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

                                FORM 10-K/A

                              Amendment No. 2

     /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
       (State or other jurisdiction of incorporation or organization)


                                  23-2368845
                   (I.R.S. Employer 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 June 22, 2001 was $23,433,698.

As of June 22, 2001, 63,668,987 shares of our common stock were outstanding.



                                    PART I

Explanatory Paragraph

     On June 26, 2001, Rare Medium Group, Inc. announced that it would
restate its financial results for the fiscal year ended December 31, 2000
and for the fiscal quarters ended March 31, 2001 and September 30, 2000 to
reflect the recognition of approximately $3.7 million of revenue in the
first quarter of 2001 which was originally recognized in 2000.

     Rare Medium performed services for a client in the year ended December
31, 2000, during which time a definitive professional services agreement
was being negotiated. The definitive professional services agreement, which
was signed during the first week of January 2001, established fees for past
and future services, including fees of $3.7 million which were recognized
as revenue during the year ended December 31, 2000. The professional
services agreement also provided that the fees would be contingent upon the
closing of a financing by the client, which would include an investment by
Rare Medium. A stock purchase agreement, dated as of December 29, 2000, to
make the investment was entered into by several investors, including Rare
Medium, but the investment transaction did not close until the first week
of January 2001, following which time Rare Medium was paid for
substantially all of the services relating to the $3.7 million in fees.
After re-examining this transaction, Rare Medium has concluded that the
revenue in question should have been recognized in the first quarter of
2001.

     This amended Form 10-K/A includes the restated financial statements
and does not update information contained in Rare Medium's previously filed
Form 10-K/A unless otherwise indicated. Also included in this amended Form
10-K/A is certain selected quarterly information under the heading
"Supplementary Quarterly Financial Information" that was not included in
Rare Medium's previously filed Form 10-K/A.

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 44% 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 $128.4 million for the years ended December 31, 1998, 1999 and
2000, respectively. Although we have experienced recent revenue growth, and
had revenues of $106.5 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 24 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 44% 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:

                                                  2000
                     4th Qtr      3rd Qtr      2nd Qtr    1st Qtr

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

     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. The financial data as of and for the year ended
December 31, 2000 has been amended to reflect the impact of the restatement
as discussed in Note 2 to our financial statements.


<TABLE>
<CAPTION>

                                                                            Year Ended December 31,

                                                   1996             1997        1998          1999             2000
                                                   ----             ----        ----          ----             ----
                                                                                                          (Restated)
                                                                        (In thousands except share data)
Statement of Operations Data:
<S>                                               <C>             <C>            <C>           <C>             <C>
Revenues                                            $--             $--         $4,688        $36,694        $106,472
Cost of revenues                                     --              --          3,610         19,650          66,100
                                                     --              --          -----         ------          ------

   Gross profit                                      --              --          1,078         17,044          40,372
                                                     --              --          -----         ------          ------

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)       (126,790)
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)       (128,422)
   Income tax expense                                --              --            355             --             --
                                                     --              --            ---             --             --

     Loss before discontinued operation            (860)         (1,499)       (19,710)       (49,470)       (128,422)
                                                   -----         -------       --------       --------       ---------

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)       (128,422)
   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)      $(151,140)
                                                ========       =========         ======      =========      ==========


Basic and diluted (loss) earnings per share:
   Continuing operations.                        $(0.04)         $(0.07)        $(0.78)        $(2.55)         $(2.83)
   Discontinued operation                         (0.31)          (0.56)          0.76             --              --
                                                  ------          ------          ----             --              --

Net loss per share                               $(0.35)         $(0.63)        $(0.02)        $(2.55)         $(2.83)
                                                 =======         =======        =======        =======         =======


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
                                                      ----         ----        ----         ----          ----
                                                                                                       (Restated)
Balance Sheet Data:
<S>                                                  <C>           <C>        <C>         <C>           <C>
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       317,491
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       229,109
</TABLE>


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

     The following discussion of our financial condition and results of
operations should be read together with our consolidated financial statements
and the related notes thereto. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may
differ materially from those anticipated in those forward-looking statements.
The discussion has been amended to reflect the impact of the restatement of
our financial statements for the year ended December 31, 2000 as discussed in
Note 2 to the consolidated financial statements included elsewhere herein.

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 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 $117.3 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
increased from $6.5 million in 1999 to $8.3 million in 2000. This increase
is due to additional costs necessary to support the expansion of our
business throughout 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

     Revenues for the year ended December 31, 2000 increased to $106.5 million
from $36.7 million for the year ended December 31, 1999, an increase of $69.8
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
51.3% 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

     For the year ended December 31, 2000, we recorded a net loss of $128.4
million. Excluding $49.4 million in amortization and depreciation, the net
loss was $79.0 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 $151.1
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

                                                          Year Ended
                                                          December 31,
                                                       ------------------
                                                       1998          1999
                                                       ----          ----
                                                    Unaudited       Actual
                                                    Pro Forma
                                                       (In thousands)

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)
                                                     ========     =========


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

     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 $128.4 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.

Supplementary Unaudited Quarterly Financial Information

<TABLE>
<CAPTION>
                                        1999                                               2000
                   -----------------------------------------------    ------------------------------------------------
                      Q1           Q2          Q3           Q4          Q1           Q2           Q3           Q4
                   ---------    ---------    --------    ---------    --------    ---------    ---------    ----------
                                                                                               (Restated)   (Restated)
                                                  (In thousands, except per share data)
<S>                  <C>          <C>        <C>          <C>         <C>          <C>          <C>           <C>
Revenue              $2,589       $5,155     $11,337      $17,613     $23,816      $27,706      $28,876       $26,074
Gross profit          1,209        2,147       5,354        8,334      10,755       11,043       11,077         7,497
Net loss             (6,851)     (11,542)    (10,845)     (20,232)    (21,193)     (27,700)     (33,171)      (46,358)
Basic and
  diluted loss
  per share           (0.22)       (1.19)      (0.37)       (0.73)      (0.74)       (0.66)       (0.65)        (0.78)
</TABLE>

Revenue has been reduced by approximately $544,000 and $3.1 million
for Q3 and Q4 2000, respectively, to reflect the impact of the restatement
as discussed in Note 2 to our financial statements.

