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

                                   FORM 10-K

           /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
             SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
                         ENDED DECEMBER 31, 1999, 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)

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<S>                                                       <C>
                        DELAWARE                                                 23-2368845
    (STATE OR OTHER JURISDICTION OF INCORPORATION OR
                     ORGANIZATION)                                (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

              565 FIFTH AVENUE, 29TH FLOOR
                   NEW YORK, NEW YORK                                              10017
        (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                                 (ZIP CODE)
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                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 February 18, 2000 was $2,286,523,914.

     As of February 18, 2000, 45,906,787 shares of our common stock were
outstanding.

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                                     PART I

FORWARD-LOOKING STATEMENTS

     This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve risks and uncertainties, including statements
regarding our capital needs, business strategy, expectations and intentions. We
urge you to consider that statements which 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 invests in and develops, manages and operates companies in selected
       Internet-focused market segments; and

     o takes strategic equity positions in companies that we believe possess
       superior Internet-focused business models.

     Our end-to-end Internet professional service offering encompasses the
entire 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 by utilizing our unique methodology and
leveraging our knowledge of vertical markets. Our customers include companies in
the consumer service, financial, technology, entertainment, consumer goods,
retail and automotive industries. Our customers include AT&T, Dr. Drew, Epson,
Forbes, Microsoft, Nestle, Ritz Carlton and Weider.

     We also invest in and internally develop, manage and operate companies in
selected Internet-focused market segments. Our investment business is currently
focused on Internet companies engaged in the business-to-business e-commerce,
Internet enabling tools, broadband and next generation communications sectors.
We provide our incubator companies with capital as well as with a comprehensive
suite of strategic and infrastructure services. These services include Internet
services and financial, legal and accounting advisory services. We believe that
by providing these services we enable our incubator companies to focus on their
core competencies and accelerate the time-to-market of their products and
services.

     In addition, we make minority investments in independently managed
companies which we believe represent the next generation of premier Internet
companies. 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.

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     We seek to capitalize on the synergies between our Internet services and
our investment businesses in an effort to improve shareholder value. We believe
the collaboration between these two businesses provides us with the following
competitive advantages in each business:

  Investment Business

     o because of our extensive knowledge and expertise in delivering Internet
       services, we are better able to identify promising Internet companies in
       the early stages of their development;

     o once we have made an investment in these Internet companies, we have the
       capacity to deliver them high quality Internet services, strategic
       consulting services and business infrastructure services during their
       most critical growth period. We believe our ability to provide these
       services to these companies increases the likelihood of their overall
       success and the return on our investment;

  Internet Services Business

     o our venture and incubator investments afford us the opportunity to
       provide Internet services to these companies. By executing services
       contracts with our portfolio companies, we believe we can capture
       additional services revenues without incurring additional business
       development costs;

     o because our investment business targets Internet companies with highly
       innovative and cutting edge business models and technologies, we believe
       we can increase our Internet services expertise by working with many of
       these companies; and

     o we believe we are better able to attract and retain superior Internet
       professionals as compared to our competitors by providing our employees
       with the opportunity to share in the financial success of our portfolio
       companies and with employment opportunities at our incubator companies.

INDUSTRY BACKGROUND

     Advances in technology and functionality have led to the widespread
acceptance of the Internet as a new global medium that allows people to share
information and conduct commerce. The number of Internet users has grown
dramatically. International Data Corporation, an independent research firm,
forecasts that the number of worldwide Internet users will increase from 196
million in 1999 to 502 million in 2003, a compound annual growth rate of 27%.
Similarly, International Data Corporation estimates that the growth of Internet
content, as measured by number of web pages worldwide, will grow from 1.7
billion pages in 1999 to 13.4 billion pages in 2003, a compound annual growth
rate of 67%.

     Much of the growth of the Internet has been driven by corporate recognition
that the Internet can be used to achieve competitive advantage. The growth in
the use of the Internet and the expansion of uses for the Internet have led to
the creation of numerous start-up companies that seek to take advantage of new
market opportunities. These new companies generally employ an Internet-focused
business model or provide solutions that enable faster or more efficient use of
the Internet, and are characterized by their focus on high-growth market
segments. These high growth areas include, among others:

     o Business-to-Business e-commerce. Through business-to-business e-commerce,
       large transactions between enterprises can be made more cheaply and
       efficiently and in a more timely manner through use of the Internet.
       International Data Corporation projects that the market for
       business-to-business e-commerce will grow from $80 billion in 1999 to
       $1.1 trillion in 2003, a compound annual growth rate of 94%.

     o Internet Enabling Tools. Enabling tools, such as software and services,
       optimize the way in which the Internet is utilized, allowing individuals
       and businesses to expand their usage of the Internet for information,
       communication and e-commerce, as well as for other activities that may
       not have existed prior to the proliferation of the Internet.

     o Broadband. New broadband Internet technologies deliver high-speed
       Internet access, thereby enabling users to access the Internet at much
       greater speed. These technologies also create opportunities for companies
       to deliver improved content and services online. International Data
       Corporation estimates

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       that the number of digital subscriber lines in the United States will
       grow from approximately 650,000 in 1999 to more than 27 million in 2003,
       a compound annual growth rate of 155%.

     o Next Generation Communications. Next generation communications, such as
       IP telephony, enable the Internet to connect individuals and businesses
       in new cost efficient ways. International Data Corporation forecasts that
       IP telephony services revenue will grow from $480 million in 1999 at a
       compound annual growth rate of 121%, reaching $11.9 billion in 2003.

     Businesses increasingly view technology as an important competitive
differentiator. In order to compete effectively, companies must now have an
effective Internet strategy and solution. The skills required to create such a
solution include architecture design, application development, systems
integration, and application hosting, among other disciplines. We believe these
are skills that few companies possess internally due to the scarcity in the
information technology personnel market. As a result, an increasing number of
organizations, from Global 1000 companies to startup Internet businesses, are
engaging Internet services firms. International Data Corporation projects that
spending on Internet-related services will rise from approximately $13 billion
in 1999 to more than $78 billion in 2003, a compound annual growth rate of 57%.

OUR INTERNET SERVICES BUSINESS

  SOLUTIONS

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

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

     o automotive;

     o consumer goods and services;

     o entertainment and media;

     o financial services;

     o health care;

     o luxury goods;

     o nonprofit;

     o technology; and

     o travel and hospitality.

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 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 are also
developing expertise in emerging areas such as ASP and broadband. We believe by
providing our clients with these comprehensive services we are able to meet
substantially all their online needs on an ongoing basis.

     Venture Capital Strategic Consulting.  A unique component of our services
offerings is the strategic consulting services that we provide to well respected
venture capital firms that invest in Internet start-up companies. These
consulting services generally consist of evaluating and suggesting modifications
to business models of the targeted Internet start-up companies, performing
market research and assessing the relevant

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competition. We believe by providing these strategic consulting services we can
enhance our venture and incubator investment businesses while increasing our
Internet services revenues.

     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 Application Service Provider or "ASP" Initiative.  Through our ASP
competency group, we have recently begun to offer ASP solutions to the
business-to-business market. The ASP model allows emerging Internet companies to
obtain state-of-the-art applications that they would not otherwise be able to
afford. We also believe that by using our ASP solutions these companies will be
able to achieve faster time-to-market for their products and an increased focus
on their core competencies. We believe our ASP offering will be superior to
those of our competitors due to the unique mix of technology, industry alliances
and services that we can provide our clients quickly and easily in order to help
them develop an on-line business.

     Our Broadband Competency Center.  Through our rapidly developing broadband
competency center, we are able to offer our clients strategic, creative and
technical broadband resources. Using high-capacity communications technology, we
will be able to integrate high speed Internet applications, such as full-motion
video, into our customers' Internet solutions.

  STRATEGY

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

     Attract and Retain a Highly Specialized Workforce.  We intend to continue
to recruit highly skilled and experienced professionals who have
industry-specific expertise and who are proficient in a broad range of
technological and business skills. 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, granting stock options, allowing
participation in our investment portfolio, giving them the opportunity to work
for one of our incubator companies, reimbursing tuition expenses 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 automotive,
consumer goods and services, entertainment and media, financial services and
health care. 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 which 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 Strategic Consulting Services.  We intend to leverage the
strategic consulting services that we provide to venture capital firms and the
Internet start-up companies in which these firms seek to invest. We believe that
these services will enable us to achieve the following synergies:

     o the ability to co-invest with successful venture capital firms;

     o generation of service revenues in connection with our venture capital
       consulting engagement together with an increase in the overall success of
       the Internet start-up companies;

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     o the ability to generate revenues for our Internet services business as a
       result of the end-to-end Internet solution developed during our strategic
       consulting engagements;

     o the opportunity to improve our own venture capital strategies, enhancing
       our reputation in the venture capital community and gaining entrance into
       their flow of transactions; and

     o the ability to provide our high-quality strategic consulting services to
       our own investment business, thereby providing our investment business
       with an opportunity to better identify and evaluate potential incubator
       and venture investments.

     Leverage Our Relationship with Apollo.  Affiliates of Apollo Advisors, LP,
our largest shareholder, will own approximately 44% of our outstanding common
stock on a fully diluted basis after giving effect to our proposed public
offering of common stock in the first quarter of fiscal year 2000, which we
refer to in this report as our "public offering." 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 believe that we
will have an introduction into these "brick and mortar" businesses and will be
well placed to address their Internet services needs going forward.

     Enhance the Rare Medium Brand.  We believe that our brand is
well-recognized in the fragmented Internet services industry. We intend to
continue to enhance our brand through an aggressive campaign of advertising,
public relations campaigns and speaking engagements.

     Increase Repeat and Recurring Revenues.  We plan to increase the proportion
of our revenues which 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 ASP solutions to our new and existing clients.
We plan to charge clients who use our ASP solutions 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 AT&T, IBM, Macromedia,
Microsoft and Oracle.

     Continue to Expand Geographic Coverage.  We plan to continue to expand the
presence of our Internet services business primarily through internal growth. We
currently have 12 domestic offices and four international offices, and we plan
to open additional domestic and international offices. We believe that
establishing a local presence in the United States enables us to service our
clients better. We also believe that establishing an early presence in select
international markets that are positioned to experience an increasing demand for
Internet services will give us a competitive advantage in these markets.

