126,000 shares of our Series A convertible
preferred stock, 126,000 Series 1-A warrants, 1,916,994 Series 2-A
warrants, 744,000 shares of our Series B convertible preferred stock,
744,000 Series 1-B warrants and 10,345,548 Series 2-B warrants. The Series
A convertible preferred stock and Series B convertible preferred stock
accrue dividends at an annual rate of 7.5%. The Series A and Series B
convertible preferred stock are subject to mandatory redemption on June 30,
2012.

     Under the terms of the securities purchase agreement with the Apollo
stockholders at the 1999 annual meeting of our stockholders held on August
19, 1999, the holders of common stock approved the conversion of all of the
Series B convertible preferred stock, Series 1-B warrants and Series 2-B
warrants, including such additional Series B securities that have been
issued as dividends, into like amounts of Series A convertible preferred
stock, Series 1-A warrants and Series 2-A warrants, respectively.

     Pursuant to the approval, all Series B convertible preferred stock,
Series 1-B warrants and Series 2-B warrants were converted into Series A
convertible preferred stock, Series 1-A warrants and Series 2-A warrants,
respectively. The Series A securities are convertible into or exercisable
for voting common stock whereas the Series B securities were convertible
into or exercisable for non-voting common stock.

     On August 22, 2000, the Company issued 12,709,499 shares of common
stock to holders of the Company's Series 1-A Warrants as a result of a
cashless exercise of all Series 1-A Warrants outstanding at that time. The
effective exercise price at the time of exercise was $0.01 per share. The
Company withheld 9,986 shares of common stock as payment of the aggregate
exercise price.

ISSUANCE OF COMMON STOCK

     On January 14, 2000, we sold 2,500,000 shares of our common stock for
gross proceeds of $70.1 million (net proceeds of $65.7 million) in a
private transaction to a group of mutual funds managed by Putnam
Investments and Franklin Resources, Inc., which we refer to in this report
as the "private placement." On April 18, 2000, we filed a registration
statement with the SEC to register the resale of such shares as required by
the purchase agreement executed in connection with such private
transaction.

     On March 29, 2000, we sold 3,000,000 shares of our common stock for
gross proceeds of $186.0 million (net proceeds of $175.2 million) in a
public offering underwritten by Credit Suisse First Boston Corporation,
Deutsche Bank Securities, Inc. and FleetBoston Robertson Stephens, Inc.

YEAR 2000 ISSUE

     We and our subsidiaries have not experienced any material problems
with network infrastructure, software, hardware and computer systems
relating to the inability to recognize appropriate dates related to the
Year 2000. We and our subsidiaries are also not aware of any material Year
2000 problems with customers, suppliers or vendors. Accordingly, we and our
subsidiaries do not anticipate incurring future material expenses or
experiencing any material operational disruptions as a result of Year 2000
issues.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101") which
summarizes certain of the SEC staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. We
adopted SAB No. 101 during 2000 without a material effect on our results of
operations.

     In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting For Certain Transactions Involving Stock
Compensation" (FIN No. 44) which provides guidance for applying APB Opinion
No. 25, "Accounting For Stock Issued to Employees." With certain
exceptions, FIN No. 44 applies prospectively to new awards, exchanges of
awards in a business combination, modifications to outstanding awards and
changes in grantee status on or after July 1, 2000. The implementation of
FIN No. 44 did not have a material effect on our results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements and supplementary financial data required by
this Item 8 are set forth in Item 14 of this report. All information which
has been omitted is either inapplicable or not required.

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

     None


                                  PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item is incorporated herein by
reference to our definitive proxy statement for our 2001 Annual Meeting of
Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is incorporated herein by
reference to our definitive proxy statement for our 2001 Annual Meeting of
Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated herein by
reference to our definitive proxy statement for our 2001 Annual Meeting of
Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this item is incorporated herein by
reference to our definitive proxy statement for our 2001 Annual Meeting of
Stockholders.

                                  PART IV

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

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

         (1) Financial Statements of the Registrant.

               (i)   Report of Independent Auditors.

               (ii)  Consolidated Balance Sheets as of December 31, 1999
                     and 2000.

               (iii) Consolidated Statements of Operations for the years
                     ended December 31, 1998, 1999 and 2000.

               (iv)  Consolidated Statements of Changes in Stockholders'
                     Equity (Deficit) for the years ended December 31,
                     1998, 1999 and 2000.

               (v)   Consolidated Statements of Cash Flows for the years
                     ended December 31, 1998, 1999 and 2000.

               (vi)  Notes to Consolidated Financial Statements.

               (vii) Schedule II--Valuations and Qualifying Accounts.

     All other schedules specified in Item 8 or Item 14(d) of Form 10-K are
omitted because they are not applicable or not required, or because the
required information is included in the Financial Statements or notes
thereto.

     (b) Reports on Form 8-K. There were no Current Reports on Form 8-K
         that were filed with the Securities and Exchange Commission during
         the quarterly period ending December 31, 2000.