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 following table sets forth information concerning our directors
and executive officers as of April 24, 2001:



NAME                                   AGE    POSITION

Glenn S. Meyers......................  39     Chairman and Chief
                                              Executive Officer
Suresh V. Mathews....................  46     President and Chief
                                              Operating Officer
Robert C. Lewis......................  36     Senior Vice President,
                                              General Counsel and Secretary
Craig C. Chesser.....................  40     Vice President,
                                              Finance and Treasurer
Michael A. Hultberg..................  35     Vice President and Controller
Jeffrey M. Killeen...................  47     Director
William F. Stasior...................  60     Director
Andrew D. Africk.....................  34     Director
Michael S. Gross.....................  39     Director
Marc J. Rowan........................  38     Director

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

Richard T. Liebhaber resigned as a director of the Company, effective as of
April 2, 2001.

        Glenn S. Meyers. Mr. Meyers is the co-founder, Chairman and Chief
Executive Officer of the Company. He is also Chairman and Chief Executive
Officer of the Company's wholly-owned subsidiary, Rare Medium, Inc. and has
been a member of the board of directors of the Company as well as the Chief
Executive Officer since April 15, 1998. Prior to joining Rare Medium, Inc. in
September 1996, Mr. Meyers was President of Brookridge Capital Management, an
Internet venture capital firm from 1994 to September 1996. Mr. Meyers is also
a director of L90, Inc.

        Suresh V. Mathews. Mr. Mathews was appointed the Company's President
and Chief Operating Officer in April 2000. Mr. Mathews has also been the
President and Chief Operating Officer of the Company's wholly-owned
subsidiary, Rare Medium, Inc. since January 1999. Prior to joining Rare
Medium, Inc., Mr. Mathews was Senior Vice President and Chief Information
Officer of Quaker State Corporation from June 1991 to December 1998.

        Robert C. Lewis. Mr. Lewis has been the Vice President and General
Counsel of the Company since May 1998 and Secretary of the Company since
August 1998. Mr. Lewis was appointed the Company's Senior Vice President on
July 26, 2000. Prior to joining the Company, Mr. Lewis was an associate at
the law firm of Fried, Frank, Harris, Shriver & Jacobson from October 1992.

        Craig C. Chesser. Mr. Chesser has been a Vice President of the
Company since July 1998 and has been the Treasurer of the Company since
November 1999. Mr. Chesser served as the Corporate Controller from July 1998
to November 1999. Prior to joining the Company, Mr. Chesser was Vice
President, Finance for TransCare Corporation, a health care industry
consolidator. Previously, Mr. Chesser was Vice President, Finance and
Administration for Sunwestern Investment Group, a venture capital
organization.

        Michael A. Hultberg. Mr. Hultberg has been Vice President and
Controller of the Company since November 1999. From July 1988 to November
1999, Mr. Hultberg was employed by KPMG LLP, most recently as Senior Manager.

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

        William F. Stasior. Mr. Stasior has been a director of the Company
since April 2000. Mr. Stasior was the Chairman and Chief Executive Officer of
Booz Allen & Hamilton Inc., a management and technology consulting firm, from
1991 to 1999, and had served on the Board of Directors of Booz Allen since
1979. Since October 1999, Mr. Stasior has been the Senior Chairman of Booz
Allen. Mr. Stasior also serves on the Board of Directors of OPNET, a software
company that specializes in enhancing network performance for the Internet
and other applications and Emerging Vision Inc., an optical retailer.

        Andrew D. Africk. Mr. Africk has been a member of the board of
directors of the Company since June 1999. Mr. Africk is a partner of Apollo
Advisors, L.P. (which, together with its affiliates, acts as the managing
general partner of several private securities investment funds, including
Apollo Investment Fund IV, L.P.) and of Lion Advisors, L.P. (a financial
advisor to, and representative of institutional investors with respect to,
securities investments). Mr. Africk is also a director of Encompass Services
Corporation, as well as several private venture companies.

        Michael S. Gross. Mr. Gross has been a member of the board of
directors of the Company since August 1999. Mr. Gross is one of the founding
principals of Apollo Advisors, L.P. and of Lion Advisors, L.P. Mr. Gross is
also a director of Allied Waste Industries, Inc., Breuners Home Furnishing,
Inc., Clark Enterprises Inc., Converse, Inc., Florsheim Group, Inc., United
Rentals, Inc., Encompass Services Corporation and Saks Incorporated.

        Marc J. Rowan. Mr. Rowan has been a member of the board of directors
of the Company since June 1999. Mr. Rowan is one of the founding principals
of Apollo Advisors, L.P. and of Lion Advisors, L.P. Mr. Rowan is also a
director of Vail Resorts, Inc., Quality Distribution, Inc., National
Financial Partners, Inc., Samsonite Corporation, Wyndam International and NRT
Incorporated.


COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

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

        To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no
other reports were required, the Company believes that during the year ended
December 31, 2000, its officers, directors and greater-than-10% stockholders
complied with all Section 16(a) filing requirements, with the exception of
the late filing of an Initial Statement of Beneficial Ownership of Securities
on Form 3 for William F. Stasior.

Item 11.  EXECUTIVE COMPENSATION

        The following Summary Compensation Table sets forth, for the three
years ended December 31, 2000, the compensation for services in all
capacities earned by the Company's Chief Executive Officer and its next most
highly compensated executive officers.

   The following Summary Compensation Table sets forth, for the three years
ended December 31, 2000, the compensation for services in all capacities
earned by the Company's Chief Executive Officer and its next four most highly
compensated executive officers.