  OUR APPROACH

     We have developed a project methodology to help our customers determine
opportunities to transition their businesses in the constantly changing Internet
economy and to plan and implement the strategy, technology and operations
required to succeed in this environment. Our step-by-step methodology described
below is designed to produce high-impact Internet services on time, on budget
and with a continuous enhancement plan that responds to both general market and
Internet technology changes.

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  Business Strategy

     Initially, we use our vertically-focused strategic expertise to develop a
business plan for our clients that includes the financial, marketing and
operational components that provide a convincing rationale for the proposed
Internet solution and guide its development. We provide strategic services
within a proven and refined interdisciplinary consulting model that combines the
best practices of management consulting, innovative technology solutions and the
critical component of usability and human computer interaction. We provide these
strategic services within a flexible methodology customized to each of our
client engagements.

  Exploration

     Next, we gather user requirements, suggest e-business features and develop
a general project plan. We assess the overall structure and content of the
proposed Internet solution and make technical and design recommendations based
on the findings. We then propose broad technology and creative approaches
including necessary software, infrastructure organization, website navigation
and graphic design concepts. This phase culminates in the delivery of a
high-level project plan which includes recommended features and functionality,
timeframes, personnel resources, projected costs and client responsibilities.

  Ideation

     During this phase, the concepts and strategies articulated in the
exploration phase are refined through the creation of content maps, project
specifications, imagery and prototypes. The result is a detailed blueprint from
which the finished Internet solution will be constructed and a list of necessary
hardware and software components. In addition, if requested by our clients, we
will also prepare a proof-of-concept prototype to accompany this blueprint.

  Creation

     In this phase, we construct the solution using the detailed specifications
established in the ideation phase and tested for reliability using a rigorous
quality assurance process. The goal is a finished product that meets all of our
client's objectives. We seek to accomplish this goal through constant
consultation and collaboration with our clients.

  Transfer

     During this phase, we implement the Internet solution in its hosting
environment and officially launch the website. We also educate our client's
staff in the operation of its new website and work with the client to develop
procedures to address any changes in technology, system problems, and desired
enhancements. We also assist the client in developing a plan to ensure that it
has the appropriate staff resources to operate the website on a daily basis.

  Evolution

     Finally, we measure the performance of the Internet solution in its
operational environment, analyze those measurements, recommend enhancements
based on our findings and establish a plan to execute our recommendations.

  CASE STUDIES OF OUR INTERNET SERVICES CLIENTS

     The following is a description of some of the solutions we have developed
for the challenges presented to us by our Internet services clients.

  Microsoft

     Challenge: To design a website, eshop.microsoft.com, to showcase
Microsoft's product line, create a rewarding interactive experience for online
customers and offer online customers the choice of shopping on Microsoft's
website or purchasing the same product at a reseller's website.

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     Solution: We developed a custom solution that allows consumers to choose a
Microsoft product and complete the ordering process through Microsoft's website.

     Challenge: To build loyal, repeat visitors to Microsoft Network's default
page, which receives up to 10 million visitors per day, by engaging users and
encouraging them to click through to the full breadth of the network's content.

     Solution: We created three main graphic panels to simplify delivery of
information and bring functional and thematic focus to Microsoft Network's page.
We developed the concept of the message center and other personalized custom
features, eventually leading to a central user "command center" designed to
increase a user's investment in the functionality of the website. We prioritized
links, tools, categories and information to make the website user-friendly. We
preserved the identity of the website to retain Microsoft Network's established
audience, while updating and improving the default page in order to gain and
preserve new users.

  The New York Times

     Challenge: To create an online city guide for New York in a clean and
elegant way that maintains the integrity of the New York Times brand while
delivering optimum functionality and download time for a high-traffic website.

     Solution: We partnered with The New York Times Electronic Media Company to
create New York Today, an online city guide from the New York Times. Recognizing
that download speed and functionality were high priorities for such a heavily
trafficked website, we met the challenge with a design solution that relied on
limited graphic elements and strategic use of negative space. The result is a
website which retains the New York Times' brand identity and provides users with
timely, focused and relevant information. Users can easily customize the website
to suit their interests and synchronize the website with calendar applications
to notify them of upcoming events of interest.

  Macy's

     Challenge: To bring the Macy's brand into the Internet market by creating a
service-oriented, visually stimulating online shopping experience.

     Solution: We partnered with IBM to create macys.com, Macy's e-commerce
website. We designed the website to offer a highly personalized shopping
experience which meets the online shopper's expectations of Macy's traditional
standard of service. For example, the website operates on relational databases
to facilitate flexible keyword searches and features a unique shipping module
designed by us and adopted by IBM for use in future projects. Key features of
the Macy's website include the shopper's e-club, which features electronic
gift-giving reminders, an automatic shipment replenishment feature for preferred
essential products and an extensive bridal registry website. The Macy's solution
was developed on IBM's net.commerce platform while we designed and developed the
actual shopping strategy flows and shopping cart functionality. IBM's Arts Cafe
designed the website's graphics.

  Betty Crocker

     Challenge: To create a variety of useful, custom-designed database and
search tools to address the needs of today's working families while reinforcing
Betty Crocker's core brand attributes.

     Solution: We partnered with General Mills to create bettycrocker.com, the
brand's first online presence. We successfully extended Betty Crocker's core
brand attributes of quality, trust and credibility by creating a user-friendly,
information-rich website that brings Betty Crocker into the Internet market. We
designed a website that offers recipes, meal planning strategies and cooking
hints for website visitors. We created a number of user-friendly custom
databases and search tools to offer unique meal planning and recipe solutions.

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OUR INVESTMENT BUSINESS

     Our investment business seeks to invest in Internet companies which have
business models that we believe represent paradigm-shifting ideas and for which
we can leverage our industry relationships and expertise to accelerate the
creation of value within our investment portfolio. Our investment business is
currently focused on Internet companies engaged in business-to-business
e-commerce, Internet enabling tools, broadband 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.

     We believe that we have a significant advantage over many other Internet
investors in identifying and selecting early stage businesses with the most
potential due to our:

     o understanding of Internet business models gained through our Internet
       services and investment experience;

     o our extensive group of Internet professionals that are able to help us
       identify high-quality companies and perform diligence on these potential
       investments; and

     o relationships with financial institutions in the venture and investment
       community that expose us to valuable opportunities.

     In addition, we believe that we are better able to manage our investment
portfolio and ensure the success of our portfolio companies. We support the
businesses in which we invest through:

     o access that we provide to the scarce talent of our more than 400 Internet
       services professionals;

     o business development and assistance for our portfolio companies from our
       Internet industry veterans, from our other portfolio companies, from our
       contacts in the Internet industry and from our contacts at Apollo and at
       their portfolio companies;

     o incubator services that we provide to our majority-held companies,
       including technology infrastructure improvements, web hosting, legal
       guidance, and financial and accounting management; and

     o leverage of our relationships within the financial community to
       facilitate successful financing and mergers and acquisitions transactions
       for our portfolio companies.

  STRATEGY

  Our Incubator Business

     Our incubator investment strategy is to realize a significant capital
return on our investment by adding substantial value to our incubator companies
over time. Acting as a long-term partner, we use our resources to actively
develop the business strategies, operations and management teams of our
incubator companies. Our operating strategy for our incubator companies is to
integrate them into a collaborative network that leverages our collective
knowledge and resources.

  Our Venture Investment Business

     Our venture investment strategy is to realize a significant capital return
on our venture investments by making strategic, early-stage equity investments
in Internet companies which we believe will emerge among the next generation of
premier Internet companies. We seek to accomplish this goal by identifying
promising Internet companies in select industries and assessing our ability to
enhance the future success of these companies by employing our Internet services
expertise and leveraging our relationships.

  OUR INVESTMENT PROCESS

     We seek to identify high quality investment targets through our
relationships in the Internet, venture capital and financial communities and
seek to co-invest with well-respected investors. Additionally, we empower our
Internet services business to identify investment targets from within its client
portfolio of premier Internet firms. We rigorously screen our venture
investments by targeting areas of significant growth

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potential by seeking to identify the industries in which the next generation of
premier Internet companies will emerge. We then seek to accelerate the ability
of our venture companies to compete successfully by providing them with Internet
services, strategic consulting services and business infrastructure services and
assisting them to explore potential strategic transactions. Finally, we
introduce our venture companies to major financial institutions and investment
banks in an effort to create liquidity in our venture investments. We seek to
control the risk in our portfolio by investing in Internet-focused companies in
diversified vertical industries. In addition, we also regularly make our equity
purchases in the form of preferred stock that provides us with governance
rights, anti-dilution rights and liquidation preferences.

  INCUBATOR CASE STUDY: CHANGEMUSIC NETWORK.

     According to a report by Market Tracking International, worldwide retail
sales in the music industry were $39.7 billion in 1997 and are expected to grow
to $46.9 billion by 2004. The emergence of the Internet as a global
communications standard, the growth of high-speed Internet access, the
development of audio compression techniques, such as MP3, and the proliferation
of hardware and software that enables the management and playback of
downloadable music is currently driving rapid growth in this industry. Forrester
Research estimates that total online music revenues in the United States are
expected to grow from $89.0 million in 1998 to $7.8 billion in 2003. Of this
amount, Forrester further estimates that $1.1 billion will represent sales of
downloadable music in 2003.

     Within the context of this rapidly growing market, we determined that we
could efficiently aggregate highly trafficked sites at a low cost, using cash
and our common stock, from individual entrepreneurs who did not have the
resources or expertise to develop their properties to their fullest potential.
We acquired three of the leading, independent MP3 and digital music information
sites, two highly popular MP3 search engines and one of the most popular music
application customization sites. Together, these properties aggregate a
significant amount of web traffic, making the network of sites one of the
largest music-oriented destinations on the Internet.

     After acquiring the individual sites, we developed and refined the new
company's business model; lent management resources to facilitate the initial
marketing, business development, and strategic development of the company; hired
employees; provided office space; and assumed all finance, accounting, and legal
functions. Our services unit was retained to create ChangeMusic.com by
integrating our network of websites and extending our site functionality with a
comprehensive suite of web-based services such as fan management, digital
download, promotion and marketing, to serve the musician and band.