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

Exhibit
Number        Description

  2.1      --   Master Agreement, dated November 17, 1997, by and among ICC
                Technologies, Inc., ICC Investment, L.P., ICC Desiccant
                Technologies, Inc., and Engelhard Corporation, Engelhard DT
                Inc. and Engelhard/ICC was filed as Exhibit "B" to ICC
                Technologies, Inc.'s Definitive Proxy Statement dated
                February 3, 1998, for the Special Meeting of Stockholders
                held on February 23, 1998, and is hereby incorporated
                herein by reference.
  2.2      --   Contribution Agreement, dated as of November 17, 1997, between
                Engelhard/ICC and Fresh Air Solutions, L.P. was filed as
                Exhibit "C" to ICC Technologies, Inc.'s Definitive Proxy
                Statement dated February 3, 1998, for the Special Meeting
                of the Stockholders held on February 23, 1998, and is
                hereby incorporated herein by reference.
  2.3      --   E/ICC Purchase and Sale Agreement, dated as of November 17,
                1997, by and among ICC Investment, L.P., ICC Desiccant
                Technologies, Inc. and Engelhard DT, Inc., was filed as
                Exhibit 10.24 to the Company's Annual Report on Form 10-K
                for the year ended December 31, 1997, and is hereby
                incorporated herein by reference.
  2.4      --   Merger Agreement and Plan of Reorganization, dated as of April
                8, 1998, by and among ICC Technologies, Inc., RareMedium
                Acquisition Corp., Rare Medium, Inc. and the Founding
                Stockholders named therein ("Rare Medium Merger Agreement")
                was filed as Exhibit 2.1 to the Company's Current Report on
                Form 8-K dated April 15, 1998 and is hereby incorporated
                herein by reference.
  2.5      --   Agreement and Plan of Merger, dated as of August 13, 1998, by
                and among ICC Technologies, Inc., Rare Medium, Inc., I/O
                360, Inc. and the I/O 360 Stockholders named therein was
                filed as Exhibit 2.1 to the Company's Current Report on
                Form 8-K dated August 13, 1998 and is hereby incorporated
                herein by reference.
  2.6      --   Agreement and Plan of Merger, dated as of August 13, 1998 by
                and among ICC Technologies, Inc., Rare Medium, Inc.,
                DigitalFacades Corporation and the DigitalFacades
                Stockholders named therein was filed as Exhibit 2.2 to the
                Company's Current Report on Form 8-K dated August 13, 1998
                and is hereby incorporated herein by reference.
  2.7      --   Purchase and Sale Agreement Relating to Partnership Interests
                in Fresh Air Solutions, L.P. by and between ICC Desiccant
                Technologies, Inc. and Wilshap Investments, LLC dated as of
                October 14, 1998 was filed as Exhibit 2.1 to the Company's
                Current Report on Form 8-K dated October 14, 1998 and is
                hereby incorporated herein by reference.
  2.8      --   Agreement and Plan of Merger, dated as of November 12, 1999,
                by and among Changemusic.com, Inc., a Delaware corporation,
                College Media, Inc., a New York corporation, and CMJ.com,
                Inc., a Delaware corporation, which was filed as Exhibit
                2.1 to the Company's Current Report on Form 8-K dated
                November 24, 1999, and is hereby incorporated herein by
                reference.
  2.9      --   Stock Purchase Agreement, dated as of November 12, 1999, by
                and among College Media, Inc., a New York corporation,
                Robert Haber, Joanne Haber, Lee Haber, Diane Turofsky, and
                Rare Medium Group, Inc., which was filed as Exhibit 2.2 to
                the Company's Current Report on Form 8-K dated November 24,
                1999,and is hereby incorporated herein by reference.
  2.10     --   Securities  Purchase  Agreement, dated as of November 12,
                1999, between Rare Medium Group, Inc. and CMJ.com, Inc., a
                Delaware corporation, which was filed as Exhibit 2.3 to the
                Company's Current Report on Form 8-K dated November 24,
                1999, and is hereby incorporated herein by reference.
  3.1      --   Restated  Certificate  of  Incorporation  of Rare Medium
                Group, Inc., was filed as Exhibit 3.1 to the Company's Form
                10-K for the year ended December 31, 1999, and is hereby
                incorporated herein by reference.
  3.2      --   Amended and Restated  By-Laws of Rare Medium  Group, Inc.,
                was filed as Exhibit 3.2 to the Company's Form 10-K for the
                year ended December 31, 1999, and is hereby incorporated
                herein by reference.
  10.1     --   Form of Secured Promissory Note of Rare Medium, Inc. ("Rare
                Medium Note") in the principal amount of $22 million issued
                in connection with the acquisition of Rare Medium, Inc.,
                which was filed as Exhibit C-1 to the Rare Medium Merger
                Agreement, which was filed as Exhibit 2.1 to the Company's
                Form 8-K dated April 15, 1998, and is hereby incorporated
                herein by reference.
  10.2     --   Form of Security Agreement between Rare Medium, Inc. and former
                stockholders of Rare Medium, Inc. in connection with the
                acquisition of Rare Medium, Inc., was filed as Exhibit D to
                the Rare Medium Merger Agreement, which was filed as
                Exhibit 2.1 to the Company's Form 8-K dated April 15, 1998,
                and is hereby incorporated herein by reference.
  10.3     --   Form of Stock Pledge Agreement between ICC Technologies, Inc.
                and the former stockholders of Rare Medium, Inc., in
                connection with the acquisition of Rare Medium, Inc., was
                filed as Exhibit E to the Rare Medium Merger Agreement,
                which was filed as Exhibit 2.1 to the Company's Form 8-K
                dated April 15, 1998, and is hereby incorporated herein by
                reference.
  10.4     --   Form of Non-Founder Agreement between the Company and certain
                former stockholders of Rare Medium, Inc. in connection with
                the acquisition of Rare Medium, Inc., was filed as Exhibit
                M to the Rare Medium Merger Agreement, which was filed as
                Exhibit 2.1 to the Company's Form 8-K dated April 15, 1998,
                and is hereby incorporated herein by reference.
  10.5     --   Form of Guaranty by ICC Technologies, Inc. of the Rare Medium
                Note, which was filed as Exhibit N to the Rare Medium
                Merger Agreement, which was filed as Exhibit 2.1 to the
                Company's Form 8-K dated April 15, 1998, and is hereby
                incorporated herein by reference.
  10.6     --   Employment Agreement between the Company and Glenn S. Meyers,
                dated April 14, 1998, which was filed as Exhibit 10.6 to
                the Company's Annual Report on Form 10-K for the year ended
                December 31, 1998, and is hereby incorporated herein by
                reference.
  10.7     --   Employment Agreement between the Company and John S. Gross,
                dated May 13, 1998, which was filed as Exhibit 10.7 to the
                Company's Annual Report on Form 10-K for the year ended
                December 31, 1998, and is hereby incorporated herein by
                reference.
  10.8     --   Lease dated September 12, 1997 between Forty Four Eighteen
                Joint Venture and Rare Medium, Inc. re: entire sixth floor,
                44-8 West 18th Street thru to 47-53 West 17th Street,
                Manhattan, New York, New York, which was filed as Exhibit
                10.8 to the Company's Annual Report on Form 10-K for the
                year ended December 31, 1998, and is hereby incorporated
                herein by reference.
  10.9     --   Lease dated February 11, 1998 by and between B & G Bailey
                Living Trust u/t/d March 25, 1975 and Steaven Jones and
                DigitalFacades Corporation re: 4081 Redwood Avenue, 1st
                Floor, Los Angeles, California, which was filed as Exhibit
                10.9 to the Company's Annual Report on Form 10-K for the
                year ended December 31, 1998, and is hereby incorporated
                herein by reference.
  10.10    --   The Company's Incentive Stock Option Plan, as amended, which
                was filed as Exhibit 4(g) to the Company's Registration
                Statement on Form S-8, No. 33-85636, filed on October 26,
                1994, and is hereby incorporated herein by reference.
  10.11    --   The  Company's  Nonqualified  Stock  Option Plan as amended
                and restated, which was filed as Exhibit C to the Company's
                Definitive Proxy Statement dated November 18, 1994, for
                Stockholders Meeting held December 15, 1994, and is hereby
                incorporated herein by reference.
  10.12    --   The Company's Equity Plan for Directors is hereby incorporated
                herein by reference from ICC's Definitive Proxy Statement
                dated November 18, 1994, for Stockholders Meeting held
                December 15, 1994.
  10.13    --   The  Company's  1998  Long-Term  Incentive  Plan  was  filed
                as Appendix I to the Company's Definitive Proxy Statement
                dated February 17, 1999, for the Stockholders Meeting held
                March 16, 1998, and is hereby incorporated herein by
                reference.
  10.14    --   Fresh Air Solutions,  L.P.  Limited  Partnership  Agreement,
                dated February, 1998, between ICC Desiccant Technologies,
                Inc., as the sole general partner and a limited partner,
                and Engelhard DT, Inc., a limited partner, which was filed
                as Exhibit 10.32 to the Company's Annual Report on Form
                10-K for the year ended December 31, 1997, and is hereby
                incorporated herein by reference.
  10.15    --   Admission  of  Partner/Amendment  of  Partnership  Agreement
                dated October 14, 1998 between ICC Desiccant Technologies,
                Inc., Wilshap Investments, L.L.C., Engelhard DT, Inc. and
                Fresh Air Solutions, L.P., which was filed as Exhibit 10.15
                to the Company's Annual Report on Form 10-K for the year
                ended December 31, 1998, and is hereby incorporated herein
                by reference.
  10.16    --   Form of  Exchange  Agreement,  dated as of  December  31,
                1998, by and between ICC Technologies, Inc. and each of
                certain beneficial holders of the Rare Medium, Inc.,
                Secured Promissory Note, dated April 15, 1998, which was
                filed as Exhibit 10.1 to the Company's Form 8-K dated
                December 31, 1998, and is hereby incorporated herein by
                reference.
  10.17    --   Securities  Purchase  Agreement,  dated as of  January  28,
                1999, by and among ICC Technologies, Inc. and Capital
                Ventures International ("CVI Securities Purchase
                Agreement") and Exhibits thereto, which were filed as
                Exhibit 10.1 to the Company's Form 8-K dated January 28,
                1999, and are hereby incorporated herein by reference.
  10.18    --   Form of Convertible  Term  Debenture,  dated as of January 28,
                1999, which was filed as Exhibit A to the CVI Securities
                Purchase Agreement, which was filed as Exhibit 10.1 to the
                Company's Form 8-K dated January 28, 1999, and is hereby
                incorporated herein by reference.
  10.19    --   Form of Stock Purchase  Warrant of ICC  Technologies,  Inc.,
                dated as of January 28, 1999, which was filed as Exhibit B
                to the CVI Securities Purchase Agreement, which was filed
                as Exhibit 10.1 to the Company's Form 8-K dated January 28,
                1999, and is hereby incorporated herein by reference.
  10.20    --   Form of  Registration  Rights  Agreement,  dated as of January
                28, 1999, which was filed as Exhibit C to the CVI
                Securities Purchase Agreement, which was filed as Exhibit
                10.1 to the Company's Form 8-K dated January 28, 1999, and
                is hereby incorporated herein by reference.
  10.21    --   Agreement  and Plan of Merger,  dated as of March 5, 1999,
                among Rare Medium, Inc., ICC Technologies, Inc., Rare
                Medium Texas I, Inc., Big Hand, Inc., and The Stockholders
                of Big Hand, Inc., which was filed as Exhibit 10.21 to the
                Company's Annual Report on Form 10-K for the year ended
                December 31, 1998, and is hereby incorporated herein by
                reference.
  10.22    --   The Company's Amended and Restated Equity Plan for Directors,
                which was filed as Exhibit 10.22 to the Company's Annual
                Report on Form 10-K for the year ended December 31, 1998,
                and is hereby incorporated herein by reference.
  10.23    --   Employment Agreement between the Company and Suresh V. Mathews,
                dated January 29, 1999, which was filed as Exhibit 10.23 to
                the Company's Annual Report on Form 10-K for the year ended
                December 31, 1998, and is hereby incorporated herein by
                reference.
  10.24    --   Agreement and Plan of Merger, dated as of May 5, 1999, among
                Rare Medium Group, Inc., Rare Medium Atlanta, Inc.,
                Struthers Martin, Inc., and certain shareholders of
                Struthers Martin, Inc. named herein, which was filed as
                Exhibit 10 to the Company's Current Report on Form 8-K
                dated May 17, 1999, and is hereby incorporated herein by
                reference.
  10.25    --   Amended and Restated Securities Purchase Agreement, dated as
                of June 4, 1999, among Rare Medium Group, Inc., Apollo
                Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P.
                and AIF/RRRR LLC, which was filed as Exhibit 10.1 to the
                Company's Current Report on Form 8-K filed on June 21,
                1999, and is hereby incorporated herein by reference.
  10.26    --   Form of Series 1-A Warrant of Rare  Medium  Group, Inc., which
                was filed as Exhibit 4.3 to the Company's Current Report on
                Form 8-K filed on June 21, 1999, and is hereby incorporated
                herein by reference.
  10.27    --   Form of Series 2-A Warrant of Rare Medium  Group, Inc., which
                was filed as Exhibit 4.5 to the Company's Current Report on
                Form 8-K filed on June 21, 1999, and is hereby incorporated
                herein by reference.
  10.28    --   Pledge, Escrow and Disbursement Agreement, dated as of
                June 4, 1999, among Rare Medium Group, Inc., Apollo
                Investment Fund IV, L.P., and The Chase Manhattan Bank,
                which was filed as Exhibit 10.2 to the Company's Current
                Report on Form 8-K filed on June 21, 1999, and is hereby
                incorporated herein by reference.
  10.29    --   Unit Purchase Agreement  ated as of September 27, 1999 by and
                among Rare Atomic Pop, LLC, a Delaware limited liability
                company, New Valley Corporation, a Delaware corporation,
                and Ant 21 LLC, a Delaware limited liability company, which
                was filed as Exhibit 10 to the Company's Current Report on
                Form 8-K dated October 12, 1999, and is hereby incorporated
                herein by reference.
  10.30    --   Form of Purchase Agreement, dated January 14, 2000, between
                the Company and each of the purchasers in the private
                placement, which was filed as Exhibit 4.1 to the Company's
                Form S-3 filed on February 11, 2000, and is hereby
                incorporated herein by reference.
  10.31    --   Form  of  Stock  Option  Agreement, dated April 15, 1998, by
                and between ICC Technologies, Inc. and Glenn S. Meyers,
                which was filed as Exhibit 4(e) to the Company's Form S-8
                filed on April 23, 1999, and is hereby incorporated herein
                by reference.
  10.32    --   Employment Agreement between the Company and Jeffrey J. Kaplan,
                dated February 23, 2000, was filed as Exhibit 10.32 to the
                Company's Form 10-K for the year ended December 31, 1999,
                and is hereby incorporated herein by reference.
  10.33    --   The Company's Amended and Restated 1998 Long-Term Incentive
                Plan, which was filed as Exhibit 4(d) to the Company's Form
                S-8 filed on November 3, 2000, and is hereby incorporated
                herein by reference.
  21       --   Subsidiaries of the Company are Rare Medium, Inc., a New York
                corporation; Friedland Jacobs Communications, Inc., a
                California corporation; Carlyle Media Group Limited, a
                United Kingdom corporation; ChangeMusic Network, Inc., a
                Delaware corporation; liveuniverse.com Inc., a Delaware
                corporation; Notus Communications, Inc., a Georgia
                corporation; Regards.com, Inc., a New York corporation;
                Greetingland Network, Inc., a Delaware corporation; and
                ePrize, Inc., a Delaware corporation.
  23.1     --   Consent of KPMG LLP, Independent Auditors.
  23.2     --   Independent Auditors' Report on Schedule.
  27       --   Financial Data Schedule.