<TABLE>
<CAPTION>
Summary Compensation Table

                                                                          Restricted  Securities
                                                                Other     Stock       Underlying   LTIP
                                                               Annual     Award(s)    Options/SARs Payouts    All Other
Name and Principal Position    Year     Salary      Bonus    Compensation    ($)          (#)        ($)     Compensation
---------------------------    ----     ------      -----    ------------ ----------  ------------ -------   ------------
<S>                            <C>    <C>          <C>        <C>      <C>       <C>    <C>             <C>   <C>
Glenn S. Meyers                2000   $267,400     $1,469,090  $18,000(1)        --           --        --        --
   Chairman and                1999    257,192      2,157,889   17,600(1)        --           --        --        --
   Chief Executive Officer     1998    178,082         35,193   20,000(1)        --    2,000,000        --        --

Suresh V. Mathews              2000    233,308            --        --           --      250,000        --    $1,760  (2)
   President and               1999    208,558            --        --           --    1,000,000        --     1,514  (2)
   Chief Operating Officer

Jeffrey J. Kaplan              2000    227,492         65,000   16,978  (1)      --           --        --     2,303  (2)
   Former Executive Vice       1999     64,039            --     3,850  (1)      --      350,000        --        --
   President
   and Chief Financial
   Officer (3)

Robert C. Lewis                2000    128,692         40,000       --           --           --        --     2,625  (2)
   Vice President, General     1999    110,135            --        --           --       68,000        --     2,500  (2)
   Counsel and Secretary       1998     47,596            --        --           --       32,000        --        --

Craig C. Chesser               2000    133,961         40,000    6,000  (1)      --       25,000        --     2,625  (2)
   Vice President Finance      1999    118,692         10,000    3,000  (1)      --       32,500        --     2,500  (2)
   and Treasurer
                               1998     43,846            --        --           --       17,500        --        --

Michael A. Hultberg            2000    145,000         40,000       --           --           --        --        --
   Vice President and          1999     25,096            --        --           --       75,000        --        --
   Controller

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

(1)      Represents non-accountable expense allowance.
(2)      Represents 401(k) employer matching contributions.
(3)      Mr. Kaplan resigned as Executive Vice President and
         Chief Financial Officer of the Company, effective as
         of February 14, 2001.
</TABLE>


   The following table sets forth information concerning grants of stock
options to purchase Common Stock during the year ended December 31, 2000 to
the named executive officers.

<TABLE>
<CAPTION>
Option SAR Grants in the Last Year

                                              Percent of
                                                 Total
                                 Number of   Options/SARs                       Potential Realizable
                                Securities    Granted to   Exercise             Value at Assumed Annual
                                Underlying     Employees   or Base              Rates of Stock Appreciation
                              Options /SARs   in Fiscal    Price     Expiration for Option Term
           Name                  Granted       Year (1)    ($/Share)   Date         5%            10%
           ----               -------------   ------------ ---------   ----        ---            ---

<S>                           <C>      <C>       <C>         <C>      <C>       <C>          <C>
Glenn S. Meyers                    --            0.0%            N/A      N/A          N/A          N/A
Suresh V. Mathews             250,000  (2)       2.1%        $15.313  7/19/05   $1,057,640   $2,337,109
                                       (3)
Jeffrey J. Kaplan (5)              --            0.0%            N/A      N/A          N/A          N/A
Robert C. Lewis                    --            0.0%            N/A      N/A          N/A          N/A
Craig C. Chesser               25,000  (4)       0.2%        $14.500  7/26/05      100,152      221,310
Michael A. Hultberg                --            0.0%            N/A      N/A          N/A          N/A

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

(1)  The number of shares of Common Stock covered by the options is subject
     to anti-dilution adjustments in the event of any stock dividend, stock
     split or combination of shares, recapitalization or other change in the
     Company's capital stock.
(2)  The vesting of the options is subject to acceleration in the event of a
     change in control of the Company, which means, generally, the
     consummation of any merger or consolidation involving the Company, any
     sale of substantially all of the Company's assets or other transaction
     or related transactions as a result of which a single person or several
     persons acting in concert own a majority of the shares of Common Stock
     or a lower percentage of Common Stock in certain cases (except for
     certain transactions that do not involve a change in the holders of a
     majority of the outstanding shares of Common Stock and the ownership of
     a majority of the outstanding shares of Common Stock by a single
     person).
(3)  These options were granted on July 19, 2000 at an exercise price of
     $15.313, the per share fair market vale of the Common Stock at that
     time. The options have a term of five (5) years. Options are exercisable
     in three (3) equal annual installments, with the first installment
     becoming exercisable on the one-year anniversary of the date of
     employment.
(4)  These options were granted on July 26, 2000 at an exercise price of
     $14.50, the per share fair market vale of the Common Stock at that time.
     The options have a term of five (5) years. Options are exercisable in
     three (3) equal annual installments, with the first installment becoming
     exercisable on the one-year anniversary of the date of employment.
(5)  Mr. Kaplan resigned as Executive Vice President and Chief Financial
     Officer of the Company, effective as of February 14, 2001.
</TABLE>

   The following table sets forth information concerning the exercise of
options to purchase shares of Common Stock by the named executive officers
during the year ended December 31, 2000, as well as the number and potential
value of unexercised options (both options which are presently exercisable
and options which are not presently exercisable) as of December 31, 2000.

Aggregated Option/SAR Exercises in the Last Year and Year-End Option/SAR Values

<TABLE>
<CAPTION>
                                                                 Number of            Value of
                                 Number of                       Securities         Unexercised
                                 Securities                      Underlying         In-the-Money
                                 Underlying                   Options/SARs at     Options/SARs at
                                Options/SARs                   Fiscal Y/E (#)        Fiscal Y/E
                                Acquired on       Value        Exercisable/        Exercisable/
Name                            Exercise (#)     Realized      Unexercisable       Unexercisable
----                            ------------     --------      --------------      -------------
<S>                              <C>             <C>           <C>                    <C>
Glenn S. Meyers                      --                --        466,666/933,334        0/0
Suresh V. Mathews                19,569          $262,029      230,431/1,000,000        0/0
Craig C. Chesser                     --                --          33,334/25,000        0/0
Michael A. Hultberg                  --                --          25,000/50,000        0/0
Jeffrey J. Kaplan(1)                 --                --         87,500/262,500        0/0

</TABLE>

(1)  Mr. Kaplan resigned as Executive Vice President and Chief Financial
Officer of the Company, effective as of February 14, 2001.


EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS

MEYERS EMPLOYMENT AGREEMENT

        In connection with the transactions consummated pursuant to the
acquisition by the Company of Rare Medium, Inc., the Company entered into an
Employment Agreement effective April 15, 1998 with Glenn S. Meyers (the
"Meyers Employment Agreement"). Pursuant to the Meyers Employment Agreement,
Mr. Meyers was engaged as the Chairman, President and Chief Executive Officer
of the Company and Rare Medium, Inc. to serve for a term of five years,
expiring April 15, 2003. Mr. Meyers receives an annual base salary of
$250,000, with a minimum annual increase during the term of not less than 4%
per annum. In addition to base compensation, Mr. Meyers is entitled to
receive, for each calendar year during the term, incentive compensation equal
to 2.0% of revenues derived from activities of Rare Medium, Inc. for such
calendar year in excess of the revenues of Rare Medium, Inc. for the
preceding year. Effective June 4, 1999, the Meyers Employment Agreement has
been amended and restated to effect a ceiling of $150,000,000 on revenues of
the Company for determining such annual incentive compensation payable to Mr.
Meyers. 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, with such assistance as it will deem
necessary, establish an incentive bonus program for Mr. Meyers based on
objective and subjective factors to appropriately incentivize him. Such
revised incentive bonus program shall be designed to allow Mr. Meyers to
continue to receive increases in annual bonuses based on, and subject to, the
targets and criteria established by the Compensation Committee, in amounts
similar to the incentive bonuses previously received by Mr. Meyers. The
Meyers Employment Agreement provides Mr. Meyers with a right to terminate his
employment agreement upon a breach of such agreement or upon the occurrence
of certain events constituting a "change in control" of the Company as
defined therein. Upon such a "change in control," Mr. Meyers would be
entitled to receive a lump sum payment from the Company which shall be equal
to all salary and incentive compensation for the remaining term and the cash
value of all benefits which would have been received by him for the remaining
term. In addition, all of his unvested stock options shall immediately vest
and become exercisable. The Meyers Employment Agreement also contains a
covenant not to compete with the Company or any of its affiliates for the
term of the agreement, plus one additional year. Concurrently with the
execution of the Meyers Employment Agreement, the Company granted to Mr.
Meyers options to acquire an aggregate of 2,000,000 shares of Common Stock at
exercise prices equal to $2.375 per share (the fair market value at the time
of issuance), which options 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.

MATHEWS EMPLOYMENT AGREEMENT

        The Company entered into an Employment Agreement dated January 29,
1999 with Suresh V. Mathews (the "Mathews Employment Agreement"). Pursuant to
the Mathews Employment Agreement, Mr. Mathews has been engaged as the
President and Chief Operating Officer of Rare Medium, Inc. to serve for a
term of four years. Mr. Mathews receives an annual base salary of $225,000,
subject to annual increases at the discretion of the Company's Board of
Directors. The Mathews Employment Agreement provides Mr. Mathews with a right
to terminate the Mathews Employment Agreement upon the occurrence of certain
events constituting a "change in control" of the Company as defined therein.
Upon such a "change in control," Mr. Mathews would be entitled to receive all
salary and incentive compensation for the remaining term, the cash value of
all benefits which would have been received by him for the remaining term and
the cash value of all unexercised stock options (whether or not vested) or
the cashless exercise value thereof. In the event the Company discharges Mr.
Mathews other than "for cause," Mr. Mathews would be entitled to receive his
base salary for a period of twelve months following such discharge. The
Mathews Employment Agreement also contains a covenant not to compete with the
Company or any of its affiliates for the term of the agreement, plus one
additional year. In connection with Mr. Mathews' employment with the Company,
the Company granted to Mr. Mathews options to acquire an aggregate of
1,000,000 shares of Common Stock, at an exercise price equal to $5.11 per
share (the fair market value at the time of issuance), which vest ratably
over a four year period and expire ten years from the date of the grant. In
the event the Company terminates Mr. Mathews' employment without cause, 50%
of all unvested options will become immediately vested and exercisable, and
all options will be exercisable through their initial expiration date. On
April 26, 2000, the Board of Directors of the Company appointed Mr. Mathews
President and Chief Operating Officer of the Company, in addition to his
position at Rare Medium, Inc.

KAPLAN EMPLOYMENT AGREEMENT

        Mr. Kaplan resigned as Executive Vice President and Chief Financial
Officer of the Company, effective as of February 14, 2001. The Company
entered into an Employment Agreement dated September 21, 1999 with Jeffrey J.
Kaplan (the "Kaplan Employment Agreement"). Pursuant to the Kaplan Employment
Agreement, Mr. Kaplan had been engaged as the Executive Vice President and
Chief Financial Officer of the Company to serve for a term of four years.
Pursuant to the Kaplan Employment Agreement, Mr. Kaplan received an annual
base salary of $225,000, subject to annual increases at the discretion of the
Company's Board of Directors. The Kaplan Employment Agreement was terminated
on February 14, 2001, the effective date of Mr. Kaplan's resignation. The
Kaplan Employment Agreement also contained a covenant not to compete with the
Company or any of its affiliates for the term of the agreement, plus one
additional year. In connection with Mr. Kaplan's employment with the Company,
the Company granted to Mr. Kaplan options to acquire an aggregate of 350,000
shares of Common Stock, at an exercise price equal to $9.50 per share (the
fair market value at the time of issuance), which vested ratably over a four
year period and expire ten years from the date of the grant. As of February
14, 2001, Mr. Kaplan's vested options to acquire an aggregate of 87,500
shares of Common Stock remained outstanding and exercisable and all remaining
unvested options held by Mr. Kaplan were terminated.

STOCK PLANS

        On November 29, 1999, the Company's Board of Directors approved an
equity participation plan that allows the Compensation Committee to
incentivize its employees by allocating to them up to 20% of any profit it
might recognize when and if its investments in portfolio and incubator
companies become liquid, subject to vesting and other requirements. The
Company will have the right to pay such amount either in cash, in the
Company's Common Stock or a combination thereof. No awards were allocated by
the Compensation Committee under this plan in 1999. In 2000, the Compensation
Committee allocated awards with respect to investments made in 1999. No
additional awards are currently expected to be allocated under this plan in
2001. Depending on the structure of the awards under this plan, the Company
maybe required to record compensation expense in accordance with generally
accepted accounting principles.