     Having established the ChangeMusic Network as an effective platform for the
distribution of music to consumers, we then accelerated our penetration of the
business to business marketplace with the acquisition by ChangeMusic.com of
College Media, Inc. or "CMJ", a music media company with a 20-year heritage and
a strong and stable revenue base. CMJ has a leading position in the college
radio market, maintaining strong relationships with more than 800 college radio
stations, and produces a leading industry trade journal covering emerging music,
a consumer publication and leading industry events. By integrating the
relationships and content of CMJ with the online user base of the original
ChangeMusic Network, we have positioned ChangeMusic.com to provide a unique,
market-leading set of offerings to meet the needs of emerging artists, record
labels and music consumers. In addition, we created a compelling value
proposition for CMJ shareholders by structuring a creative, multi-step
transaction using cash, our common stock and equity in the combined company.

  OUR INCUBATOR COMPANIES

     Currently, our incubator companies are ChangeMusic Network, Inc., ePrize,
Inc., iFace.com Inc., LiveUniverse.com, Inc., Notus Communications and
Regards.com.

  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

                                       9

<PAGE>

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 as well as promotional and talent development (A&R)
services. 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. We own
approximately 80% of ePrize on a fully diluted basis.

  iFace

     iFace.com develops products for telecommunication service providers and for
system integrators that telephony-empower websites and other Internet
applications. By developing systems around an architecture that handles
thousands of simultaneous phone calls over multiple transports, such as Public
Switched Telephone Network, Voice over IP and ATM, and providing off-the-shelf
applications for telecommunication service providers, iFace provides a robust
telephone solution for today's market. We own approximately 68% of iFace on a
fully diluted basis.

  LiveUniverse

     LiveUniverse.com is an ASP and ASP aggregator dedicated to lowering the
barriers to entering the Internet economy. LiveUniverse currently offers a suite
of advertising-supported hosted community tools through tens of thousands of
websites around the world. LiveUniverse is creating a unique service which will
enable any company to quickly and efficiently create a custom website, intranet
and extranet. LiveUniverse will earn revenue from reselling subscriptions based
ASP services and participating in the various forms of e-commerce it enables for
affiliates. We own approximately 85% of LiveUniverse on a fully diluted basis.

  Notus

     Notus Communications provides clients with private label Unified Messaging
technology and solutions. Users of Notus 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 68% of Notus on a fully diluted basis.

  Regards

     Regards.com is one of the leading websites for electronic greeting card
distribution and is consistently ranked in the top 10 for the category by
MediaMetrix for unique monthly visitors. With the recent addition of
Buildacard.com, Card4you.com and the other websites in The Greetingland Network,
we expect that Regards.com, which will aggregate traffic from these additional
websites, will become one of the leading websites in the online greeting
industry. Visitors to the website will have the opportunity to create their own
greeting cards and to purchase gifts, as well as additional features and
enhancements such as voice enabled greeting cards, and interactive game cards.
We own approximately 90% of Regards.com on a fully diluted basis.

                                       10

<PAGE>

  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              25%    Internet community for motorcycle enthusiasts
  (Competition Accessories)                                       and direct marketer of motorcycles, parts and
                                                                  accessories.

ANT 21                           September 1999            33%    Internet music label representing artists
  (AtomicPop.com)                                                 dedicated to leveraging the digital medium to
                                                                  change the way music is acquired, promoted,
                                                                  sold and distributed.

Archive.com                      December 1999              3%    Provider of secure Internet-based archival and
                                                                  retrieval services for business critical
                                                                  document management.

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

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

Edmunds.com                      October 1999               3%    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.

GFI                              August 1999                7%    Internet information and advocacy portal
  (SpeakOut.com)                                                  providing a platform for citizens to debate
                                                                  issues, comment on news and communicate with
                                                                  government, political and business leaders.

Howtoguru.com                    November 1999             13%    Provider of sports instructional content and
                                                                  services for sports participants through
                                                                  broadband and narrowband technologies.

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 by
                                                                  collecting and aggregating their likes and
                                                                  dislikes.

Money Hunt                       October 1999              14%    Online and offline media company dedicated to
                                                                  entertaining, educating and empowering
                                                                  entrepreneurs as they seek capital for and
                                                                  develop their start-up ideas.
</TABLE>

                                       11

<PAGE>

<TABLE>
<CAPTION>
                                                    APPROXIMATE
                                 INITIAL DATE OF       % OF
COMPANY NAME                       INVESTMENT       OWNERSHIP     DESCRIPTION OF BUSINESS
------------------------------   ---------------     ---------    -----------------------------------------------
<S>                              <C>                <C>           <C>
QuickNet                         November 1999              8%    Provider of hardware and software low-density
                                                                  Internet telephony products including the award
                                                                  winning Internet PhoneJACK and Internet
                                                                  PhoneCARD hardware and the Internet SwitchBoard
                                                                  software for Windows and Linux PCs.

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

StreamSearch.com                 September 1999            15%    Streaming media search engine that offers the
                                                                  easiest to use and most complete database of
                                                                  live events, full-length motion pictures,
                                                                  sports, weather, entertainment news and
                                                                  pay-per-view events on the Internet.
</TABLE>

CUSTOMERS

     Our customers are engaged in a broad variety of industries, including
consumer service, financial, technology, entertainment, consumer goods, retail
and automotive. Our customers include AT&T, Dr. Drew, Epson, Forbes, Microsoft,
Nestle, Ritz Carlton and Weider. We estimate that our five largest clients in
1999 accounted for approximately 14% of our revenues and that no single client
accounted for more than 5% 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, USWeb and Viant Corporation;

     o large systems integrators, such as Andersen Consulting, Computer Sciences
       Corporation and IBM;

     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.Poppe
       Tyson, 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

                                       12

<PAGE>

     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.

TECHNOLOGY

     We develop client solutions on the current state-of-the-art technology
platforms, including Linux and those developed by Microsoft, Sun Microsystems
and IBM. These technologies are applied to client solutions in conjunction with
an in-depth requirements analysis, including business models, existing
infrastructure and technology and business forecasting. These solutions include
existing technology analysis, network and applications architecture and
implementation, security analysis and implementation, application development,
legacy integration, testing, maintenance and transfer. We also provide managed
application services to our clients. In addition, we have built an optimized
wide area network to support our worldwide offices, providing internal knowledge
management, project management and human resources functionality. Both the
internal and external networks are monitored through our network operations
center, which uses state-of-the-art tools for performance analysis and
assurance.

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, 1999, we had 728 employees. We believe our relationship
with our employees is good. None of our employees is 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 which prohibit them
from competing with us during their employment and for various periods
thereafter.

                                       13

<PAGE>

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.

ITEM 2.  PROPERTIES

     We conduct our administrative and operations activities from 22 leased
facilities totaling approximately 250,000 square feet, pursuant to leases
expiring through 2008. These facilities are located in New York, New York;
Dallas, Texas; Los Angeles, California; Atlanta, Georgia; Detroit, Michigan;
Toronto, Ontario; San Francisco, California; Houston, Texas; San Antonio, Texas;
Irvine, California; Scottsdale, Arizona; Kendall Park, New Jersey; Great Neck,
New York; Sydney, Australia; London, England and Singapore. We routinely
evaluate our facilities for adequacy in light of our plans for growth in various
geographic markets. 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, 1999.

                                       14

<PAGE>

                                    PART II

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

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

<TABLE>
<CAPTION>
                                                                       1999
                                                     ----------------------------------------
                                                     4TH QTR    3RD QTR    2ND QTR    1ST QTR
                                                     -------    -------    -------    -------
<S>                                                  <C>        <C>        <C>        <C>
High Bid:.........................................   $44 1/16   $13 7/8    $20 1/8    $5 31/32
Low Bid:..........................................     9 5/8     6 9/16    4 13/16      3 5/8

<CAPTION>

                                                                       1998
                                                     ----------------------------------------
                                                     4TH QTR    3RD QTR    2ND QTR    1ST QTR
                                                     -------    -------    -------    -------
<S>                                                  <C>        <C>        <C>        <C>
High Bid:.........................................   $4 31/32   $ 6 1/2    $ 7 1/2    $ 3 1/4
Low Bid:..........................................     1 5/8      1 5/8     2 3/16    1 13/16
</TABLE>

     The above quotations reported by Nasdaq represent prices between dealers
and do not include retail mark-ups, mark-downs or commissions. Such quotations
may not represent actual transactions. On February 18, 2000, the last reported
sale price for our common stock was $49.875 per share.

     As of February 18, 2000, we had approximately 818 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, 1998 and December 31, 1999, 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, 1995, 1996, 1997, 1998 and 1999 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

                                       15

<PAGE>

this report. The format of prior year data has been conformed to reflect the
accounting for discontinued operations.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------------------------
                                              1995           1996           1997           1998           1999
                                           -----------    -----------    -----------    -----------    -----------
                                                              (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                        <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................   $        --    $        --    $        --    $     4,688    $    36,694
Cost of revenues........................            --             --             --          3,610         19,650
                                           -----------    -----------    -----------    -----------    -----------
  Gross profit..........................            --             --             --          1,078         17,044
                                           -----------    -----------    -----------    -----------    -----------
Expenses:
  Sales and marketing...................            --             --             --            896          5,450
  General and administrative............         1,383          1,546          1,992          5,674         32,406
  Depreciation and amortization.........            --             --             --         12,584         25,994
                                           -----------    -----------    -----------    -----------    -----------
    Total expenses......................         1,383          1,546          1,992         19,154         63,850
                                           -----------    -----------    -----------    -----------    -----------
Loss from operations....................        (1,383)        (1,546)        (1,992)       (18,076)       (46,806)
Interest income (expense), net..........           346            686            493         (1,279)        (1,396)
Equity interest in net loss of
  investments...........................            --             --             --             --         (1,468)
Other income............................            --             --             --             --            200
                                           -----------    -----------    -----------    -----------    -----------
Loss before taxes and discontinued
  operation.............................        (1,037)          (860)        (1,499)       (19,355)       (49,470)
  Income tax expense....................            --             --             --            355             --
                                           -----------    -----------    -----------    -----------    -----------
    Loss before discontinued operation..        (1,037)          (860)        (1,499)       (19,710)       (49,470)
                                           -----------    -----------    -----------    -----------    -----------
Discontinued operation:
  Loss from discontinued operation......        (5,287)        (6,295)       (11,985)        (5,166)            --
  Gain on restructuring Engelhard/ICC...            --             --             --         24,257             --
                                           -----------    -----------    -----------    -----------    -----------
    (Loss) income from discontinued
       operation........................        (5,287)        (6,295)       (11,985)        19,091             --
                                           -----------    -----------    -----------    -----------    -----------
Net loss................................        (6,324)        (7,155)       (13,484)          (619)       (49,470)
  Deemed dividend attributable to
    issuance of convertible preferred
    stock...............................            --             --             --             --        (29,879)
  Cumulative dividends and accretion of
    convertible preferred stock to
    liquidation value...................          (301)           (49)            --             --        (13,895)
                                           -----------    -----------    -----------    -----------    -----------
Net loss attributable to common
  stockholders..........................   $    (6,625)   $    (7,204)   $   (13,484)   $      (619)   $   (93,244)
                                           -----------    -----------    -----------    -----------    -----------
                                           -----------    -----------    -----------    -----------    -----------
Basic and diluted (loss) earnings per
  share:
  Continuing operations.................   $     (0.07)   $     (0.04)   $     (0.07)   $     (0.78)   $     (2.55)
  Discontinued operation................   $     (0.40)   $     (0.31)   $     (0.56)   $      0.76    $        --
                                           -----------    -----------    -----------    -----------    -----------
Net loss per share......................   $     (0.47)   $     (0.35)   $     (0.63)   $     (0.02)   $     (2.55)
                                           -----------    -----------    -----------    -----------    -----------
                                           -----------    -----------    -----------    -----------    -----------
Basic weighted average common shares
  outstanding...........................    14,072,867     20,332,952     21,339,635     25,282,002     36,625,457
</TABLE>