                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999 and 2000
Consolidated Statements of Operations for the years ended
   December 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the years ended
   December 31, 1998, 1999 and 2000
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
   for the years ended December 31, 1998, 1999 and 2000
Notes to Consolidated Financial Statements


                        INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of Rare Medium Group, Inc.:

We have audited the accompanying consolidated balance sheets of Rare Medium
Group, Inc. and subsidiaries as of December 31, 1999 and 2000 and the
related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rare
Medium Group, Inc. and subsidiaries as of December 31, 1999 and 2000 and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2000, in conformity with
generally accepted accounting principles in the United States of America.

                                             /s/ KPMG LLP

New York, New York
February 14, 2001




                           RARE MEDIUM GROUP, INC
                        CONSOLIDATED BALANCE SHEETS
                         December 31, 1999 and 2000
                      (in thousands except share data)


                                                     1999           2000
                                                     ----           ----
              ASSETS

Current assets:
  Cash and cash equivalents                       $  28,540      $ 113,018
  Short-term investments                                 --         44,465
                                                  ---------      ---------
     Total cash, cash equivalents, and
     short-term investments                          28,540        157,483

  Accounts receivable, net of allowance for
    doubtful accounts of $545 and $3,241             12,601         23,629
  Work in process                                     3,171          7,426
  Prepaid expenses and other current assets           3,608          5,402
                                                  ---------      ---------

     Total current assets                            47,920        193,940

Property and equipment, net                          12,100         28,740
Investments in affiliates                            26,467         48,016
Goodwill and intangibles, net                        72,552         49,061
Other assets                                          1,384          1,411
                                                  ---------      ---------

     Total assets                                 $ 160,423      $ 321,168
                                                  =========      =========

       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                $   7,097      $  10,740
  Accrued liabilities                                 5,759         16,746
  Deferred revenue                                    3,044          3,778
  Current portion of note payable--
    related parties                                     997             --
  Notes payable                                         579            130
                                                  ---------      ---------

     Total current liabilities                       17,476         31,394

Note payable--related parties                           997             --
Other noncurrent liabilities                            735          9,367
                                                  ---------      ---------

     Total liabilities                               19,208         40,761
                                                  ---------      ---------

Series A Convertible Preferred Stock, $.01
  par value, net of unamortized discount
  of $54,558 and $50,162                             36,224         47,621

Stockholders' equity:
  Preferred stock, $.01 par value
    Authorized 10,000,000 shares; issued
    907,820 shares as Series A Convertible
    Preferred Stock at December 31, 1999
    and 977,838 at December 31, 2000                     --             --
  Common stock, $.01 par value
    Authorized 200,000,000 shares; issued
    and outstanding 42,893,357 shares at
    December 31, 1999 and 63,676,074
    shares at December 31, 2000                         429            637
  Additional paid-in capital                        252,074        528,958
  Accumulated other comprehensive
    income (loss)                                       937         (1,127)
  Note receivable from shareholder                     (230)            --
  Accumulated deficit                              (148,048)      (295,511)
  Treasury stock, at cost, 66,227 shares               (171)          (171)
                                                  ---------      ---------

     Total stockholders' equity                     104,991        232,786
                                                  ---------      ---------

        Total liabilities and stockholders'
        equity                                    $ 160,423      $ 321,168
                                                  =========      =========

See accompanying notes to consolidated financial statements.




                          RARE MEDIUM GROUP, INC.
                   CONSOLIDATED STATEMENTS OF OPERATIONS
            For the Years Ended December 31, 1998, 1999 and 2000
                      (in thousands except share data)


<TABLE>
<CAPTION>
                                                     1998              1999             2000
                                                     ----              ----             ----
<S>                                              <C>              <C>              <C>
Revenues                                         $      4,688     $     36,694     $    110,149
Cost of revenues                                        3,610           19,650           66,100
                                                 ------------     ------------     ------------

  Gross profit                                          1,078           17,044           44,049
                                                 ------------     ------------     ------------

Expenses:
  Sales and marketing                                     897            5,450           25,800
  General and administrative                            5,673           32,407           92,002
  Depreciation and amortization                        12,584           25,993           49,360
                                                 ------------     ------------     ------------

     Total expenses                                    19,154           63,850          167,162
                                                 ------------     ------------     ------------

Loss from operations                                  (18,076)         (46,806)        (123,113)
Interest (expense) income, net                         (1,279)          (1,396)          10,248
Loss on investments in affiliates                          --           (1,468)         (11,103)
Other income (expense)                                    --               200             (777)
                                                 ------------     ------------     ------------

Loss before taxes and discontinued
operation                                             (19,355)         (49,470)        (124,745)
  Income tax expense                                      355               --               --
                                                 ------------     ------------     ------------

     Loss before discontinued operation               (19,710)         (49,470)        (124,745)
                                                 ------------     ------------     ------------

Discontinued operation:
  Loss from discontinued operation                     (4,538)              --               --
  Gain on restructuring of Engelhard/ICC               24,257               --               --
  Loss on sale of FAS                                    (628)              --               --
                                                 ------------     ------------     ------------

  Income from discontinued operation                   19,091               --               --
                                                 ------------     ------------     ------------

Net loss                                                 (619)         (49,470)        (124,745)
  Deemed dividend attributable to issuance
    of convertible preferred stock                         --          (29,879)              --
  Cumulative dividends and accretion of
    convertible preferred stock to
    liquidation value                                      --          (13,895)         (22,718)
                                                 ------------     ------------     ------------

Net loss attributable to common stockholders     $       (619)    $    (93,244)    $   (147,463)
                                                 ============     ============     ============

Basic and diluted loss per share:
  Continuing operations                          $      (0.78)    $      (2.55)    $      (2.76)
  Discontinued operation                                 0.76             --               --
                                                 ------------     ------------     ------------

Net loss per share                               $      (0.02)    $      (2.55)    $      (2.76)
                                                 ============     ============     ============

Basic weighted average common shares
  outstanding                                      25,282,002       36,625,457       53,488,951
                                                 ============     ============     ============
</TABLE>


See accompanying notes to consolidated financial statements.




                          RARE MEDIUM GROUP, INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
            For the Years Ended December 31, 1998, 1999 and 2000
                               (in thousands)


<TABLE>
<CAPTION>
                                                        1998           1999            2000
                                                        ----           ----            ----
<S>                                                 <C>             <C>             <C>
Cash flows from operating activities:
  Net loss                                          $    (619)      $ (49,470)      $(124,745)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
    Gain of restructuring of Engelhard                (24,257)             --              --
    Depreciation and amortization                      12,584          25,993          49,360
    Loss on investments in affiliates                     133           1,469          11,103
    Common stock and stock options issued
      for services rendered                               590              30              --
    Investments in affiliates received
      for services rendered                                --              --          (4,442)
    Loss on disposition of FAS                            628              --              --
    Interest expense paid in notes and stock            1,140           2,630              --
    Changes in assets and liabilities, net
      of acquisitions:
      Accounts receivable                                 423          (8,527)        (12,652)
      Work in process                                      --          (2,902)         (4,256)
      Prepaid expenses and other assets                   277          (1,624)         (2,804)
      Deferred revenue                                    309           1,383             734
      Accounts payable, accrued and other
        liabilities                                       109          (1,013)         21,836
                                                    ---------       ---------       ---------

         Net cash used in operating activities         (8,683)        (32,031)        (65,866)
                                                    ---------       ---------       ---------

Cash flows from investing activities:
  Cash paid for acquisitions, net of cash
    acquired, and acquisition costs                   (10,592)         (2,924)           (260)
  Cash paid for investments in affiliates                  --         (27,076)        (27,563)
  Purchases of property and equipment, net               (912)         (8,792)        (24,491)
  Purchase of short term investments, net                  --              --         (44,465)
  Cash received in connection with
    restructuring of Engelhard/ICC                     18,864              --              --
  (Issuance) repayment of note receivable                  --          (1,100)          1,000
  Net cash received in connection with sale
    of majority interest in FAS                           973              --              --
                                                    ---------       ---------       ---------

         Net cash provided by (used in)
         investing activities                           8,333         (39,892)        (95,779)
                                                    ---------       ---------       ---------

Cash flows from financing activities:
  Proceeds from issuance of convertible
    debenture                                              --           6,000              --
  Proceeds from issuance of convertible
    preferred stock, net of costs                          --          82,998              --
  Proceeds from issuance of common stock,
    net of costs                                           --              --         240,923
  Proceeds from issuance of common stock in
    connection with exercise of warrants and
    options                                               118          11,792           6,115
  Repayment of borrowings, net                           (108)         (1,245)           (915)
                                                    ---------       ---------       ---------

         Net cash provided by financing
         activities                                        10          99,545         246,123
                                                    ---------       ---------       ---------

Net (decrease) increase in cash and cash
  equivalents                                            (340)         27,622          84,478
Cash and cash equivalents, beginning of period          1,258             918          28,540
                                                    ---------       ---------       ---------

Cash and cash equivalents, end of period            $     918       $  28,540         113,018
                                                    =========       =========       =========

Supplemental disclosures of cash flow
  information:
  Interest paid                                     $     374       $     609       $      --
                                                    =========       =========       =========

  Income taxes paid                                 $      --       $     355       $      --
                                                    =========       =========       =========
</TABLE>

See accompanying notes to consolidated financial statements.