        On May 6, 1998, the Board of Directors adopted the Company's 1998
Long-Term Incentive Plan (the "Plan"). The Plan was approved by the Company's
Stockholders on March 16, 1999. The Plan provides for the granting of awards
to directors (whether or not employees), executive officers, key employees
and consultants and other service providers in the form of stock options,
stock appreciation rights, restricted stock awards, deferred stock awards,
bonus stock awards, dividend equivalents, and other types of stock based
awards. The variety of awards authorized by the Plan is intended to give the
Company flexibility to adapt the Company's compensation practices as the
business environment in which it operates changes. The maximum aggregate
number of shares of Common Stock that may be delivered for all purposes under
the Plan is 23,000,000, subject to adjustment. The Plan is administered by
the Compensation Committee of the Board of Directors. These options generally
carry five-year terms and become exercisable cumulatively in three equal
installments, with the first installment becoming exercisable on the one-year
anniversary of each grantee's date of employment. In 2000, the Board of
Directors amended and restated the Plan to: (i) increase the number of shares
of Common Stock available for issuance under the Plan to 23,000,000; (ii)
provide that no participant in the Plan may be granted options and stock
appreciation rights ("SARs") that become exercisable in any one year for more
than 700,000 shares of Common Stock and awards other than options and SARs
that may be settled for the first time in any one year by delivery of more
than 350,000 shares of Common Stock; and (iii) provide that all options and
SARs will terminate no later than the tenth anniversary of the date of grant.
These amendments to the Plan were ratified by the Company's Stockholders on
June 15, 2000.

        The Company's Nonqualified Stock Plan ("NQSOP") for directors,
officers and key employees of the Company expired on July 18, 2000. The
Company did not make any grants of options under the NQSOP in 2000.

        In 1994, the Company adopted an Equity Plan for Directors (the
"Equity Plan for Directors") pursuant to which non-employee directors of the
Company received automatic option grants whose vesting was dependent on the
market price of the Common Stock. On October 26, 1998, the Board of Directors
amended and restated the Equity Plan for Directors to change the plan from a
formula-based stock option plan as described above to a discretionary plan
(the "Amended and Restated Equity Plan for Directors"), thereby providing
more flexibility in determining incentive based stock option awards for
non-employee directors of the Company. The Amended and Restated Equity Plan
for Directors authorized 500,000 aggregate shares of Common Stock for the
granting of such options under the plan, of which 108,000 were available for
granting stock options as of December 31, 2000. The Company did not make any
grants to directors under the Amended and Restated Equity Plan for Directors
in 2000. Subsequent to November 1998, grants of stock options to directors
have been made under the Company's Amended and Restated 1998 Long-Term
Incentive Plan.

         See Item 13. "Certain Relationships and Related Transactions" for a
discussion of certain agreements between the Company and certain directors of
the Company.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT

   The following table and notes thereto set forth certain information, as of
April 17, 2001 (except as noted otherwise), regarding beneficial ownership of
the shares of Common Stock of the Company by (i) each person who is known to
the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock, (ii) each of the Company's names executive officers
under the Summary Compensation Table under the heading "Executive
Compensation," (iii) each director and nominee for director, and (iv) all
executive officers and directors of the Company as a group. Unless otherwise
indicated, the Stockholders listed possess sole voting and investment power
with respect to the shares indicated as owned by them.


<TABLE>
<CAPTION>
                                                                                     Number of Shares of
                                                                                         Common Stock
                                                                                     Beneficially Owned    Percentage
           Name and Address                               Position                           (1)            of Class
           ----------------                               --------                   ------------------     --------
<S>                                      <C>                                                <C>               <C>
Glenn S. Meyers                          Chairman and Chief Executive Officer               633,333           1.0%  (2)
Suresh V. Mathews                        President and Chief Operating Officer              583,333              *  (3)
Jeffrey J. Kaplan (5)                    Former Executive Vice President and Chief           87,500              *  (6)
                                         Financial Officer
Robert C. Lewis                          Vice President, General Counsel and                 95,000              *
                                         Secretary
Craig C. Chesser                         Vice President Finance and Treasurer                50,000              *  (4)
Michael A. Hultberg                      Vice President and Controller                       25,000              *  (2)
Jeffrey M. Killeen                       Director                                            50,000              *  (2)
William Stasior                          Director                                            50,000              *  (2)
Andrew D. Africk                         Director                                        39,982,019          44.0%  (7)
   c/o Rare Medium Group, Inc.
   565 Fifth Avenue, 29th Floor
   New York, New York 10017
Marc J. Rowan                            Director                                        39,982,019          44.0%  (8)
   c/o Rare Medium Group, Inc.
   565 Fifth Avenue, 29th Floor
   New York, New York 10017
Michael S. Gross                         Director                                        39,957,019          44.0%  (9)
   c/o Rare Medium Group, Inc.
   565 Fifth Avenue, 29th Floor
   New York, New York 10017
Apollo Investment Fund IV, L.P.                                                          39,932,019          43.9%  (10)
   Two Manhattanville Road
   Purchase, New York 10577
All executive officers, directors and                                                    41,664,518          45.0%  (11)
   nominees as a group (11 persons)

---------------------
* Represents beneficial ownership of less than 1%.

(1) Beneficial ownership has been determined pursuant to Rule 13d-3 under the
    Exchange Act.

(2) Represents options to purchase shares of Common Stock that are
    exercisable within 60 days of April 17, 2001.

(3) Includes options to purchase 563,764 shares of Common Stock that are
    exercisable within 60 days of April 17, 2001.

(4) Includes options to purchase 33,334 shares of Common Stock that are
    exercisable within 60 days of April 17, 2001.

(5)  Mr. Kaplan resigned as Executive Vice President and Chief Financial
     Officer of the Company, effective as of February 14, 2001; his
     beneficial ownership is stated as of that date.

(6)  Represents shares of Common Stock that Mr. Kaplan can acquire pursuant
     to stock options that vested thorugh February 14, 2001.

(7)  Includes an aggregate of (i) 12,709,499 shares of Common Stock acquired
     through the exercise of Series 1-A warrants and (ii) 27,222,520 shares
     of Common Stock issuable to Apollo Investment Fund IC, L.P., Apollo
     Overseas Partners IV, L.P. and AIF IV/RRRR LLC (collectively, the
     "Apollo Stockholders") upon conversion of the Series A Preferred Stock
     and exercise of the Series 1-A warrants and the Series 2-A warrants
     owned by them. Mr. Africk is a principal of Apollo Advisors IV, L.P,
     which together with an affiliated investment manager, serves as the
     manager of each of the Apollo Stockholders. Mr. Africk disclaims
     beneficial ownership of such shares. Includes options to purchase 50,000
     shares of Common Stock that are exercisable within 60 days of April 17,
     2001.