                                       16

<PAGE>


<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31
                                                          --------------------------------------------------------
                                                                               (IN THOUSANDS)
                                                            1995        1996        1997        1998        1999
                                                          --------    --------    --------    --------    --------
<S>                                                       <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents..............................   $  1,573    $  9,641    $  1,257    $    918    $ 28,540
Investments in affiliates..............................         --          --          --          --      26,467
Total assets...........................................      4,797      12,251       4,522      44,743     160,423
Notes payable, less current portion....................         --          --          --      10,592         997
Total liabilities......................................      3,263       2,180       7,584      14,921      19,208
Series A convertible preferred stock...................         --          --          --          --      36,224
Stockholders' equity (deficit).........................      1,534      10,071      (3,062)     29,822     104,991
</TABLE>

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

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

OVERVIEW

     We are an Internet-focused company that:

     o provides Internet professional services to companies;

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

     o takes strategic equity positions in companies that we believe possess
       superior Internet-focused business models.

     Our end-to-end Internet professional services offering encompasses the
entire Internet services spectrum, ranging from strategic and creative
consulting to applications development, implementation and hosting. Our
customers include AT&T, Dr. Drew, Epson, Forbes, Microsoft, Nestle, Ritz Carlton
and Weider.

     We also invest in and internally develop, manage and operate companies in
selected Internet-focused market segments. In addition, we make minority
investments in independently managed companies, in which we co-invest 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. Our investment business is currently
focused on Internet companies engaged in the business-to-business e-commerce,
Internet enabling tools, broadband and next generation communications sectors.
Our investment in these businesses amounted to $54.5 million at December 31,
1999.

     Our operating results are primarily driven by the Internet services
business of Rare Medium, Inc. We evaluate the performance of Rare Medium, Inc.
as a separate segment. Revenue, operating loss 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. Rare Medium, Inc.'s revenue, including revenue from
services provided to our consolidated subsidiaries, increased to $36.9 million
in 1999 from $4.7 million in 1998. Loss before interest, taxes, depreciation and
amortization increased from $1.9 million to $6.3 million in 1999. These
increases reflect the increase in our billable employees, as a result of our
acquisitions and aggressive hiring strategy, and the increase in our cost
associated with the geographic expansion into select markets. Our sequential
revenue increased 43% from $11.9 million for the third quarter ended
September 30, 1999 to $17.0 million for the fourth quarter ended December 31,
1999.

     During the year ended December 31, 1999, we acquired 22 businesses, 9 of
which are in our Internet services business, for $3.2 million of cash and an
aggregate of 4,977,923 shares of 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 $51.2 million in stock
and cash, were allocated to net tangible assets, which consisted primarily of
cash, accounts receivable, property and equipment, accounts payable and notes
payable. Intangible assets, which

                                       17

<PAGE>

consist primarily of goodwill, of $57.3 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 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 year ended December 31, 1999 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.

     Our board of directors has approved 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. We will have the right to pay such amount either in cash, in our
common stock or a combination thereof. Although we expect the Compensation
Committee to make allocations of awards under this plan in the first half of
2000, no awards have been made as of the date of this report. Depending on the
structure of the awards under this plan, we may be required to record
compensation expense in accordance with generally accepted accounting
principles.

                                       18

<PAGE>

RESULTS OF OPERATIONS

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

                       CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                  YEAR ENDED
                                                                                                 DECEMBER 31,
                                                                                            -----------------------
                                                                                               1998          1999
                                                                                            -----------    --------
                                                                                             UNAUDITED      ACTUAL
                                                                                             PRO FORMA
                                                                                                (IN THOUSANDS)
<S>                                                                                         <C>            <C>
Revenues.................................................................................    $   5,830     $ 36,694
Cost of Revenues.........................................................................        4,489       19,650
                                                                                             ---------     --------
  Gross profit...........................................................................        1,341       17,044
                                                                                             ---------     --------
Expenses:
  Sales and marketing....................................................................          896        5,450
  General and administrative.............................................................        6,210       32,406
  Depreciation and amortization..........................................................       12,628       25,994
                                                                                             ---------     --------
  Total expenses.........................................................................       19,734       63,850
                                                                                             ---------     --------
Loss from operations.....................................................................      (18,393)     (46,806)
Interest expense, net....................................................................       (1,383)      (1,396)
Equity interest in net loss of investments...............................................           --       (1,468)
Other income.............................................................................           --          200
                                                                                             ---------     --------
Loss before taxes and discontinued operation.............................................      (19,776)     (49,470)
                                                                                             ---------     --------
Income tax expense.......................................................................          355           --
                                                                                             ---------     --------
Loss before discontinued operation.......................................................      (20,131)     (49,470)
Discontinued operation:
  Loss from discontinued operation.......................................................       (5,166)          --
  Gain on restructuring of Englehard/ICC.................................................       24,257           --
                                                                                             ---------     --------
Income from discontinued operation.......................................................       19,091           --
                                                                                             ---------     --------
Net loss.................................................................................       (1,040)     (49,470)
Deemed dividend attributable to issuance of convertible preferred stock..................           --      (29,879)
Cumulative dividends and accretion of convertible preferred stock to liquidation value...           --      (13,895)
                                                                                             ---------     --------
Net loss attributable to common stockholders.............................................    $  (1,040)    $(93,244)
                                                                                             ---------     --------
                                                                                             ---------     --------
</TABLE>

REVENUES

     Revenue 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 or 529%. The increase reflects the increase in our billable
employees as a result of acquisitions and aggressive hiring strategy, that has
facilitated increases in both the number and relative size of client
engagements. All of the acquired Internet services businesses' operations have
been or are being 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 or 338%. The increase is due primarily to a
substantial increase in personnel added in our Internet services business. We
expect cost of revenues to increase on an absolute dollar basis as we hire
additional personnel and incur additional costs related to the anticipated
growth of our Internet services business. The increase in cost of revenues also
reflects $1.0 million of costs related to our incubator businesses.

                                       19

<PAGE>

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 is 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. We expect sales and
marketing expenses to increase as we continue to build brand awareness.

GENERAL AND ADMINISTRATIVE EXPENSE

     General and administrative expense for the year ended December 31, 1999
increased to $32.4 million from $5.7 million for the year ended December 31,
1998, an increase of $26.7 million or 471%. The increase is 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 expenses also relates 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 or 106%. This
increase resulted primarily from our acquisitions during 1999. We anticipate
that expenses related to the amortization of intangible assets will increase in
future periods as we continue to make acquisitions.

INTEREST EXPENSE, NET

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

NET (LOSS) INCOME

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

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

                                       20

<PAGE>

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

     Through a series of transactions, we restructured our operations during
1998 to focus solely on the business of providing Internet services primarily to
large and medium sized businesses. This was accomplished by restructuring our
Engelhard/ICC joint venture; purchasing the Internet-related businesses of Rare
Medium, Inc., I/O 360 and DigitalFacades; and disposing of a majority of our
partnership interests in Fresh Air Solutions in October, 1998. Historically, we
had been engaged in the design, development, manufacture and marketing of
desiccant based climate control systems.

     The results include the pro forma results of Rare Medium, Inc. as if the
acquisition were completed on January 1, 1997. The 1998 results include the
results of DigitalFacades and I/O 360 since their dates of acquisition in August
of 1998.

<TABLE>
<CAPTION>
                                                                                         RARE MEDIUM GROUP, INC.
                                                                                           UNAUDITED PRO FORMA
                                                                                         STATEMENT OF OPERATIONS
                                                                                         -----------------------
                                                                                                   1997
                                                                                         -----------------------
                                                                                             (IN THOUSANDS)
<S>                                                                                      <C>
Revenues..............................................................................          $   3,856
Expenses:
  Operating expense...................................................................              2,781
  Corporate general and administrative................................................              1,991
  Stock-based compensation............................................................              4,589
  Depreciation and amortization.......................................................                107
                                                                                                ---------
                                                                                                    9,468
                                                                                                ---------
Loss from operations..................................................................          $  (5,612)
                                                                                                ---------
                                                                                                ---------
Net loss..............................................................................          $ (17,112)
                                                                                                ---------
                                                                                                ---------

<CAPTION>
                                                                                        RARE MEDIUM GROUP, INC.
                                                                                          UNAUDITED PRO FORMA
                                                                                        STATEMENT OF OPERATIONS
                                                                                        -----------------------
                                                                                                 1998
                                                                                        -----------------------
<S>                                                                                      <C>
Revenues..............................................................................         $   5,830
Expenses:
  Operating expense...................................................................             9,541
  Corporate general and administrative................................................             2,054
  Stock-based compensation............................................................                --
  Depreciation and amortization.......................................................            12,628
                                                                                               ---------
                                                                                                  24,223
                                                                                               ---------
Loss from operations..................................................................         $ (18,393)
                                                                                               ---------
                                                                                               ---------
Net
loss..............................................................................             $  (1,040)
                                                                                               ---------
                                                                                               ---------
</TABLE>

REVENUES

     Revenues for the year ended December 31, 1998 increased to $5.8 million
from $3.9 million for the year ended December 31, 1997, an increase of
$1.9 million. The increase was primarily due to the acquisitions of
DigitalFacades and I/O 360 late in the third quarter of 1998, as well as
increased business generated by the professional services business. The increase
in revenues resulted from both higher revenues for some of our existing clients
as well as the addition of new clients. On a pro forma basis, if the
acquisitions of Digital Facades and I/O 360 had been effective January 1, 1998,
unaudited revenues for the year ended December 31, 1998 would have been $8.3
million.