<TABLE>
<CAPTION>
                                                      RARE MEDIUM GROUP, INC.
                                CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                               For the Years Ended December 31, 1998,
                                                           1999 and 2000
                                                  (in thousands except share data)


                                                         Accumulated                                          Total
                                               Common      Addi-       Other        Note                                 Stock-
                                                Stock      tional     Compre-     Receivable                Treasury     holders'
                                   Preferred  ($.01 par   Paid-In     hensive        From      Accumulated    Stock      Equity
                                     Stock      value)    Capital     Income       Officer        Deficit    at Cost    (Deficit)
                                   ---------  ---------   -------   -----------   ----------   -----------  --------    ---------
<S>                                   <C>        <C>      <C>        <C>             <C>       <C>           <C>        <C>
Balance, January 1, 1998              $--        $215     $ 51,309       $--       $(230)      $ (54,185)     $(171)     $ (3,062)
  Net loss                             --          --           --        --          --            (619)        --          (619)
  Issuance of 5,775,003
    shares of common stock
    for acquired businesses            --          58       19,988        --          --              --         --        20,046
  Issuance of 3,145,709
    shares of common stock
    for conversion of debt
    and accrued interest               --          31       12,717        --          --              --         --        12,748
  Issuance of 55,800 shares
    of common stock through
    exercise of stock
    options and warrants               --           1          118        --          --              --         --           119
  Issuance of 200,000 shares
    of common stock and
    options for services
    rendered                           --           2          588        --          --              --         --           590
                                      ----       ----      -------   -------      ------       ---------     ------     ---------

Balance, December 31, 1998             --         307       84,720        --        (230)        (54,804)      (171)       29,822
  Comprehensive loss:
    Net loss                           --          --           --        --          --         (49,470)        --       (49,470)
    Other comprehensive income:
      Net unrealized gain
        arising during period          --          --           --       937          --              --         --           937
                                                                                                                        ---------
         Total comprehensive loss                                                                                         (48,533)
  Issuance of 4,977,923 shares of
    common stock in connection
    with acquired businesses           --          50       47,918        --          --              --         --        47,968
  Issuance of 3,054,362 shares of
    common stock for conversion
    of debt and accrued interest       --          30       17,109        --          --              --         --        17,139
  Issuance of 2,489 shares of
    common stock for services
    rendered                           --          --           30        --          --              --         --            30
  Issuance of 4,161,755 shares of
    common stock through exercise
    of stock options and warrants      --          42       11,750        --          --              --         --        11,792
  Value of warrants issued in
    connection with the Series A
    preferred stock                    --          --       53,118        --          --              --         --        53,118
  Intrinsic value of beneficial
    conversion feature of Series A
    preferred stock and pay-in-kind    --          --       37,429        --          --              --         --        37,429
  Deemed dividends and accretion
    of preferred stock                 --          --           --        --          --         (43,774)        --       (43,774)
                                      ----      -----     --------   -------      ------       ---------    -------     ---------

Balance, December 31, 1999             --         429      252,074       937        (230)       (148,048)      (171)     104,991
  Comprehensive loss:
    Net loss                           --          --           --        --          --        (124,745)        --      (124,745)
    Other comprehensive loss:
      Net unrealized loss arising
        during period                  --          --           --    (1,871)         --              --         --        (1,871)
      Net foreign exchange loss
       arising during period           --          --           --      (193)         --              --         --          (193)
                                                                                                                        ---------
         Total comprehensive loss                                                                                        (126,809)
  Issuance of 862,721 shares of
    common stock in connection
    with acquired businesses           --           9       16,730        --          --              --         --        16,739
  Issuance of 2,500,000 shares of
    common stock in private
    placement                          --          25       65,690        --          --              --         --        65,715
  Issuance of 3,000,000 shares of
    common stock in public
    offering                           --          30      175,178        --          --              --         --       175,208
  Issuance of 53,160 shares of
    common stock for conversion
    of debt                            --           1        1,993        --          --              --         --         1,994
  Issuance of 14,366,836 shares
    of common stock through
    exercise of stock options
    and warrants                       --         143        5,972        --          --              --         --         6,115
  Forgiveness of note receivable
    from shareholder                   --          --           --        --         230              --         --           230
  Intrinsic value of beneficial
    conversion feature of
    Series A preferred stock and
    pay-in-kind dividends              --          --       11,321        --          --              --         --        11,321
  Deemed dividends and accretion
    of preferred stock                 --          --           --        --          --         (22,718)        --       (22,718)
                                      ----      -----     --------   -------      ------       ---------    -------     ---------

Balance, December 31, 2000            $--        $637     $528,958   $(1,127)        $--       $(295,511)    $(171)     $ 232,786
                                      ====       ====     ========   =======      ======       =========    =======     =========
</TABLE>


See accompanying notes to consolidated financial statements.





                          RARE MEDIUM GROUP, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a) Description of Business and Basis of Presentation

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

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

     The Company restructured its former climate control systems business
in February 1998 and combined it with Rare Medium in April 1998. Since
April 1998, the Company acquired a number of other Internet solutions
companies. In October 1998, the Company disposed of its former climate
control systems operations (see Note 2). In March 1999, the Company changed
its name to "Rare Medium Group, Inc."

     Through its investment business, the Company develops, manages and
operates companies in selected Internet-focused market segments.
Additionally, the Company makes selective venture investments by taking
strategic equity positions in other companies.

     The 1999 and 2000 consolidated financial statements include the
results of the Internet services business and the following majority owned
incubator companies.

   ChangeMusic Network

     ChangeMusic Network (also know as CMJ.com, Inc.) has a combination of
online and offline properties that deliver news, information, content and
services to music consumers, artists and the music industry. The
ChangeMusic Network also operates a business-to-business services group
under the CMJ brand. The business-to-business division offers the music
industry its CMJ New Music Report trade publications, one of the largest
music industry conferences in the world, and a website through which
subscribers can gain access to various exclusive data products. The Company
acquired ChangeMusic Network in November 1999 and owns approximately 74% on
a fully diluted basis.

   ePrize

     ePrize.net is an online sweepstakes, direct marketing and promotions
company that offers end-to-end solutions for customer acquisition and
retention. ePrize uses its patent-pending Pooled eDrawings to help clients
attract new visitors to websites, increase retention and build long-term
online customer relationships. ePrize.net professionals help clients
design, administer and maintain successful online sweepstakes and other
promotional online efforts. Clients of ePrize include Ameritech, the New
York Times, CBS, Chase Bank, and Mercedes-Benz. The Company acquired
ePrize.net in December 1999 and owns approximately 80% on a fully diluted
basis.

   NoticeNow.com

     NoticeNow.com provides clients with private label unified messaging
technology and solutions. Users of NoticeNow.com technology receive a
personal, direct inward dial local telephone number. Users can keep this
number for life, regardless of how many times they move. When someone calls
the telephone number, they can leave a voicemail message or send a fax. The
system will automatically detect whether the call is a voice or fax
connection. The Company acquired NoticeNow.com in January 2000 and owns
approximately 86% on a fully diluted basis.

     All intercompany accounts and transactions are eliminated in
consolidation.




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

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

     (b) Cash and Cash Equivalents

     The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.
Included in cash and cash equivalents is restricted cash amounting to
$748,880 at December 31, 2000 (see Note 15).

      (c)Short-Term Investments

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

     (d) Property and Equipment

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

        Furniture and fixtures...............................    5 to 7

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

     (e) Goodwill and Intangibles

     Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis over
the expected period to be benefited, which is typically three years. The
Company periodically assesses the recoverability of the cost of its
goodwill based upon estimated future profitability of the related operating
entities. The agreements pursuant to which the Company acquired certain
companies (see Note 2) include provisions that could require the Company to
issue additional shares if certain performance targets are met. The value
of any such shares issued will be added to the goodwill related to such
acquisition and amortized over the remainder of that goodwill's useful
life. Accumulated amortization amounted to $36.5 million and $77.3 million
at December 31, 1999 and 2000, respectively.

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





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

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

      (f)Revenue Recognition

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

     Advertising revenues from CMJ publications are recognized at the time
the related publications are sent to the subscriber or are available at
newsstands. Subscription revenue is deferred and recognized as income over
the subscription period. Revenue related to newsstand magazine sales are
recognized at the time that the publications are available at the
newsstands, net of estimated returns.

     Advertising revenues derived from the delivery of advertising
impressions are recognized in the period the impressions are delivered,
provided the collection of the resulting receivable is reasonably assured.

     (g) Investments in Affiliates

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

     (h) Income Taxes

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

     (i) Stock Option Plans

     The Company accounts for its stock option plan in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), which allows entities to
continue to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion
No. 25"), and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method, as defined in SFAS No. 123, had been
applied. The Company has elected to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure required by SFAS No. 123 (see Note
12).

     (j) Use of Estimates

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





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

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

     (k) Net Loss Per Share

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

     For the purposes of computing EPS from continuing operations, the
Company had potentially dilutive common stock equivalents of 909,321,
6,380,103 and 5,846,723 for the years ended December 31, 1998, 1999 and
2000, respectively, made up of stock options. In addition, the Company had
potentially dilutive common stock equivalents of 18,924,862 and 23,742,077
related to the Series A convertible preferred stock, Series 1-A and Series
2-A warrants and other common stock warrants for the years ended December
31, 1999 and 2000, respectively. These common stock equivalents were not
included in the computation of earnings per common share because they were
antidilutive on continuing operations for the periods presented.

     (l) Fair Value of Financial Instruments

     The fair value of cash and cash equivalents, short-term investments,
accounts receivables and notes payable approximate book value. The fair
value of long-term notes payable approximated market value based on the
recent exchange offerings completed in 1998 and 1999 (see Note 8).