(8)  Includes an aggregate of (i) 12,709,499 shares of Common Stock acquired
     through the exercise of Series 1-A warrants and (ii) 27,222,520 shares
     of Common Stock issuable to the Apollo Stockholders upon conversion of
     the Series A Preferred Stock and exercise of the Series 1-A warrants and
     the Series 2-A warrants owned by them. Mr. Rowan is a principal of
     Apollo Advisors IV, L.P, which together with an affiliated investment
     manager, serves as the manager of each of the Apollo Stockholders. Mr.
     Rowan disclaims beneficial ownership of such shares. Includes options to
     purchase 50,000 shares of Common Stock that are exercisable within 60
     days of April 17, 2001.

(9)  Includes an aggregate of (i) 12,709,499 shares of Common Stock acquired
     through the exercise of Series 1-A warrants and (ii) 27,222,520 shares
     of Common Stock issuable to the Apollo Stockholders upon conversion of
     the Series A Preferred Stock and exercise of the Series 1-A warrants and
     the Series 2-A warrants owned by them. Mr. Gross is a principal of
     Apollo Advisors IV, L.P, which together with an affiliated investment
     manager, serves as the manager of each of the Apollo Stockholders. Mr.
     Gross disclaims beneficial ownership of such shares. Includes options to
     purchase 25,000 shares of Common Stock that are exercisable within 60
     days of April 17, 2001.

(10) Represents the aggregate of (i) 12,709,499 shares of Common Stock
     acquired through the exercise of Series 1-A warrants and (ii) 27,222,520
     shares of Common Stock issuable upon conversion of the aggregate of
     996,171 shares of the Company's Series A Preferred Stock and the
     exercise of an aggregate of 53,998 Series 1-A warrants and 12,262,542
     Series 2-A warrants held by the Apollo Stockholders. Assuming conversion
     of all the Series A Preferred Stock and the exercise of all the Series
     1-A warrants and Series 2-A warrants held by the Apollo Stockholders,
     such 39,932,019 shares of Common Stock would consist of 30,581,609
     shares of Common Stock beneficially owned by Apollo Investment Fund IV,
     L.P., 1,640,071 shares of Common Stock beneficially owned by Apollo
     Overseas Partners IV, L.P. and 7,710,339 shares of Common Stock
     beneficially owned by AIF IV/RRRR LLC. The holders of the Company's
     Series A Preferred Stock are only entitled to an aggregate of 9,750,000
     votes with respect to the Series A Preferred Stock as of April 17, 2001,
     or 9.79 votes per share of Series A Preferred Stock. Messrs. Africk,
     Rowan and Gross, directors of the Company and associated with Apollo
     Advisors IV, L.P., disclaim beneficial ownership of the share held by
     the Apollo Stockholders.

(11) Messrs. Africk, Rowan and Gross, directors of the Company and associated
     with Apollo Advisors IV, L.P., disclaim beneficial ownership of shares
     held by the Apollo Stockholders.  See footnote numbers 7, 8 and 9 above.
</TABLE>


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        From time to time the Company has provided, and may in the future
provide, internet related professional advisory and consultative services in
the ordinary course of business and on terms believed to be comparable to
those obtainable by third parties to portfolio companies in which the Apollo
Stockholders have an investment or in which they have considered investing.
In addition, as of December 31, 2000, the Company had committed up to
$2,806,000 to a special purpose investment vehicle and on terms coincident
with those of the other investors therein, who were principals of Apollo
Advisors IV, L.P., for the purpose of making securities investments.

EMPLOYMENT AGREEMENTS

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




                  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.

As discussed in Note 2 to the accompanying consolidated financial
statements, the Company has restated its financial statements for the year
ended December 31, 2000.

                                                                 /s/ KPMG LLP

New York, New York
February 14, 2001, except
for Note 2 which is as
of June 22, 2001


<TABLE>
<CAPTION>
                            RARE MEDIUM GROUP, INC
                         CONSOLIDATED BALANCE SHEETS
                          December 31, 1999 and 2000

                                                   (in thousands except share data)
                                                                                        1999                   2000
                                                                                        ----                   ----
                                                                                                           (Restated -
                                                                                                           See Note 2)
                                    ASSETS
Current assets:
<S>                                                                                       <C>              <C>
   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            21,952
   Work in process                                                                          3,171             5,426
   Prepaid expenses and other current assets                                                3,608             5,402
                                                                                            -----             -----

        Total current assets                                                               47,920           190,263

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          $317,491
                                                                                         ========          ========

                     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 shares 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)         (299,188)
   Treasury stock, at cost, 66,227 shares                                                   (171)             (171)
                                                                                            -----             -----

        Total stockholders' equity                                                        104,991           229,109
                                                                                          -------           -------

           Total liabilities and stockholders' equity                                    $160,423          $317,491
                                                                                         ========          ========

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

<TABLE>
<CAPTION>

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

                                                                             1998           1999            2000
                                                                             ----           ----            ----
                                                                                                          (Restated-
                                                                                                          See Note 2)
<S>                                                                          <C>            <C>             <C>
Revenues                                                                     $4,688         $36,694         $106,472
Cost of revenues                                                              3,610          19,650           66,100
                                                                              -----          ------           ------

   Gross profit                                                               1,078          17,044           40,372
                                                                              -----          ------           ------

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)        (126,790)
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)        (128,422)
   Income tax expense                                                           355              --               --
                                                                                ---              --               --

        Loss before discontinued operation                                  (19,710)        (49,470)        (128,422)
                                                                            --------        --------        ---------

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)        (128,422)
   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)       $(151,140)
                                                                             ======       =========       ==========


Basic and diluted loss per share:
   Continuing operations                                                     $(0.78)         $(2.55)          $(2.83)
   Discontinued operation                                                      0.76              --               --
                                                                               ----              --               --

Net loss per share                                                           $(0.02)         $(2.55)          $(2.83)
                                                                            =======         =======          =======


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


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





<TABLE>
<CAPTION>

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

                                                                              1998          1999            2000
                                                                              ----          ----            ----
                                                                                                          (Restated-
                                                                                                          See Note 2)
Cash flows from operating activities:
<S>                                                                            <C>         <C>             <C>
   Net loss                                                                    $(619)      $(49,470)       $(128,422)
   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)         (10,975)
        Work in process                                                           --         (2,902)          (2,256)
        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              $--
                                                                                 ===           ====              ===