EXPENSES

OPERATING EXPENSES

     Operating expenses increased to $9.5 million for the year ended
December 31, 1998 from $2.8 million for the year ended December 31, 1997, an
increase of $6.7 million. The majority of the increase is related to the
significant increase in personnel as a result of the expansion and scaling of
the business, as the number of personnel more than tripled and we went from one
location in 1997 to five in 1998. These operating expenses include both direct
costs related to revenues as well as general and administrative expenses related
to Internet professional services. Included in these expenses are costs related
to our significant investment of time and resources into: (1) the organizational
restructuring and reengineering of the company; (2) building the systems
infrastructure both in terms of systems (website, Intranet redesign, scaling of
network) and personnel; and (3) the integration of I/O 360 and DigitalFacades
into the Rare Medium, Inc. functional and organizational structure. We
anticipate that operating expenses will continue to increase in absolute dollars
as we continue to build our infrastructure to support our expected growth from
both internal sources and through acquisitions.

                                       21

<PAGE>

CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES

     Corporate general and administrative expenses were $2.0 million for each of
the years ended December 31, 1998 and December 31, 1997. For the year ended
December 31, 1998, corporate general and administrative expenses included
professional fees for legal and accounting services and salaries and our
corporate overhead prior to the acquisition of Rare Medium, Inc. in April 1998
and for some of the costs associated with our transitioning to our new business.
Corporate general and administrative expenses for the year ended December 31,
1997 represented expenses not associated with the Internet services business of
Rare Medium, Inc. and were related primarily to legal, accounting, public
relations and other administrative expenses including salaries and our corporate
overhead in support of our then existing businesses.

DEPRECIATION AND AMORTIZATION EXPENSES

     Depreciation and amortization expenses for the year ended December 31, 1998
increased to $12.6 million from $0.1 million for the year ended December 31,
1997, an increase of $12.5 million. This increase was due to the amortization of
goodwill related to the acquisitions during 1998 of Rare Medium, Inc., I/O 360
and DigitalFacades, with $11.4 million related to the Rare Medium, Inc.
acquisition in April 1998. The goodwill relating to the acquisitions is being
amortized over a three-year period.

LOSS FROM OPERATIONS

     The loss from operations for the year ended December 31, 1998 increased to
$18.4 million from a loss of $5.6 million for the year ended December 31, 1997,
an increase of $12.8 million. The most significant reason for the increased loss
was the amortization expense in 1998 in addition to the increased operating
expenses. The loss for 1997 includes $4.6 million in non-cash charges for
stock-based compensation of which $4.1 million relates to warrants granted to an
officer of Rare Medium, Inc. Excluding these non-cash charges, the loss from
operations for 1997 would have been $1.0 million.

NET (LOSS) INCOME

     The net loss for the year ended December 31, 1998 was $0.8 million. The
major difference between the loss from operations and the net loss is a $24.3
million gain on the restructuring of our joint venture partnership with the
Englehard Corporation, the Englehard/ICC partnership.

LIQUIDITY AND CAPITAL RESOURCES

     We had $28.5 million in cash and equivalents at December 31, 1999. This
amount is substantially a result of the proceeds received from the issuance of
our Series A convertible preferred stock and Series 1-A and Series 2-A warrants
partially offset by the venture and incubator investments and the cash used to
expand our Internet services business into new markets.

     Cash used in operating activities was $32.0 million for the year ended
December 31, 1999 and resulted primarily from the net loss of $49.5 million,
offset by non-cash charges of $30.1 million (which consists of depreciation,
amortization, equity interest in net loss on investments and non-cash interest
charges) and changes in working capital.

     Cash used in investing activities was $39.9 million for the year ended
December 31, 1999, which primarily consists of the purchase of businesses and
venture investments of $31.1 million, and capital expenditures of $8.8 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 expected to increase in future periods.

     Cash provided by financing activities was $99.5 million for the year ended
December 31, 1999. This consisted primarily of issuance of $6.0 million
convertible debentures (which were subsequently converted into common stock),
$83.0 million of net proceeds from the issuance of the Series A convertible
preferred stock as discussed below, and the exercise of warrants and options
that yielded $11.8 million, partially offset by repayment of borrowings totaling
$1.3 million. We currently believe that the net proceeds of our public offering
and the private placement, in addition to cash generated by operations, will be
sufficient to meet our working capital needs for the next twelve months.

                                       22

<PAGE>

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 of
$2.0 million 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.

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."

YEAR 2000 ISSUE

     The "Year 2000 Issue" refers to the problem of many computer programs using
the last two digits to represent a year rather than four digits (i.e., "99" for
1999). Some of our computer programs may have date-sensitive software that may
not operate properly when dealing with years past 1999, which is when "00" will
represent the Year 2000. To the extent that this situation exists, there is a
potential for computer system failure or miscalculations, which could cause a
disruption of operation of that program. The problem is not limited to computer
software, since some equipment may have date-sensitive processors that may not
be able to properly use dates after the year 1999.

     We appointed a Year 2000 Task Force to perform an assessment of our
readiness for Year 2000. This assessment included quality assurance testing of
our internally developed software and applications; quality assurance testing of
our overall information technology systems; contacting third-party vendors and
licensors of material software and services that are both directly and
indirectly related to the delivery of our products and services; assessing our
repair and replacement requirements; and creating contingency plans in the event
of Year 2000 failures.

     Our material software component vendors and our Internet service provider
informed us that the products we use are currently Year 2000 compliant. We
purchased all of our software and hardware within the past two years, and
therefore we do not have legacy systems that have been historically identified
to have

                                       23

<PAGE>

Year 2000 issues. We have not suffered any significant Year 2000 problems with
our internal systems or with our third-party vendors and licensors of material
software and services.

     We completed our assessment and system tests of all current versions of
hardware and software products and technology information systems that we use
and believe that they are Year 2000 compliant. However, we continue to monitor
our Year 2000 implications. We have not incurred any material costs in
identifying or evaluating Year 2000 compliance 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. We have not yet
determined the impact of adopting SFAS No. 133, as amended.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We believe that our market risk exposures associated with our outstanding
debt is immaterial since the carrying value of our variable rate debt
obligations approximates fair value as the market rate is based on the prime
rate. Our fixed 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

     The information relating to our change of accountants called for by this
item has been previously reported on our Annual Report on Form 10-K for the year
ended December 31, 1998. The decision to change our accountants was approved by
our board of directors, and this change was not related to, or a result of, any
disagreement with our former accountants.

                                       24

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by this item is incorporated herein by reference
to our definitive proxy statement for our Annual Meeting of Stockholders to be
held in June 2000.

ITEM 11. EXECUTIVE COMPENSATION.

     The information required by this item is incorporated herein by reference
to our definitive proxy statement for our Annual Meeting of Stockholders to be
held in June 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated herein by reference
to our definitive proxy statement for our Annual Meeting of Stockholders to be
held in June 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this item is incorporated herein by reference
to our definitive proxy statement for our Annual Meeting of Stockholders to be
held in June 2000.

                                    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)  Reports of Independent Accountants

                (ii)  Consolidated Balance Sheets as of December 31, 1998 and
                      1999.

               (iii)  Consolidated Statements of Operations for the years ended
                      December 31, 1997, 1998 and 1999.

                (iv)  Consolidated Statements of Changes in Stockholders' Equity
                      (Deficit) for the years ended December 31, 1997, 1998 and
                      1999.

                 (v)  Consolidated Statements of Cash Flows for the years ended
                      December 31, 1997, 1998 and 1999.

                (vi)  Notes to Consolidated Financial Statements.

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

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

     (b) Reports on Form 8-K. The following sets forth the Current Reports on
Form 8-K that were filed with the Securities and Exchange Commission during the
quarterly period ending December 31, 1999:

          1. Form 8-K filed on October 14, 1999, relating to the acquisition of
     Atomic Pop, LLC; and

          2. Form 8-K filed on November 24, 1999, as amended on December 23,
     1999, relating to the acquisition of College Media, Inc. The Form 8-K, as
     amended, included the following financial statements of College Media, Inc.
     and its subsidiary, CMJ Online, Inc.:

                (i)  Financial Statements of College Media, Inc. and CMJ Online,
                     Inc.