     (m) Concentration of Credit Risk, Major Customers and Geographic
Information

     Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents,
short-term investments and accounts receivables. Cash and cash equivalents
and short-term investments consist of deposits, money market funds, and
commercial paper placed with various high credit quality financial
institutions.

     Concentration of credit risk with respect to receivables is limited
due to the geographically diverse customer base. The Company routinely
assesses the financial strength of its customers and does not require
collateral or other security to support customer receivables. Credit losses
are provided for in the consolidated financial statements in the form of an
allowance for doubtful accounts. There are two customers whose individual
balance accounts for more than 10% of the net receivable balance at
December 31, 2000. Combined, these two customers accounted for
approximately 31% of net receivables at December 31, 2000.

     The Company generates revenue principally from customers located in
North America, many of which are large multi-national organizations. No
customer accounted for more than 10% of revenues in 1998, 1999 or 2000.

     (n) Internal-Use Software

     The Company adopted the American Institute of Certified Public
Accountants Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1")
effective January 1, 1999. SOP 98-1 provides guidance for the
capitalization of certain costs incurred in the development of internal-use
software. In compliance with SOP 98-1, the Company expenses costs incurred
in the preliminary project stage and, thereafter, capitalizes costs
incurred in developing or obtaining internal-use software. Certain costs,
such as maintenance and training, are expensed as incurred. The adoption of
SOP 98-1 did not have a material impact on the Company's results of
operations.




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

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

     (o) Recently Issued Accounting Standards

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

     In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes certain of the SEC staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company adopted SAB No. 101 during
2000 without a material effect on the Company's results of operations.

     In March 2000, the Financial Accounting Standards Board issued FIN No.
44, "Accounting For Certain Transactions Involving Stock Compensation." FIN
No. 44 provides guidance for applying APB Opinion No. 25, "Accounting For
Stock Issued to Employees." With certain exceptions, FIN No. 44 applies
prospectively to new awards, exchanges of awards in a business combination,
modifications to outstanding awards and changes in grantee status on or
after July 1, 2000. The implementation of FIN No. 44 did not have a
material effect on the Company's results of operations.

     (p) Reclassifications

     Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.

(2)  BUSINESS TRANSACTIONS

     (a) Acquisitions

     In April 1998, the Company acquired all of the issued and outstanding
shares of capital stock of Rare Medium. As consideration for the purchase
of Rare Medium, the Company issued 4,269,000 shares of Common Stock valued
at approximately $14.0 million, paid $10.0 million in cash and issued a
secured promissory note in the principal amount of $22.2 million (see Note
8). The Company has accounted for this transaction under the purchase
method of accounting. The aggregate purchase price, including acquisition
costs, exceeded the fair value of Rare Medium's net assets by $45.7
million. This amount has been allocated to goodwill and is being amortized
using the straight line method over three years. Included in the
accompanying statements of operations are the results of Rare Medium since
the date of acquisition.

     In addition to the acquisition of Rare Medium, during 1998, 1999, and
2000, the Company acquired 100% of the following Internet services
businesses. The Company has accounted for these transactions under the
purchase method of accounting. The portion of the aggregate purchase
prices, including acquisition costs, that exceeded the fair value of the
net assets acquired has been allocated to goodwill and is being amortized
using the straight line method over three years. The results of operations
for these acquisitions have been included in the accompanying statements of
operations since the respective dates of acquisition.




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

(2)  BUSINESS TRANSACTIONS--(CONTINUED)

<TABLE>
<CAPTION>
                                          DATE OF             NUMBER OF       PURCHASE         GROSS
         ACQUISITION                     ACQUISITION        SHARES ISSUED       PRICE        GOODWILL
         -----------                     -----------        -------------     --------       --------
                                                                                   (IN THOUSANDS)
<S>                                       <C>               <C>                 <C>           <C>
1998
I/O 360                                   August 1998          786,559          $3,000        $3,097
Digital Facades                           August 1998          719,144          $3,000        $3,121

1999
Hype!, Inc.                               March 1999           270,992          $1,219        $1,102
FS3, Inc.                                 April 1999           768,975          $3,460        $3,496
Big Hand, Inc.                            April 1999         1,460,603          $6,573        $6,447
Struthers Martin, Inc.                    May 1999             406,092          $6,000        $4,518
Globallink Communications, Inc.           June 1999            445,470          $5,511        $5,634
Fire Engine Red, Inc.                     July 1999            333,333          $4,000        $4,088
Atension, Inc.                            August 1999          160,450          $1,415        $1,432
Evit Caretni Interactive, Inc.            December 1999        256,824          $8,328        $9,053
Carlyle Media Group Limited               December 1999         60,153          $2,230        $3,639

2000
Friedland Jacobs Communications, Inc.     June 2000            800,745         $14,794       $14,776
</TABLE>


     In connection with certain acquisitions, the former shareholders have
agreed to indemnify the Company for any losses resulting from a breach of,
among other things, their respective representations, warranties and
covenants. To secure the indemnification obligations of these shareholders
thereunder, 600,430 shares of the Company's common stock delivered to these
shareholders, included as part of the consideration, remain in escrow at
December 31, 2000, and the liability of these shareholders under such
indemnification obligations is expressly limited to the value of such
shares held in escrow. During the year ended December 31, 2000, the Company
issued 5,399 shares of its common stock as additional consideration for
acquisitions made during 1999.

     In November 1999, the Company acquired 25% of the common shares, on a
fully diluted basis, of College Media, Inc. ("CMJ"). Total consideration
amounted to approximately $4.9 million representing $1.0 million in cash
and 180,860 shares of the Company's common stock. At such time, the Company
also agreed to merge its 96% owned subsidiary, Changemusic.com with CMJ to
form ChangeMusic Network, Inc. (ChangeMusic). Additionally, the Company
acquired 1,000 shares of Series A Convertible Preferred Stock, par value
$0.01 per share of ChangeMusic ("ChangeMusic Preferred Stock") and a
warrant to purchase up to an additional 1,000 shares of ChangeMusic
Preferred Stock at a price of $8,400 per share. The consideration price for
the ChangeMusic Preferred Stock and warrant was $7.0 million in cash. As a
result of the Company owning approximately 62% of the common stock
outstanding of ChangeMusic, 74% assuming the conversion of the ChangeMusic
Preferred Stock and exercise of the warrant, the statements of financial
position and the results of operations (from November 1999), have been
consolidated. Total goodwill resulting from these transactions representing
(a) the cash and common stock of the Company, (b) the contribution of the
Company's interest in ChangeMusic and (c) the net liabilities of CMJ and
acquisition costs, amounted to $10.1 million. The book value of the
Company's interest in ChangeMusic and CMJ approximates the value of the
Company's effective ownership in ChangeMusic. No amounts have been recorded
with respect to minority interest receivable, as there is no future funding
requirement by the minority interest shareholder. The Company has accounted
for this transaction under the purchase method of accounting. Goodwill is
being amortized using the straight-line method over three years.

     Pro Forma Financial Information (unaudited)

     The following unaudited pro forma information is presented as if the
Company had completed the above 1999 and 2000 acquisitions as of January 1,
1999. The pro forma information is not necessarily indicative of what the
results of operations would have been had the acquisitions taken place at
those dates or of the future results of operations.


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

(2)  BUSINESS TRANSACTIONS--(CONTINUED)

                                                  1999              2000
                                                  ----              ----
                                                     (in thousands)
Revenues                                        $ 59,097           $113,639
                                                ========           ========

Net loss                                        $(65,694)         $(126,407)
                                                =========         ==========

Net loss attributable to common
   stockholders--basic and diluted              $  (2.81)         $   (2.78)
                                                ========          =========

Also during 1999, the Company completed the acquisition of four other
incubator companies. The combined consideration consisted of cash and
634,171 shares of common stock amounting to approximately $2.2 million and
$5.4 million, respectively. The Company has accounted for these
transactions under the purchase method of accounting. Amounts allocated to
intangible assets including goodwill was approximately $8.2 million and are
being amortized over three years. The results of these acquisitions have
been included in the accompanying statements of operations since the
respective dates of acquisition. The pro forma effects on the Company's
statements of operations are not material.

In January 2000, the Company completed the acquisition of Notus
Communication, Inc. ("Notus"), a privately held Internet communications
company based in Atlanta that provides business to business Internet
unified messaging technology solutions. In connection with this
acquisition, the Company issued 56,577 shares of its common stock, valued
at approximately $1.7 million, and an approximate 12% interest in its
majority owned subsidiary iFace.com, Inc. The Company's effective ownership
in Notus, which was renamed NoticeNow.com, Inc., is 85.5%. The Company has
accounted for this transaction under the purchase method of accounting. The
aggregate purchase price, including acquisition costs, exceeded the fair
value of the net assets acquired by approximately $2.0 million. This amount
has been allocated to goodwill and is being amortized using the
straight-line method over three years. Included in the accompanying
statements of operations are the results of NoticeNow.com since the date of
acquisition. The pro forma effects on the Company's statements of
operations are not material.

      (b) Disposal of Engelhard/ICC Partnership and Fresh Air Solutions

     Engelhard/ICC ("E/ICC"), a partnership between ICC and Engelhard
Corporation ("Engelhard"), was formed in February 1994 to design,
manufacture and sell desiccant climate control systems and desiccant and
heat-exchange wheel components. ICC and Engelhard each owned a 50% interest
in E/ICC. On February 27, 1998, ICC and Engelhard effected the
restructuring of E/ICC by dividing E/ICC into two separate operating
limited partnerships: Fresh Air Solutions L.P. ("FAS") to manufacture and
market active climate control systems; and Engelhard Hexcore, L.P. to
manufacture and market the heat exchange and desiccant coated wheel
components. This transaction included the exchange by ICC and Engelhard of
certain of their respective interests in each partnership and the payment
by Engelhard to ICC of approximately $18.6 million. After the
restructuring, the Company owned 90% of FAS and 20% of Engelhard Hexcore,
L.P. and Engelhard owned 80% of Engelhard Hexcore, L.P. and 10% of FAS. The
Company recognized a gain of approximately $24.3 million on this
transaction, including approximately $7.0 million relating to the
liabilities assumed by the acquirer.