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

<TABLE>
<CAPTION>

(part 1 of 2)                                   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
                                                                                     Additional          Other
                                                   Preferred       Common Stock        Paid-In        Comprehensive
                                                     Stock        ($.01 par value)     Capital           Income


<S>                                                     <C>           <C>              <C>                <C>
Balance, January 1, 1998                                $--           $215             $51,309            $--
  Net loss                                               --             --                  --             --
  Issuance of 5,775,003 shares of common stock for
    acquired businesses                                  --             58              19,988             --
  Issuance of 3,145,709 shares of common stock for
    conversion of debt and accrued interest              --             31              12,717             --
  Issuance of 55,800 shares of common stock
    through exercise of stock options and warrants       --              1                 118             --
  Issuance of 200,000 shares of common stock and
    options for services rendered                        --              2                 588             --
                                                         --              -                 ---             --

Balance, December 31, 1998                               --            307              84,720             --
  Comprehensive loss:
    Net loss                                             --             --                  --             --
    Other comprehensive income:
      Net unrealized gain arising during period          --             --                  --            937

         Total comprehensive loss
  Issuance of 4,977,923 shares of common stock in
    connection with acquired businesses                  --             50              47,918             --
  Issuance of 3,054,362 shares of common stock for
    conversion of debt and accrued interest              --             30              17,109             --
  Issuance of 2,489 shares of common stock for
    services rendered                                    --             --                  30             --
  Issuance of 4,161,755 shares of common stock
    through exercise of stock options and warrants       --             42              11,750             --
  Value of warrants issued in connection with the
    Series A preferred stock                             --             --              53,118             --
  Intrinsic value of beneficial conversion feature of
    Series A preferred stock and pay-in-kind             --             --              37,429             --
  Deemed dividends and accretion of preferred stock      --             --                  --             --
                                                         --             --                  --             --

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

Balance, December 31, 2000 (restated - See Note 2)      $--           $637            $528,958        $(1,127)
                                                        ===           ====            ========        ========




See accompanying notes to consolidated financial statements.

</TABLE>


<TABLE>
<CAPTION>
(part 2 of 2)                                 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)

                                                             Note
                                                          Receivable                    Treasury           Total
                                                             From        Accumulated      Stock          Stockholders'
                                                           Officer        Deficit        at Cost      Equity (Deficit)

<S>                                                        <C>           <C>             <C>              <C>
Balance, January 1, 1998                                    $(230)        $(54,185)       $(171)           $(3,062)
  Net loss                                                     --             (619)          --               (619)
  Issuance of 5,775,003 shares of common stock for
    acquired businesses                                        --               --           --             20,046
  Issuance of 3,145,709 shares of common stock for
    conversion of debt and accrued interest                    --               --           --             12,748
  Issuance of 55,800 shares of common stock
    through exercise of stock options and warrants             --               --           --                119
  Issuance of 200,000 shares of common stock and
    options for services rendered                              --               --           --                590
                                                               --               --           --                ---

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

Balance, December 31, 1999                                   (230)        (148,048)        (171)           104,991
  Comprehensive loss:
    Net loss (restated - See Note 2)                           --         (128,422)          --           (128,422)
    Other comprehensive loss:
      Net unrealized loss arising during period                --               --           --             (1,871)
      Net foreign exchange loss arising during period          --               --           --               (193)
         Total comprehensive loss (restated - See Note 2)                                                 (130,486)
  Issuance of 862,721 shares of common stock in
    connection with acquired businesses                        --               --           --             16,739
  Issuance of 2,500,000 shares of common stock in
    private placement                                          --               --           --             65,715
  Issuance of 3,000,000 shares of common stock in
    public offering                                            --               --           --            175,208
  Issuance of 53,160 shares of common stock for
    for conversion of debt                                     --               --           --              1,994
  Issuance of 14,366,836 shares of common stock
    through exercise of stock options and warrants             --               --           --              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
  Deemed dividends and accretion of preferred stock            --          (22,718)          --            (22,718)
                                                               --         --------           --           --------

Balance, December 31, 2000 (restated - See Note 2)            $--        $(299,188)       $(171)          $229,109
                                                              ===       ==========        ======          ========




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



                           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 3). 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 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. The Company acquired ePrize 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 16).

      (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 is adjusted for amortization of premiums and
accretion of discounts to maturity over the contractual life of the security.
Such amortization and accretion are included in interest income.

     (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
3) 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 13).

     (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 9).

     (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 34% 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)  Restatement

On June 26, 2001, the Company announced that it would restate its financial
results for the fiscal year ended December 31, 2000 and for the fiscal
quarters ended March 31, 2001 and September 30, 2000 to reflect the
recognition of approximately $3.7 million of revenue in the first quarter
of 2001 which was originally recognized in 2000.

The Company performed services for a client in the year ended December 31,
2000, during which time a definitive professional services agreement was
being negotiated. The definitive professional services agreement, which was
signed during the first week of January 2001, established fees for past and
future services, including fees of $3.7 million which were recognized as
revenue during the year ended December 31, 2000. The professional services
agreement also provided that the fees would be contingent upon the closing
of a financing by the client, which would include an investment by the
Company. A stock purchase agreement, dated as of December 29, 2000, to make
the investment was entered into by several investors, including the
Company, but the investment transaction did not close until the first week
of January 2001, following which time the Company was paid for
substantially all of the services relating to the $3.7 million in fees.
After re-examining this transaction, the Company has concluded that the
revenue in question should have been recognized in the first quarter of
2001.

As a result of the restatement, net accounts receivable and work in
process as of December 31, 2000 decreased approximately $1.7 million and
$2.0 million, respectively. The effect on the results of operations are as
follows (in thousands, except per share data):

                                       For the Year Ended December 31, 2000
                                      ---------------------------------------
                                          As Reported          As Restated
                                      ------------------    -----------------
    Revenues                                  $110,149             $106,472
    Loss from operations                      (123,113)            (126,790)
    Net loss                                  (124,745)            (128,422)
    Basic and diluted loss per share             (2.76)               (2.83)



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

(3)  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 9). 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.