                                       25

<PAGE>

               Independent Auditors' Report
               Combined Balance Sheets as of September 30, 1999 (unaudited),
               December 31, 1998 and 1997
               Combined Statements of Operations and deficiency for the
               nine-month period ended September 30, 1999 (unaudited) and for
               the years ended December 31, 1998 and 1997
               Combined Statements of Cash Flows for the nine-month period
               ended September 30, 1999 (unaudited) and for the years ended
               December 31, 1998 and 1997
               Notes to Combined Financial Statements

          (ii) Pro Forma Financial Information.
               Overview
               Unaudited Pro Forma Condensed Consolidated Statements of
               Operations for the year ended December 31, 1998 and for the
               nine-month period ended September 30, 1999
               Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
               September 30, 1999
               Notes to the Unaudited Pro Forma Condensed Consolidated
               Financial Statements

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

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
------   -----------------------------------------------------------------------------------------------------------
<S>      <C>   <C>
  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.
</TABLE>

                                       26

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
------   -----------------------------------------------------------------------------------------------------------
<S>      <C>   <C>
  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.
  3.2     --   Amended and Restated By-Laws of Rare Medium Group, Inc.
 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.
</TABLE>

                                       27

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
------   -----------------------------------------------------------------------------------------------------------
<S>      <C>   <C>
 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.
</TABLE>

                                       28

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
------   -----------------------------------------------------------------------------------------------------------
<S>      <C>   <C>
 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.
 16       --   Letter regarding change in certifying accountant from PricewaterhouseCoopers LLP to the Securities
               and Exchange Commission, dated August 26, 1998, which was filed as Exhibit 16.1 to the Company's
               Current Report on Form 8-K dated August 13, 1998, and is hereby incorporated herein by reference.
 21       --   Subsidiaries of the Company are Rare Medium, Inc., a New York corporation; Rare Medium Atlanta, Inc.,
               a Delaware corporation; Rare Medium San Francisco, Inc., a Delaware corporation; Rare Medium Detroit,
               Inc., a Delaware corporation; Rare Medium Austin, Inc., a Delaware corporation; Evit__Caretni
               Interactive, 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 Michigan
               corporation.
 23.1     --   Consent of KPMG LLP, Independent Accountants.
</TABLE>

                                       29

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
------   -----------------------------------------------------------------------------------------------------------
<S>      <C>   <C>
 23.2     --   Consent of PricewaterhouseCoopers LLP, Independent Accountants.
 23.3     --   Independent Auditor's Report on Schedule.
 27       --   Financial Data Schedule.
 99       --   Letter on behalf of ICC Technologies, Inc. to PriceWaterhouseCoopers LLP pursuant to Item 304 of
               Regulation S-K, which was filed as Exhibit 99.1 to the Company's Current Report on Form 8-K dated
               August 13, 1998, and is hereby incorporated herein by reference.
</TABLE>

     (d) The following is a list of certain documents required by Regulation S-X
consisting of financial statements of the fifty percent owned general
partnership Engelhard/ICC included in this report.

     (1) Financial Statements of Engelhard/ICC.

          (i) Report of Independent Accountants.

          (ii) Balance Sheets as of December 31, 1997 and 1996.

          (iii) Statements of Operations for the years ended December 31, 1997,
     1996 and 1995.

          (iv) Statements of Changes in Partner's Capital for the years ended
     December 1997, 1996 and 1995.

          (v) Statements of Cash Flows for the years ended December 31, 1997,
     1996 and 1995.

          (vi) Notes to Financial Statement.

                                       30

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                       <C>
                                                                                                          F-32,
Independent Auditors' Reports...........................................................................  33
Consolidated Balance Sheets as of December 31, 1998 and 1999............................................  F-34
Consolidated Statements of Operations for the years ended
  December 31, 1997, 1998 and 1999......................................................................  F-35
Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1998 and 1999......................................................................  F-36
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended
  December 31, 1997, 1998 and 1999......................................................................  F-37
Notes to Consolidated Financial Statements..............................................................  F-38
</TABLE>

                                       31

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of Rare Medium
Group, Inc. and subsidiaries as of December 31, 1998 and 1999 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for each of the years then ended. 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. The consolidated financial statements of Rare
Medium Group, Inc. as of and for the year ended December 31, 1997 were audited
by other auditors whose report thereon dated March 20, 1998, expressed an
unqualified opinion on those statements.

We conducted our audits in accordance with generally accepted auditing
standards. 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. as of December 31, 1998 and 1999 and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.

                                          /s/ KPMG LLP

New York, New York
February 14, 2000

                                       32

<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors of
Rare Medium Group, Inc.

We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of Rare Medium Group, Inc. (formerly ICC
Technologies, Inc.) for the year ended December 31, 1997. These consolidated
financial statements are the responsibility of Rare Medium Group's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Rare Medium Group for the year ended December 31, 1997 in
conformity with generally accepted accounting principles. We have not audited
the consolidated financial statements of Rare Medium Group for any period
subsequent to December 31, 1997.

/s/ Coopers & Lybrand LLP
Philadelphia, Pennsylvania
March 20, 1998

                                       33

<PAGE>

                             RARE MEDIUM GROUP, INC
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                                       1998            1999
                                                                                    -----------    -------------
<S>                                                                                 <C>            <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents......................................................   $   917,978    $  28,540,444
  Marketable securities..........................................................            --          101,981
  Accounts receivable, net of allowance for doubtful accounts of $82,445 and
     $544,747....................................................................     1,184,182       12,600,870
  Work in process................................................................       251,718        3,170,683
  Notes receivable...............................................................            --        1,100,000
  Prepaid expenses and other current assets......................................       443,526        2,406,053
                                                                                    -----------    -------------
       Total current assets......................................................     2,797,404       47,920,031

Property and equipment, net......................................................     1,918,273       12,100,237
Investments in affiliates........................................................            --       26,467,324
Intangibles, net.................................................................    39,899,170       72,552,152
Other assets.....................................................................       128,275        1,383,256
                                                                                    -----------    -------------
       Total assets..............................................................   $44,743,122    $ 160,423,000
                                                                                    -----------    -------------
                                                                                    -----------    -------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable...............................................................   $ 1,634,889    $   7,097,466
  Accrued liabilities............................................................     1,912,364        5,758,573
  Deferred revenue...............................................................       308,898        3,043,941
  Current portion of note payable--related parties...............................            --          996,765
  Notes payable..................................................................       129,525          579,480
                                                                                    -----------    -------------
       Total current liabilities.................................................     3,985,676       17,476,225

Note payable--related parties....................................................    10,591,526          996,765
Other noncurrent liabilities.....................................................       344,210          734,916
                                                                                    -----------    -------------
       Total liabilities.........................................................    14,921,412       19,207,906
                                                                                    -----------    -------------
Series A Convertible Preferred Stock, $.01 par value, net of unamortized discount
  of $54,557,732.................................................................            --       36,224,441
                                                                                    -----------    -------------

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.........            --               --
  Common stock, $.01 par value. Authorized 200,000,000 shares; issued and
     outstanding 30,696,828 shares in 1998 and 42,893,357 shares in 1999.........       306,968          428,933
  Additional paid-in capital.....................................................    84,720,304      252,075,058
  Accumulated other comprehensive income.........................................            --          936,599
  Note receivable from shareholder...............................................      (230,467)        (230,467)
  Accumulated deficit............................................................   (54,803,665)    (148,048,040)
  Treasury stock, at cost, 66,227 shares.........................................      (171,430)        (171,430)
                                                                                    -----------    -------------
       Total stockholders' equity................................................    29,821,710      104,990,653
                                                                                    -----------    -------------
          Total liabilities and stockholders' equity.............................   $44,743,122    $ 160,423,000
                                                                                    -----------    -------------
                                                                                    -----------    -------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       34

<PAGE>

                            RARE MEDIUM GROUP, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                         1997            1998            1999
                                                                     ------------    ------------    ------------
<S>                                                                  <C>             <C>             <C>
Revenues..........................................................   $         --    $  4,688,120    $ 36,694,450
Cost of revenues..................................................             --      (3,609,852)    (19,650,400)
                                                                     ------------    ------------    ------------
  Gross profit....................................................             --       1,078,268      17,044,050
                                                                     ------------    ------------    ------------
Expenses:
  Sales and marketing.............................................             --         896,842       5,450,144
  General and administrative......................................      1,991,594       5,673,561      32,406,565
  Depreciation and amortization...................................             --      12,584,177      25,992,997
                                                                     ------------    ------------    ------------
       Total expenses.............................................      1,991,594      19,154,580      63,849,706
                                                                     ------------    ------------    ------------
Loss from operations..............................................     (1,991,594)    (18,076,312)    (46,805,656)
Interest income (expense), net....................................        492,870      (1,278,507)     (1,396,146)
Equity interest in net loss on investments........................             --              --      (1,468,578)
Other income......................................................             --              --         200,000
                                                                     ------------    ------------    ------------
Loss before taxes and discontinued operation......................     (1,498,724)    (19,354,819)    (49,470,380)
  Income tax expense..............................................             --         355,487              --
                                                                     ------------    ------------    ------------
       Loss before discontinued operation.........................     (1,498,724)    (19,710,306)    (49,470,380)
                                                                     ------------    ------------    ------------
Discontinued operation:
  Loss from discontinued operation................................    (11,985,361)     (4,538,128)             --
  Gain on restructuring of Engelhard/ICC..........................             --      24,256,769              --
  Loss on sale of FAS.............................................             --        (627,587)             --
                                                                     ------------    ------------    ------------
  (Loss) income from discontinued operation.......................    (11,985,361)     19,091,054              --
                                                                     ------------    ------------    ------------
Net loss..........................................................    (13,484,085)       (619,252)    (49,470,380)
  Deemed dividend attributable to issuance
     of convertible preferred stock...............................             --              --     (29,879,155)
  Cumulative dividends and accretion of convertible
     preferred stock to liquidation value.........................             --              --     (13,894,840)
                                                                     ------------    ------------    ------------
Net loss attributable to common stockholders......................   $(13,484,085)   $   (619,252)   $(93,244,375)
                                                                     ------------    ------------    ------------
                                                                     ------------    ------------    ------------
Basic and diluted (loss) earnings per share:
  Continuing operations...........................................   $      (0.07)   $      (0.78)   $      (2.55)
  Discontinued operation..........................................          (0.56)           0.76              --
                                                                     ------------    ------------    ------------
Net loss per share................................................   $      (0.63)   $      (0.02)   $      (2.55)
                                                                     ------------    ------------    ------------
                                                                     ------------    ------------    ------------
Basic weighted average common shares outstanding..................     21,339,635      25,282,002      36,625,457
                                                                     ------------    ------------    ------------
                                                                     ------------    ------------    ------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       35