     In October 1998, the Company sold its 1% general partnership and its
56% limited partnership interest in FAS for approximately $1.5 million of
which $1.1 million was paid in cash and $375,000 by delivery of an
unsecured promissory note. The Company incurred a loss of $627,587 on this
transaction.

     As of December 31, 1998, the Company had written down its investment
including the related note to $0, as a result of the current financial
position and recurring losses of FAS. The Company has no future funding
responsibilities with respect to FAS and has a 36% passive limited
partnership interest with no voting rights, and therefore, is accounting
for the remaining investment in FAS under the cost method. In October 1999,
Engelhard Corporation, FAS and the Company entered into an agreement by
which Engelhard Corporation advanced cash and credit support to FAS. Under
the terms of the agreement, the Company's interest in FAS could be diluted
to 13% if all monies are advanced. As a result of the cash support to FAS,
the Company received $200,000 as a partial payment on the promissory note.




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

(2)  BUSINESS TRANSACTIONS--(CONTINUED)

     As a result of these transactions, the Company has recorded the
operating results, gain on restructuring, and loss on disposal of FAS as
discontinued operations.

(3)  SEGMENT INFORMATION

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


<TABLE>
<CAPTION>
                                                     1998          1999          2000
                                                     ----          ----          ----
<S>                                                  <C>          <C>          <C>
Revenues:
   Internet services                                 $4,688       $36,870      $121,002
   Investment                                            --         1,554         7,825
   Internet services provided to investments             --        (1,730)      (18,678)
                                                         --       -------      --------
                                                     $4,688       $36,694      $110,149
                                                     ======       =======      ========

Loss before interest, taxes, depreciation
   and amortization:
   Internet services                                $(1,902)      $(6,545)      $(4,665)
   Investment and corporate                          (3,590)      (14,268)      (69,088)
                                                     -------      --------      --------

                                                    $(5,492)     $(20,813)     $(73,753)
                                                    ========     =========     =========

Loss before interest, taxes, depreciation
  and amortization                                  $(5,492)     $(20,813)     $(73,753)
Depreciation and amortization                       (12,584)      (25,993)      (49,360)
Interest income (expense), net                       (1,279)       (1,396)       10,248
Loss on investments in affiliates                        --        (1,468)      (11,103)
Other income (expense)                                 (355)          200          (777)
                                                       -----           ---       -------

   Loss before discontinued operation               (19,710)      (49,470)     (124,745)
Discontinued operation                               19,091            --            --
                                                     ------            --            --

      Net loss                                        $(619)     $(49,470)    $(124,745)
                                                     ======      =========    ==========

Total assets:
   Internet services                                $44,743       $31,047       $65,016
   Investment and corporate                              --       129,376       256,152
                                                         --       -------       -------

                                                    $44,743      $160,423      $321,168
                                                    =======      ========      ========
</TABLE>


 (4) INVESTMENTS IN AFFILIATES

     The following is a summary of the carrying value of investments held
at December 31 (in thousands):

                                        1999               2000
                                        ----               ----
         Cost investments              $20,876           $37,501
         Marketable securities           2,060             7,791
         Equity investments              3,531             2,724
                                         -----             -----

                                       $26,467           $48,016
                                       =======           =======





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

(4)  INVESTMENTS IN AFFILIATES--(CONTINUED)

     The Company classifies its investments in marketable equity securities
as available-for-sale. Available-for-sale securities are carried at fair
value, with the unrealized gains and losses reported as a separate
component of stockholders' equity. The cost of marketable securities was
less than fair value by $936,599 at December 31, 1999, and was greater than
fair value by $933,940 at December 31, 2000.

     The Company recognized losses of approximately $1.1 million and $3.3
million for the years ended December 31, 1999 and 2000, respectively,
representing its proportionate share of the losses of investee companies,
for those investments carried under the equity method. The Company also
recognized losses of $416,667 and approximately $2.4 million for the years
ended December 31, 1999 and 2000, respectively, representing the
amortization of the net excess of investment over its proportionate share
of the affiliates net assets. Amortization is generally recorded on a
straight-line basis over three years. Also, the Company recorded a loss of
approximately $5.4 million during 2000 for the impairment of investments in
affiliates. During 1999 and 2000, the Company recognized revenue totaling
approximately $3.5 million and $11.9 million, respectively, for services
provided to affiliates. Additionally, during 2000, affiliates issued
securities valued at approximately $7.2 million to the Company as payment
for approximately $2.8 million and $4.4 million of services performed in
the years ended December 31, 1999 and 2000, respectively.

(5)  SHORT-TERM INVESTMENTS

     The following is a summary of the amortized cost, which approximates
fair value, of securities held to maturity at December 31, 2000 (in
thousands):

   U.S. corporate debt obligations                 $21,923
   Federal agencies obligations                     18,999
   Certificates of deposit (see Note 15)             3,543
                                                     -----

   Total short-term investments                    $44,465
                                                   =======

(6)  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at December 31 (in
thousands):

                                                1999              2000
                                                ----              ----
   Computer equipment and software            $12,234           $30,168
   Furniture and fixtures                       2,259             4,937
   Leasehold improvements                       1,648             6,053
                                                -----             -----

                                               16,141            41,158
   Less accumulated depreciation
     and amortization                           4,041            12,418
                                                -----            ------

   Property and equipment, net                $12,100           $28,740
                                              =======           =======

(7)  ACCRUED LIABILITIES

     Accrued liabilities consists of the following at December 31 (in
thousands):

                                              1999              2000
                                              ----              ----
Accrued liabilities:
   Accrued compensation                      $1,065            $4,015
   Accrued professional fees                  2,198             2,746
   Other accrued liabilities                  2,496             9,985
                                              -----             -----

   Total accrued liabilities                 $5,759           $16,746
                                             ======           =======





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

(8)  NOTES PAYABLE - RELATED PARTIES

     In connection with the Company's acquisition of Rare Medium on April
15, 1998, a secured promissory note (the "Note") was issued to the former
shareholders of Rare Medium in the original aggregate principal amount of
$22.2 million. The principal amount of the Note was payable in two equal
annual installments on the second and third anniversary of the date of
issuance, interest accrued at the prime rate and was payable semi-annually
in the form of cash or shares of the Company's common stock at the election
of the Company subject to certain limitations. The first interest payment
due on October 1, 1998 was satisfied by delivery of a combination of common
stock of the Company and an unsecured promissory note of Rare Medium (the
"Interest Note"). The Note and Interest Note were secured by all of the
assets of Rare Medium. In addition, the Company had guaranteed the
obligations of Rare Medium under the Note.

     In 1999 and 2000, the Company issued 1,431,756 shares and 53,160
shares, respectively, to certain Noteholders in exchange for their
beneficial interest in approximately $8.4 million and $2.0 million,
respectively, of the Note.

     In 1999, $1.5 million of non-cash interest expense was recognized
related to this conversion to the extent the fair value of the stock on the
date of conversion exceeded the conversion price. In February 2000, the
remaining principal balance was converted into common stock at fair value.

(9)  STRATEGIC ALLIANCE

     In 2000, the Company entered into a strategic alliance agreement, as
amended, with a software company (the "Partner") to assist in the
development, delivery and training of the Company's LiveMarket e-commerce
solutions built utilizing the Partner's technology. Rare CSP, Inc., d/b/a
LiveMarket, Inc., a wholly owned subsidiary of the Company, develops and
deploys solutions that facilitate and manage electronic transactions
between businesses and enables businesses to establish their own trading
network with other businesses or consumers. Under the terms of the
alliance, the Partner will provide the Company with refundable advances of
approximately $17.1 million, on an interest free basis, to be paid to the
Company over the term of the two-year agreement. The amount and timing of
the repayment of the advances may be adjusted based on LiveMarket's
achievment of certain milestones in accordance with the terms of the
agreement. The earliest repayment will be June 30, 2002 and the total
repayments will not be greater than the cumulative amounts advanced. At
December 31, 2000, $8.6 million payable under this agreement, representing
the total amount advanced by the Partner, is included in non-current
liabilities. The Company has not reflected any adjustments that may occur
as a result of LiveMarket's achievement of milestones.

     The Partner will also make non-refundable advances of approximately
$1.6 million to market the LiveMarket solutions and provide other services.
At the time the Company incurs the related expenditure, these advances will
be offset directly against the Company's expenses in the statement of
operations. As of December 31, 2000, $1.3 million has been advanced, of
which approximately $745,000 of unused advances is included in accrued
liabilities on the accompanying balance sheet.

(10) SHAREHOLDERS' EQUITY

     Common Stock Transactions

     In 1999 and 2000, the Company issued 4,977,923 and 862,721 shares,
respectively, of common stock as consideration for the purchase of Internet
services business and incubator acquisitions. The fair value of the common
stock was determined based on the average trading price of the Company's
common stock at the time of the respective acquisitions.

     In 1998, 1999 and 2000, the Company issued 2,951,814 shares, 1,431,756
shares and 53,160 shares, respectively, of common stock to certain
beneficial holders of the Note held by the former shareholders of Rare
Medium in exchange for the principal amount of the Note and accrued
interest. Additionally, 193,895 shares and 34,144 shares of common stock
were issued with respect to the interest payment made in October 1998 and
April 1999, respectively. In 1998, the fair value of the common stock was
determined based on a value of the average trading price of the Company's
common stock at that time. In 1999, $1.5 million of non-cash interest
expense was recognized to the extent that the fair value of the stock on
the date of conversion exceeded the conversion price.