<TABLE>
<CAPTION>
                                           Date of              Number of            Purchase           Gross
             Acquisition                 Acquisition           Shares Issued          Price            Goodwill

                                                               (In thousands)

1998
<S>                                       <C>                       <C>                 <C>             <C>
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.

                                              1999              2000
                                              ----              ----
                                                    (Restated)
                                                  (in thousands)

Revenues                                     $59,097           $109,962
                                             =======           ========

Net loss                                   $(65,694)         $(126,759)
                                           =========         ==========

Net loss attributable to common
   stockholders--basic and diluted           $(2.81)            $(2.84)
                                             =======            =======

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.


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

(3)  Business Transactions--(Continued)

      (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.

     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.


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

(4)  Segment Information

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

<TABLE>
<CAPTION>
                                                                                   1998          1999         2000
                                                                                   ----          ----         ----
                                                                                                          (Restated)
Revenues:
<S>                                                                                <C>          <C>          <C>
   Internet services                                                               $4,688       $36,870      $117,325
   Investment                                                                          --         1,554         7,825
   Internet services provided to investments                                           --        (1,730)      (18,678)
                                                                                       --       -------      --------
                                                                                   $4,688       $36,694      $106,472
                                                                                   ======       =======      ========

Loss before interest, taxes, depreciation and amortization:
   Internet services                                                              $(1,902)      $(6,545)      $(8,342)
   Investment and corporate                                                        (3,590)      (14,268)      (69,088)
                                                                                   -------      --------      --------

                                                                                  $(5,492)     $(20,813)     $(77,430)
                                                                                  ========     =========     =========

Loss before interest, taxes, depreciation and amortization                        $(5,492)     $(20,813)     $(77,430)
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)     (128,422)
Discontinued operation                                                             19,091            --            --
                                                                                    ------           --            --

      Net loss                                                                      $(619)     $(49,470)    $(128,422)
                                                                                    ======     =========    ==========

Total assets:
   Internet services                                                              $44,743       $31,047       $61,339
   Investment and corporate                                                            --       129,376       256,152
                                                                                       --       -------       -------

                                                                                  $44,743      $160,423      $317,491
                                                                                  =======      ========      ========
</TABLE>

 (5) 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)

(5)  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.

(6)  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 16)                       3,543
                                                               -----

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

(7)  Property and Equipment

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

<TABLE>
<CAPTION>
                                                                     1999              2000
                                                                     ----              ----
<S>                                                                 <C>               <C>
   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
                                                                    =======           =======

(8)  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
                                                                     ======           =======
</TABLE>



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

(9)  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.

(10) 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 achievement 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.

(11) Stockholders' 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)

(11) Stockholders' 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 12). The
Company withheld 9,986 shares of common stock as payment of the aggregate
exercise price.

 (12)     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)

(12)  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 44% 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.

(13) 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)

(13) 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 on
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 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, 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):

<TABLE>
<CAPTION>
                                                      1998                1999              2000
                                                      ----                ----              ----
                                                                                        (Restated)
Net loss:
<S>                                                    <C>               <C>               <C>
   As Reported                                         $619              $49,470           $128,422
   Pro Forma                                         $6,054              $63,927           $178,318

Net loss attributable to common stockholders:
   As Reported                                        $0.02                $2.55              $2.83
   Pro Forma                                          $0.24                $2.94              $3.76
</TABLE>

     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)

(13) 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>

(14) 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 $138.7 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)

(14) 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               $52,562
Alternative minimum tax carryforwards             355                   355
Other assets                                      247                 5,977
Other accrued expenses                            294                 1,659
                                                  ---                 -----

       Total gross deferred tax assets         27,676                60,553
Less valuation allowance                      (27,676)              (60,553)
                                             --------              --------

       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 $32.9 million,
respectively. Of the total valuation allowance of $60.6 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.

 (15) 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.

(16) 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)

(16) 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
                                                   Balance at   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>
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: June 25, 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          June 25, 2001
   -------------------       Chief Executive Officer
   Glenn S. Meyers

   /s/ ANDREW D. AFRICK      Director                           June 25, 2001
   ------------------
   Andrew D. Africk

                             Director
   ------------------
   Michael Gross

   /s/ JEFFREY KILLEEN
   ------------------        Director                           June 25, 2001
   Jeffrey Killeen

                             Director                           June 25, 2001
   -----------------
   Marc J. Rowan

   /s/ WILLIAM STASIOR       Director                           June 25, 2001
   ----------------
   William Stasior

                             Director
   -----------------
   John Piccone

   /s/ CRAIG C. CHESSER      Vice President and Treasurer       June 25, 2001
   -----------------         (Principal Financial Officer)
   Craig C. Chesser

   /s/ MICHAEL A. HULTBERG   Vice President and Controller      June 25, 2001
   -------------------       (Principal Accounting Officer)
   Michael A. Hultberg





Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

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

We consent to incorporation by reference in the registration statements
Nos. 33-37036, 33-37037, 33-85634, 33-83636, 33-89122, 33-89124, 333-76957
and 333-49290 on Form S-8 of our report dated February 14, 2001, except for
Note 2 which is as of June 22, 2001, relating to the consolidated balance
sheets of Rare Medium Group, Inc. and subsidiaries as of December 31, 1999
and 2000, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2000, and the related financial
statement schedule, which reports appear in the December 31, 2000 annual
report on Form 10-K/A Amendment No. 2 of Rare Medium Group, Inc.


New York, New York                                             /s/ KPMG LLP
June 22, 2001




                                                                Exhibit 23.2

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

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

     The audits  referred to in our report dated February 14, 2001,  except
for Note 2 which is as of June 22,  2001,  included  the related  financial
statement  schedule as of December 31,  2000,  and for each of the years in
the  three-year  period ended  December  31,  2000,  included in the annual
report on Form 10-K/A Amendment No. 2. This financial statement schedule is
the  responsibility of the Company's  management.  Our responsibility is to
express  an  opinion  on this  financial  statement  schedule  based on our
audits. In our opinion, such financial statement schedule,  when considered
in  relation  to the basic  consolidated  financial  statements  taken as a
whole,  presents fairly in all material  respects the information set forth
therein.



New York, New York                                             /s/ KPMG LLP
February 14, 2001, except
for Note 2 which is as of
June 22, 2001