<PAGE>

                            RARE MEDIUM GROUP, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                         1997            1998            1999
                                                                     ------------    ------------    ------------
<S>                                                                  <C>             <C>             <C>
Cash flows from operating activities:
  Net loss........................................................   $(13,484,085)   $   (619,252)   $(49,470,380)
  Adjustments to reconcile net loss to net cash used in operating
     activities:
     Gain of restructuring of Engelhard...........................             --     (24,256,769)             --
     Depreciation and amortization................................          3,927      12,584,177      25,992,997
     Equity interest in net loss of investments...................     11,985,361         133,450       1,468,578
     Common stock and stock options issued for services
       rendered...................................................         52,381         589,914          29,999
     Loss on disposition of FAS...................................             --         627,587              --
     Interest expense paid in notes and stock.....................             --       1,140,413       2,630,467
     Changes in assets and liabilities, net of acquisitions:
       Accounts receivable........................................             --         422,567      (8,527,239)
       Work in process............................................             --              --      (2,901,739)
       Prepaid expenses and other assets..........................       (298,397)        277,142      (1,622,728)
       Deferred revenue...........................................             --         308,898       1,383,416
       Accounts payable, accrued and other liabilities............        194,030         108,915      (1,013,447)
                                                                     ------------    ------------    ------------
          Net cash used in operating activities...................     (1,546,783)     (8,682,958)    (32,030,076)
                                                                     ------------    ------------    ------------
Cash flows from investing activities:
  Cash paid for acquisitions, net of cash acquired, and
     acquisition costs............................................             --     (10,591,856)     (2,923,931)
  Cash paid for investments in affiliates.........................             --              --     (27,075,901)
  Purchases of property and equipment, net........................         (9,500)       (912,239)     (8,791,752)
  Cash received in connection with restructuring
     of Engelhard/ICC.............................................             --      18,864,003              --
  Capital contributions to Engelhard/ICC..........................     (6,775,000)             --              --
  Issuance of note receivable.....................................       (350,450)             --      (1,100,000)
  Net cash received in connection with sale of
     majority interest in FAS.....................................             --         973,173              --
                                                                     ------------    ------------    ------------
          Net cash (used in) provided by investing activities.....     (7,134,950)      8,333,081     (39,891,584)
                                                                     ------------    ------------    ------------
Cash flows from financing activities:
  Proceeds from issuance of convertible debenture.................             --              --       6,000,000
  Proceeds from issuance of convertible preferred stock, net of
     costs........................................................             --              --      82,997,651
  Proceeds from issuance of common stock in connection with
     exercise of warrants and options.............................        298,102         118,385      11,791,695
  Repayment of borrowings, net....................................             --        (108,013)     (1,245,220)
                                                                     ------------    ------------    ------------
          Net cash provided by financing activities...............        298,102          10,372      99,544,126
                                                                     ------------    ------------    ------------
Net (decrease) increase in cash and cash equivalents..............     (8,383,631)       (339,505)     27,622,466
Cash and cash equivalents, beginning of period....................      9,641,114       1,257,483         917,978
                                                                     ------------    ------------    ------------
Cash and cash equivalents, end of period..........................   $  1,257,483    $    917,978    $ 28,540,444
                                                                     ------------    ------------    ------------
                                                                     ------------    ------------    ------------
Supplemental disclosures of cash flow information:
  Interest paid...................................................   $         --    $    373,699    $    609,437
                                                                     ------------    ------------    ------------
                                                                     ------------    ------------    ------------
  Income taxes paid...............................................   $         --    $         --    $    355,487
                                                                     ------------    ------------    ------------
                                                                     ------------    ------------    ------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       36

<PAGE>

                            RARE MEDIUM GROUP, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                                                      ACCUMULATED         NOTE
                                                                                       ADDITIONAL        OTHER         RECEIVABLE
                                                     PREFERRED     COMMON STOCK         PAID-IN       COMPREHENSIVE       FROM
                                                       STOCK      ($.01 PAR VALUE)      CAPITAL         INCOME          OFFICER
                                                     ---------    ----------------    ------------    -------------    ----------
<S>                                                  <C>          <C>                 <C>             <C>              <C>
Balance, January 1, 1997..........................   $      --      $    212,824      $ 50,730,330      $      --      $       --
  Net loss........................................          --                --                --             --              --
  Issuance of 237,644 shares of common stock
    through exercise of stock options and
    warrants......................................          --             2,376           578,574             --        (230,467)
                                                     ---------      ------------      ------------      ---------      ----------
Balance, December 31, 1997........................          --           215,200        51,308,904             --        (230,467)
  Net loss........................................          --                --                --             --              --
  Issuance of 5,775,003 shares of common stock for
    acquired businesses...........................          --            57,753        19,988,244             --              --
  Issuance of 3,145,709 shares of common stock for
    conversion of debt and accrued interest.......          --            31,457        12,717,411             --              --
  Issuance of 55,800 shares of common stock
    through exercise of stock options and
    warrants......................................          --               558           117,831             --              --
  Issuance of 200,000 shares of common stock and
    options for services rendered.................          --             2,000           587,914             --              --
                                                     ---------      ------------      ------------      ---------      ----------
Balance, December 31, 1998........................          --           306,968        84,720,304             --        (230,467)
  Comprehensive loss:
    Net loss......................................          --                --                --             --              --
    Other comprehensive income:
      Net unrealized gain arising during period...          --                --                --        936,599              --
         Total comprehensive loss.................
  Issuance of 4,977,923 shares of common stock in
    acquired businesses...........................          --            49,779        47,918,148             --              --
  Issuance of 3,054,362 shares of common stock for
    conversion of debt and accrued interest.......          --            30,543        17,109,350             --              --
  Issuance of 2,489 shares of common stock for
    services rendered.............................          --                25            29,974             --              --
  Issuance of 4,161,755 shares of common stock
    through exercise of stock options and
    warrants......................................          --            41,618        11,750,077             --              --
  Value of warrants issued in connection with the
    Series A preferred stock......................          --                --        53,118,496             --              --
  Intrinsic value of beneficial conversion feature
    of Series A preferred stock and pay-in-kind
    dividends.....................................          --                --        37,428,709             --              --
  Deemed dividends and accretion of preferred
    stock.........................................          --                --                --             --              --
                                                     ---------      ------------      ------------      ---------      ----------
Balance, December 31, 1999........................   $      --      $    428,933      $252,075,058      $ 936,599      $ (230,467)
                                                     ---------      ------------      ------------      ---------      ----------
                                                     ---------      ------------      ------------      ---------      ----------

<CAPTION>

                                                                     TREASURY         TOTAL
                                                     ACCUMULATED       STOCK      STOCKHOLDERS'
                                                       DEFICIT        AT COST     EQUITY (DEFICIT)
                                                    -------------    ---------    ----------------
<S>                                                  <C>             <C>          <C>
Balance, January 1, 1997..........................  $ (40,700,328)   $(171,430)     $ 10,071,396
  Net loss........................................    (13,484,085)          --       (13,484,085)
  Issuance of 237,644 shares of common stock
    through exercise of stock options and
    warrants......................................             --           --           350,483
                                                    -------------    ---------      ------------
Balance, December 31, 1997........................    (54,184,413)    (171,430)       (3,062,206)
  Net loss........................................       (619,252)          --          (619,252)
  Issuance of 5,775,003 shares of common stock for
    acquired businesses...........................             --           --        20,045,997
  Issuance of 3,145,709 shares of common stock for
    conversion of debt and accrued interest.......             --           --        12,748,868
  Issuance of 55,800 shares of common stock
    through exercise of stock options and
    warrants......................................             --           --           118,389
  Issuance of 200,000 shares of common stock and
    options for services rendered.................             --           --           589,914
                                                    -------------    ---------      ------------
Balance, December 31, 1998........................    (54,803,665)    (171,430)       29,821,710
  Comprehensive loss:
    Net loss......................................    (49,470,380)          --       (49,470,380)
    Other comprehensive income:
      Net unrealized gain arising during period...             --           --           936,599
                                                                                    ------------
         Total comprehensive loss.................                                   (48,533,781)
  Issuance of 4,977,923 shares of common stock in
    acquired businesses...........................             --           --        47,967,927
  Issuance of 3,054,362 shares of common stock for
    conversion of debt and accrued interest.......             --           --        17,139,893
  Issuance of 2,489 shares of common stock for
    services rendered.............................             --           --            29,999
  Issuance of 4,161,755 shares of common stock
    through exercise of stock options and
    warrants......................................             --           --        11,791,695
  Value of warrants issued in connection with the
    Series A preferred stock......................             --           --        53,118,496
  Intrinsic value of beneficial conversion feature
    of Series A preferred stock and pay-in-kind
    dividends.....................................             --           --        37,428,709
  Deemed dividends and accretion of preferred
    stock.........................................    (43,773,995)          --       (43,773,995)
                                                    -------------    ---------      ------------
Balance, December 31, 1999........................  $(148,048,040)   $(171,430)     $104,990,653
                                                    -------------    ---------      ------------
                                                    -------------    ---------      ------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       37

<PAGE>

                            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, England, Australia, Singapore and Canada.

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

     In 1999, the Company broadened its strategy with the advent of its
investment business. Through the incubator investment strategy the Company
invests in and develops, manages and operates companies in selected
Internet-focused markets. The Company also makes venture investments by making
strategic equity investments in companies with Internet-focused business models.

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

  ChangeMusic Network

     ChangeMusic Network has 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 CMJ division offers the music industry trade publications, music industry
conferences, and a website through which subscribers can gain access to various
exclusive data products as well as promotional and talent development (A&R)
services. The Company acquired ChangeMusic in November 1999 and owns
approximately 74% on a fully diluted basis.

  ePrize

     ePrize.net is an online sweepstakes, direct marketing and promotions
company that offers end-to-end solutions for customer acquisition and retention.
ePrize professionals help clients design, administer and maintain successful
online sweepstakes and other promotional online efforts. The Company acquired
ePrize in December 1999 and owns approximately 80% on a fully diluted basis.

  iFace

     iFace.com develops products for telecommunication service providers and for
system integrators that telephony-empower websites and other Internet
applications. The Company acquired iFace in February 1999 and owns approximately
68% on a fully diluted basis.

  LiveUniverse

     LiveUniverse.com is an Application Service Provider ("ASP") and ASP
aggregator dedicated to lowering the barriers to entering the Internet economy.
LiveUniverse currently offers a suite of advertising-supported hosted community
tools that enable any company to quickly and efficiently create a custom

                                       38

<PAGE>

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

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

website, intranet and extranet. The Company acquired LiveUniverse in April 1999
and owns approximately 85% on a fully diluted basis.

  Regards

     Regards.com has a series of websites for electronic greeting card
distribution. Visitors to these websites have the opportunity to create their
own greeting cards and to purchase gifts, as well as additional features and
enhancements such as voice enabled greeting cards, and interactive game cards.
The Company acquired Regards in August 1999 and owns approximately 90% on a
fully diluted basis.

     All intercompany accounts and transactions are eliminated in consolidation.

  (b) Cash and Cash Equivalents

     The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of purchase to be cash
equivalents.