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

(10) SHAREHOLDERS' EQUITY--(CONTINUED)

     Pursuant to the terms of a Securities Purchase Agreement, dated as of
January 28, 1999, the Company agreed to sell, in two tranches, 8%
Convertible Term Debentures of the Company in the aggregate principal
amount of $6.0 million (the "Convertible Debentures") and five year
warrants to purchase an aggregate of 693,642 shares of common stock at an
exercise price of $5.27 per share, subject to reset (the "Warrants"). The
first tranche of the transaction closed effective January 28, 1999, at
which time the Company sold the Convertible Debentures in the aggregate
principal amount of $3.5 million and Warrants to purchase 404,625 shares of
common stock. In 1999, $1.1 million of non-cash interest expense was
recognized representing the accretion of the discount resulting from the
Convertible Debentures' beneficial conversion feature. On June 4, 1999, in
association with the issuance of the redeemable preferred stock (see Note
11), the Company sold the remaining $2.5 million of Convertible Debentures
and Warrants. The Convertible Debentures and Warrants were then immediately
converted into 1,588,462 shares of common stock.

     On January 14, 2000, the Company sold 2,500,000 shares of its common
stock for gross proceeds of $70.1 million (net proceeds of $65.7 million)
in a private transaction to a group of mutual funds managed by Putnam
Investments and Franklin Resources, Inc. On April 18, 2000, the Company
filed a registration statement with the SEC to register the resale of such
shares as required by the purchase agreement executed in connection with
such private transaction.

     On March 29, 2000, the Company sold 3,000,000 shares of its common
stock for gross proceeds of $186.0 million (net proceeds of $175.2 million)
in a public offering underwritten by Credit Suisse First Boston
Corporation, Deutsche Bank Securities, Inc. and FleetBoston Robertson
Stephens, Inc.

     On August 22, 2000, the Company issued 12,709,499 shares of common
stock to holders of the Company's Series 1-A Warrants as a result of a
cashless exercise of all Series 1-A Warrants outstanding at that time. The
effective exercise price at the time of exercise was $0.01 per share (see
Note 11). The Company withheld 9,986 shares of common stock as payment of
the aggregate exercise price.

 (11)     REDEEMABLE PREFERRED STOCK

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

     Under the terms of the securities purchase agreement with the
Preferred Stockholders, at the Company's 1999 Annual Meeting of its
stockholders held on August 19, 1999, the holders of common stock approved
the conversion (the "Apollo Conversion") of all of the Series B Preferred
Stock, Series 1-B Warrants and Series 2-B Warrants, including such
additional Series B Securities that have been issued as dividends, into
like amounts of Series A Preferred Stock, Series 1-A Warrants and Series
2-A Warrants, respectively. Pursuant to the approval, all Series B
preferred stock and related warrants were converted into Series A preferred
stock and warrants. The Series A securities are convertible into or
exercisable for voting common stock whereas the Series B securities were
convertible into or exercisable for non-voting common stock.

     The Series A Preferred Stock are subject to mandatory and optional
redemption. On June 30, 2012, the Company will be required to redeem all
Series A Preferred Stock plus any accrued and unpaid dividends. At the
option of the Company, the Series A Preferred Stock can be redeemed after
June 30, 2002 provided that the trading price of the Company's common stock
for each of the preceding 30 trading days is greater than $12.00 per share,
or after June 30, 2004 at a price of 103% of the face value of the Series A
Preferred Stock plus any accrued and unpaid dividends. In the event of a
change of control, as defined, at the option of the holders of the majority
of the then outstanding shares of the Series A Preferred Stock, the Company
is required to redeem all or any number of such holders' shares of Series A
Preferred Stock plus any accrued and unpaid dividends. The Series A
Preferred Stock are convertible into common stock at a conversion price of
$7.00, subject to adjustment under certain anti-dilution provisions as
defined.




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

(11)  REDEEMABLE PREFERRED STOCK--(CONTINUED)

     The preferred cumulative quarterly dividends are based on a rate of
7.5% per annum for the first three years and 4.65% thereafter. For the
first three years, dividends are payable in additional shares of Series A
securities. During the next two years, at the option of the holder,
dividends are payable in additional shares of Series A securities or in
cash. Dividends paid thereafter are payable in cash.

     Each Series 1-A warrant is exercisable for 13.5 shares of Company
common stock and each Series 2-A warrant is exercisable for one share of
Company common stock. The Series 1-A and Series 2-A warrants are
exercisable at any time and expire ten years from the date issued. The
exercise price of the Series 1-A warrants is dependent on the trading price
of the Company's common stock. The exercise price ranges from $0.01, if the
trading price is equal to or greater than $7.00, to $4.20 if the trading
price is equal to or less than $4.00; the exercise price of the Series 2-A
warrants is $7.00. These exercise prices are subject to adjustment under
certain anti-dilution provisions as defined. The holders of the Series 1-A
and Series 2-A warrants have the option to pay the exercise price of the
warrant in cash, Company common stock previously held, or instructing the
Company to withhold a number of Company shares with an aggregate fair value
equal to the aggregate exercise price.

     As of December 31, 2000, assuming that affiliates of Apollo convert
all their shares of Series A convertible preferred stock and exercise all
their Series 1-A and Series 2-A warrants, they would own approximately 37%
of our outstanding common stock.

     The Company ascribed value to the Series A securities based on their
relative fair value. As such, $29.9 million has been allocated to Series A
Preferred Stock and the remaining $57.1 million has been allocated to the
related Series 1-A and Series 2-A warrants. This transaction has been
accounted for in accordance with FASB Emerging Issues Task Force (EITF)
98-5 "Accounting for Convertible Securities with Beneficial Conversion
Features." As a result of the holders' ability to convert immediately,
$29.9 million has been reflected as a dividend in determining the net loss
attributable to common stockholders. Additional dividends have been
recorded, representing the accrual of the annual 7.5% pay-in-kind dividend
and the accretion of the carrying value up to the face redemption over 13
years.

(12) EMPLOYEE COMPENSATION PLANS

     The Company provides incentive and nonqualified stock option plans for
directors, officers, and key employees of the Company and others. The
Company has reserved a total of 28,600,000 shares of authorized common
stock for issuance under the following plans: the Long Term Incentive Plan,
Nonqualified Stock Option Plan and Equity Plan for Directors. The number of
options to be granted and the option prices are determined by the
Compensation Committee of the Board of Directors in accordance with the
terms of the plans. Options generally expire five to ten years after the
date of grant.

     During 1998, the Board of Directors approved the 1998 Long-Term
Incentive Plan, ("Stock Incentive Plan") under which "non-qualified" stock
options ("NQSOs") to acquire shares of common stock may be granted to
non-employee directors and consultants of the Company, and "incentive"
stock options ("ISOs") to acquire shares of common stock may be granted to
employees. The Stock Incentive Plan also provides for the grant of stock
appreciation rights ("SARs"), shares of restricted stock, deferred stock
awards, dividend equivalents, and other stock-based awards to the Company's
employees, directors, and consultants.

     The Stock Incentive Plan provides for the issuance of up to a maximum
of 23,000,000 shares of common stock and is currently administered by the
Compensation Committee of the Board of Directors. Under the Stock Incentive
Plan, the option price of any ISO may not be less than the fair market
value of a share of common stock on the date on which the option is
granted. The option price of an NQSO may be less than the fair market value
on the date the NQSO is granted if the Board of Directors so determines. An
ISO may not be granted to a "ten percent stockholder" (as such term is
defined in section 422A of the Internal Revenue Code) unless the exercise
price is at least 110% of the fair market value of the common stock and the
term of the option may not exceed five years from the date of grant. Common
stock subject to a restricted stock purchase or a bonus agreement is
transferable only as provided in such agreement. The maximum term of each
stock option granted to persons other than ten percent stockholders is ten
years from the date of grant.




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

(12) EMPLOYEE COMPENSATION PLANS--(CONTINUED)

     Under the Nonqualified Stock Option Plan, which provides for the
issuance of up to 5,100,000 shares, the option price as determined by the
Compensation Committee may be greater or less than the fair market value of
the common stock as of the date of the grant, and the options are generally
exercisable for three to five years subsequent to the grant date. The
Nonqualified Stock Option Plan expired on July 18, 2000, and thereafter, no
new options can be granted under the plan.

     The Company also authorized in 1994 the Equity Plan For Directors. The
Equity Plan For Directors is a fixed stock option plan whereby vesting is
dependent upon the performance of the market price of the common stock.
Under the Equity Plan For Directors, options may be granted for the
purchase of up to 500,000 shares of common stock to outside directors.
Under the terms of the Equity Plan For Directors, the option price cannot
be less than 100% of the fair market value of the common stock on the date
of the grant.

     The Board of Directors approved a plan that allows the Compensation
Committee to incentivize employees by allocating to them up to 20% of any
profit that might be realized when and if our investments in affiliates and
incubator companies become liquid, as defined, subject to vesting and other
requirements. Upon a liquidation event, as defined the Company will
recognize a compensation charge for that portion of the profit on the
investment that is allocated to the employees. The Company will have the
right to pay such amount to the employees either in cash, shares of the
Company's common stock, or a combination thereof.

     In August 2000, employee holders of stock options with exercise prices
at or above $30.00 per share were allowed to exchange either all or 50% of
their existing stock options for an agreement by the Company to issue new
options. The Company's obligation to issue new stock options is contingent
upon each participant's continued full-time employment with the Company.
The exercise price of the new options will be based on the fair market
value of the underlying common stock on March 12, 2001, the date of
issuance of the new options. As of December 31, 2000, the Company has an
obligation to issue 1,665,000 million shares to employees who have elected
to participate under this agreement. These transactions did not result in the
recognition of compensation expense.

     The per share weighted average fair value of stock options granted
during 1998, 1999 and 2000 was $1.96, $6.57 and $18.52, respectively, on
the date of grant using the Black-Scholes option pricing model with the
following assumptions: (1) a risk free interest rate ranging from 4.5% to
5.6% in 1998, 4.7% to 6.5% in 1999 and 5.8% to 6.5% in 2000, (2) an
expected life of six years in 1998, and five years in 1999 and four years
in 2000, (3) volatility of approximately 91.5% in 1998, 96.3% in 1999 and
139% in 2000, and (4) an annual dividend yield of 0% for all years.

     The Company applies the provisions of APB Opinion No. 25 in accounting
for its Stock Incentive Plan and, accordingly, no cost has been recognized
for its stock options in the financial statements since the exercise price
was equal to or greater than the fair market value at the date of grant.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below (in
thousands except share data):

                                    1998         1999            2000
                                    ----         ----            ----
Net loss:
   As Reported                     $  619       $49,470        $124,745
   Pro Forma                       $6,054       $63,927        $174,641

Net loss attributable to
   common stockholders:
   As Reported                     $ 0.02       $  2.55        $   2.76
   Pro Forma                       $ 0.24       $  2.94        $   3.69

     Pro forma net loss reflects only options granted since January 1,
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net loss
amounts because compensation cost is reflected over the various options'
vesting period and compensation cost for options granted prior to January
1, 1995 is not considered.




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

(12) EMPLOYEE COMPENSATION PLANS--(CONTINUED)

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

                                        Weighted
                                         Average             Number of
                                     Exercise Prices           Shares
                                     ---------------         ---------
Outstanding at January 1, 1998            $3.81               3,271,480
   Granted                                 2.63               6,255,785
   Forfeited                               5.02              (1,669,293)
   Exercised                               2.12                 (55,800)
                                                               --------

Outstanding at December 31, 1998           2.61               7,802,172
   Granted                                11.37               9,705,999
   Forfeited                               4.26                (597,324)
   Exercised                               2.89              (3,237,955)
                                                            -----------

Outstanding at December 31, 1999           8.80              13,672,892
   Granted                                26.35              11,699,549
   Forfeited                              30.90              (7,399,282)
   Exercised                               3.93              (1,581,666)
                                                            -----------

Outstanding at December 31, 2000          11.82              16,391,493
                                                             ==========

     The following table summarizes weighted-average option price
information:

<TABLE>
<CAPTION>
                                  Number         Weighted                          Number
                               Outstanding at     Average        Weighted       Exercisable at        Weighted
                                December 31,     Remaining       Average         December 31,         Average
Range of Exercise Prices          2000             Life        Exercise Price       2000          Exercise Price
------------------------          ----             ----        --------------       ----          --------------
<S>                             <C>                 <C>            <C>             <C>                  <C>
    $1.02 - $4.77               3,654,168           5.1            $2.83           1,484,454            $2.52
    $5.00 - $8.25               4,002,175           4.7             6.51           1,168,941             6.42
    $8.56 - $14.69              3,362,305           4.5            11.18             789,274            11.17
    $14.75 - $21.06             4,096,177           4.7            18.52             321,120            16.98
    $23.31 - $68.50             1,276,668           4.4            34.41             137,511            30.18
                                ---------                                          ---------
                               16,391,493           4.7           $11.82           3,901,300            $7.60
                               ==========                                          =========
</TABLE>

(13) INCOME TAXES

     The difference between the statutory federal income tax rate and the
Company's effective tax rate for the years ended December 31, 1999 and 2000
is principally due to the Company incurring net operating losses for which
no tax benefit was recorded and in 1998 alternative minimum taxes of
$355,000.

     For Federal income tax purposes, the Company has unused net operating
loss carryforwards ("NOL") of approximately $135.0 million expiring in 2008
through 2020, including $16.0 million of NOL relating to ChangeMusic (a
separate return for tax purposes) and various foreign subsidiaries. As a
result of various recent equity transactions, management believes the
Company experienced an "ownership change" as defined by Section 382 of the
Internal Revenue Code in 1999. Accordingly, the utilization of
approximately $35.0 million of net operating loss carryforwards would be
subject to an annual limitation in offsetting future taxable income.





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

(13) INCOME TAXES--(CONTINUED)

     The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets are as follows (in thousands):

                                                    December 31
                                                    -----------
                                                 1999               2000
                                                 ----               ----
Net operating loss carryforwards              $  26,780         $  51,162
Alternative minimum tax carryforwards               355               355
Other assets                                        247             5,977
Other accrued expenses                              294             1,659
                                                    ---             -----

       Total gross deferred tax assets           27,676            59,153
Less valuation allowance                        (27,676)          (59,153)
                                              ---------         ---------

       Net deferred tax assets                $      --         $     --
                                              =========         ========

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

     Due to the Company's operating losses, there is uncertainty
surrounding whether the Company will ultimately realize its deferred tax
assets. Accordingly, these assets have been fully reserved. During 1999 and
2000, the valuation allowance increased by $14.9 million and $31.5 million,
respectively. Of the total valuation allowance of $59.2 million,
subsequently recognized tax benefits, if any, in the amount of $6.5 million
will be applied directly to contributed capital. This amount relates to the
tax effect of employee stock option deductions included in the Company's
net operating loss carryforward.

 (14) RELATED PARTY TRANSACTIONS

     In July 1997, the Company loaned $230,467 to its then Chairman in
connection with exercise of an option to acquire 82,753 shares of Common
Stock. The loan was in the form of a full recourse note, which matured in
five years. Such note bore interest equal to the prime rate, with such rate
adjusted to the current prime rate at each anniversary date. The note was
forgiven during 2000.

(15) COMMITMENTS AND CONTINGENCIES

     Leases

     The Company has non-cancelable leases, primarily related to the rental
of its operations facilities. Future minimum payments, by year and in the
aggregate, under operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 2000 (in
thousands):

Year Ending December 31                             Amount

2001                                                 $6,719
2002                                                  6,323
2003                                                  5,910
2004                                                  5,504
2005                                                  4,243
Thereafter                                            4,666
                                                      -----

        Total minimum lease payments                $33,365
                                                    =======





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

(15) COMMITMENTS AND CONTINGENCIES--(CONTINUED)

     Total rent expense under operating leases amounted to $1.7 million and
$7.1 million for 1999 and 2000, respectively. The Company is also holding
funds in certificates of deposit which are maintained under agreements to
assure future credit availability relating to these leases. As of December
31, 2000, these restricted funds amounted to $3.9 million of which $748,880
is included in cash and cash equivalents and $3.1 million is included in
short-term investments.

     Employment Agreements

     The Company is a party to employment agreement with the Chief
Executive Officer of the Company. The agreement term is from April 15, 1998
to April 15, 2003 and calls for a minimum base salary of $250,000 per year
with annual increases of his base salary of not less than 4% per year. The
minimum salary commitment for this agreement is $1.4 million. Additionally,
this officer is entitled to incentive compensation equal to 2% of the
Company's revenues for such year in excess of the revenues of the immediate
preceding year. During 1999, the agreement was amended and restated to
affect a ceiling of $150.0 million on revenues of the Company for
determining the incentive compensation. In addition, the amended and
restated agreement provides that, in the event gross revenues exceed such
revenue ceiling, the Compensation Committee of the Board of Directors will
establish an incentive program for this officer that will appropriately
incentive him. Incentive compensation approximated $650,000 and $1.5
million, in 1999 and 2000, respectively. In 1998, this officer was granted
options to acquire an aggregate of 2,000,000 shares of the Company's common
stock at the exercise prices equal to $2.375 per share, the fair value at
the time of the agreement, which options will become exercisable ratably on
a monthly basis over a period of 60 months from the date of grant and
expire ten years from the date of grant.

     Litigation

     From time to time, the Company is subject to litigation in the normal
course of business. The Company is of the opinion that, based on
information presently available, the resolution of any such legal matters
will not have a material adverse effect on the financial position or
results of operations of the Company.
































<TABLE>
<CAPTION>
                                               RARE MEDIUM GROUP
                                 Schedule II - Valuation and Qualifying Accounts


                                                         Additions     Additions
                                          Balance at    Charged to     Charged to
                                          Beginning     Costs and         Other                         Balance at
      Deductions - Descriptions            of Year       Expenses       Accounts        Deductions     End of Year

Reserves and allowances deducted
  asset accounts:

Allowances for uncollectible
 accounts receivable

<S>                                        <C>          <C>              <C>             <C>             <C>
Year ended December 31, 1998                     --             --       $82,445 (1)           --
Year ended December 31, 1999                $82,445       $544,747            --         $(82,445)       $544,747
Year ended December 31, 2000               $544,747     $2,830,960            --        $(134,225)     $3,241,482

Allowances for uncollectible
  notes receivable

Year ended December 31, 1998                     --             --       $375,000              --        $375,000
Year ended December 31, 1999               $375,000      $(200,000)            --              --        $175,000
Year ended December 31, 2000               $175,000             --             --       $(175,000)             --
------------------
(1)  Existing reserves for acquired companies
</TABLE>
































































                                 SIGNATURES

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

                                             RARE MEDIUM GROUP, INC.



Date: March 9, 2001                         By:/s/ GLENN S. MEYERS
                                                -------------------
                                             Name:  Glenn S. Meyers
                                             Title:  Chief Executive Officer


         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.



       SIGNATURE                         TITLE                    DATE

  /s/ GLENN S. MEYERS          Chairman of the Board and         March 9, 2001
  -------------------          Chief Executive Officer
    Glenn S. Meyers

  /s/ ANDREW D. AFRICK         Director                          March 9, 2001
  --------------------
    Andrew D. Africk

   /s/ MICHAEL GROSS           Director                          March 9, 2001
   -----------------
     Michael Gross

-------------------------      Director                          March 9, 2001
    Jeffrey Killeen

/s/ RICHARD T. LIEBHABER       Director                          March 9, 2001
------------------------
  Richard T. Liebhaber

   /s/ MARC J. ROWAN           Director                          March 9, 2001
   -----------------
     Marc J. Rowan

/s/ WILLIAM STASIOR
--------------------------     Director                          March 9, 2001
    William Stasior

  /s/ CRAIG C. CHESSER         Vice President and Treasurer      March 9, 2001
  --------------------         (Principal Financial Officer)
    Craig C. Chesser

/s/ MICHAEL A. HULTBERG        Vice President and Controller     March 9, 2001
-----------------------        (Principal Accounting Officer)
  Michael A. Hultberg