  (c) Marketable Securities

     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, net of tax, reported as a separate
component of stockholders' equity. The fair value of marketable securities
exceeded cost by $936,599, at December 31, 1999.

  (d) Notes Receivable

     Notes receivable represent short term financing to selected companies prior
to an acquisition or an investment in affiliated companies. Such receivables,
bearing a market rate of interest are, generally converted into equity or
otherwise receivable on demand. In February 2000, $1,000,000 of the notes
receivable was repaid.

  (e) Property and Equipment

     The Company uses the straight-line method of depreciation. The estimated
useful lives of property and equipment are as follows:

<TABLE>
<CAPTION>
                                                            YEARS
                                                           --------
<S>                                                        <C>
Equipment...............................................    3 to 5

Furniture and fixtures..................................    5 to 7
</TABLE>

     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.

  (f) 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 estimated
future period of benefit of three years. The Company periodically assesses the
recoverability of the cost of its goodwill based upon estimated future
profitability of the related operating entities. The agreements pursuant to
which the Company acquired certain companies (see Note 2) include provisions
that could require the Company to issue additional shares if certain performance
targets are met. The value of any such shares issued will be added to the
goodwill related to such acquisition and amortized over the remainder of that
goodwill's useful life.

                                       39

<PAGE>

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

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

     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 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 exceed 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.

  (g) Revenue Recognition

     Revenues from the Internet services business are recognized using the
percentage-of-completion method. 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 newstands.
Subscription revenue is deferred and recognized as income over the subscription
period. Revenue related to newstand magazine sales are recognized at the time
that the publications are available at the newstands, 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 probable.

  (h) 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.

  (i) 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.

  (j) Stock Option Plans

     The Company accounts for its stock option plan in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 123 which allows entities to
continue to apply the provisions of Accounting Principles Board ("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 No. 25 and provide the pro
forma disclosure required by SFAS No. 123. (See Note 10).

                                       40

<PAGE>

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

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

  (k) 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.

  (l) 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 1,211,588, 909,321 and
6,380,103, for the years ended December 31, 1997, 1998 and 1999, respectively,
made up of stock options and common stock purchase warrants. 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.

  (m) Fair Value of Financial Instruments

     The fair value of cash and cash equivalents, marketable securities,
accounts receivables, notes receivable accounts and notes payable, and
short-term debt approximate book value. The fair value of long-term notes
payable approximates market value based on the recent exchange offerings
completed in 1998 and 1999 (see Note 7).

  (n) 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 and accounts
receivables. Cash and cash equivalents consist of deposits and money market
funds placed with various high credit quality financial institutions.

     Concentrations 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.

     The Company generates revenue principally from customers located in North
America, many of which are large multi-national organizations. Two customers
each separately accounted for approximately 10% of Internet services related
revenues in 1998, one of which represents approximately 10% of the receivables
as of December 31, 1998. No customer accounted for more than 10% of revenues in
1999.

  (o) Internal-Use Software

     The Company has 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"). SOP 98-1 provides
guidance for determining whether computer software qualifies as internal-use
software and on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the public.
It also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. The Company has adopted SOP
98-1 effective January 1, 1999. The effect of the adoption of SOP 98-1 was not
material.

                                       41

<PAGE>

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

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

  (p) Recently Issued Accounting Standards

     In June, 1998, the Financial Accounting Standards Board issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts and
hedging activities. In June 1999, SFAS No. 137 was issued which delayed the
effective date of SFAS No. 133 to January 1, 2001. The Company's management has
not yet determined the impact of adopting SFAS 133 as amended.

  (q) Reclassifications

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

(2) BUSINESS TRANSACTIONS

  (a) Acquisitions

     In April 1998, the Company acquired all of the issued and outstanding
shares of capital stock of Rare Medium. As consideration for the purchase of
Rare Medium, the Company issued 4,269,000 shares of Common Stock valued at
$14,045,997, paid $10,000,000 in cash and issued a secured promissory note in
the principal amount of $22,200,000 (see Note 7). 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 $45,743,000. 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 and 1999, the
Company acquired 100% of the following Internet services businesses. The Company
has accounted for these transactions under the purchase method of accounting.
The aggregate purchase prices, including acquisition costs, 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>
ACQUISITION                                  DATE OF ACQUISITION    NUMBER OF SHARES ISSUED    PURCHASE PRICES    GOODWILL
------------------------------------------   -------------------    -----------------------    ---------------    --------
                                                                                                     (IN THOUSANDS)
<S>                                          <C>                    <C>                        <C>                <C>
1998
I/O 360...................................   August 1998                     786,559               $ 3,000         $3,194
Digital Facades...........................   August 1998                     719,144               $ 3,000         $3,197

1999
Hype!, Inc................................   March 1999                      270,992               $ 1,219         $1,102
FS3, Inc..................................   April 1999                      768,975               $ 3,460         $3,571
Big Hand, Inc.............................   April 1999                    1,460,603               $ 6,573         $6,562
Struthers Martin, Inc.....................   May 1999                        406,092               $ 6,000         $4,518
Globallink Communications, Inc............   June 1999                       445,470               $ 5,511         $5,661
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         $8,988
Carlyle Media Group Limited...............   December 1999                    60,153               $ 2,230         $3,076
</TABLE>

                                       42

<PAGE>

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

(2) BUSINESS TRANSACTIONS--(CONTINUED)

     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,
1,288,057 shares of the Company's common stock delivered to these shareholders,
included as part of the consideration, remain in escrow at December 31, 1999,
and the liability of these shareholders under such indemnification obligations
is expressly limited to the value of such shares held in escrow.

     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
$4,872,212 representing $1,000,000 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 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 $10,110,917. 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 1998 and 1999 acquisitions as of January 1, 1997
and 1998, respectively. 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.

<TABLE>
<CAPTION>
                                                     1997            1998            1999
                                                 ------------    ------------    ------------
<S>                                              <C>             <C>             <C>
Revenues......................................   $  6,642,568    $ 30,060,357    $ 50,811,361
                                                 ------------    ------------    ------------
                                                 ------------    ------------    ------------
Loss before discontinued operation............    (24,252,664)    (51,842,698)    (62,141,328)
Discontinued operation........................    (11,985,361)     19,091,054              --
                                                 ------------    ------------    ------------
Net loss......................................   $(36,238,025)   $ 32,751,644     (62,141,328)
                                                 ------------    ------------    ------------
                                                 ------------    ------------    ------------
Net loss attributable to common
  stockholders--basic and diluted.............   $      (1.34)   $      (1.05)   $      (2.78)
                                                 ------------    ------------    ------------
                                                 ------------    ------------    ------------
</TABLE>

     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 $2,209,206 and $5,360,305, respectively. The
Company has accounted for these transactions under the purchase method of
accounting. Amounts allocated to intangible assets including goodwill was
$8,171,113 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.

                                       43

<PAGE>

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

(2) 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 $18,600,000. 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 $24,256,769 on this transaction, including approximately
$7 million relating to the liabilities assumed by the acquiror.

     In October 1998, the Company sold its 1% general partnership and its 56%
limited partnership interest in FAS for $1,500,000 of which $1,125,000 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.

                                       44

<PAGE>

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

(2) BUSINESS TRANSACTIONS--(CONTINUED)

     The 1997 consolidated financial statements include the financial statements
of the Company and its wholly-owned subsidiary, ICC Desiccant Technologies, Inc.
ICC Desiccant Technologies, Inc. owned the Company's 50% interest in
Engelhard/ICC, accounted for under the equity method and included equity losses
of $11,985,361. Presented below are summary financial statements for
Engelhard/ICC, including a summary balance sheet as of December 31, 1997, and
summary statement of operations for the year ended December 31, 1997:

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                                      1997
                                                                                  ------------
<S>                                                                               <C>
Total current assets...........................................................   $  5,553,118
Property, plant and equipment, net.............................................      9,496,897
Other assets...................................................................      1,711,595
                                                                                  ------------
Total assets...................................................................   $ 16,761,610
                                                                                  ------------
                                                                                  ------------
Total current liabilities......................................................   $  7,588,151
Long-term debt.................................................................      8,629,128
Partners' capital..............................................................        544,331
                                                                                  ------------
Total liabilities and partners' capital........................................   $ 16,761,610
                                                                                  ------------
                                                                                  ------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED
                                                                                  DECEMBER 31,
                                                                                 ---------------
                                                                                      1997
                                                                                 ---------------
<S>                                                                              <C>
Revenue.......................................................................    $  12,239,012
Expenses......................................................................       28,963,373
                                                                                  -------------
Net loss......................................................................    $ (16,724,361)
                                                                                  -------------
                                                                                  -------------
</TABLE>

(3) SEGMENT INFORMATION

     In 1999, as a result of the advent of the Company's investment business
activities to compliment the Internet services business, the Company adopted
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements. The Company's operations have been classified into two
primary segments: the Internet services business and the

                                       45

<PAGE>

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

(3) SEGMENT INFORMATION--(CONTINUED)

investment business. Presented below is summarized financial information of the
Company's continuing operations for each segment.

<TABLE>
<CAPTION>
                                                                                    1997        1998        1999
                                                                                  --------    --------    --------
<S>                                                                               <C>         <C>         <C>
Revenues:
  Internet services............................................................   $     --    $  4,688    $ 36,870
  Investment...................................................................         --          --       1,554
  Internet services provided to investments....................................         --          --      (1,730)
                                                                                  --------    --------    --------
                                                                                  $     --    $  4,688    $ 36,694
                                                                                  --------    --------    --------
                                                                                  --------    --------    --------
Loss before interest, taxes, depreciation and amortization:
  Internet services............................................................   $     --    $ (1,902)   $ (6,545)
  Investment and corporate.....................................................     (1,992)     (3,590)    (14,268)
                                                                                  --------    --------    --------
                                                                                  $ (1,992)   $ (5,492)   $(20,813)
                                                                                  --------    --------    --------
                                                                                  --------    --------    --------

Loss before interest, taxes, depreciation and amortization.....................   $ (1,992)   $ (5,492)   $(20,813)
Depreciation and amortization..................................................         --     (12,584)    (25,993)
Interest income (expense), net.................................................        493      (1,279)     (1,396)
Equity in interest in net loss on investments..................................         --          --      (1,468)
Other income...................................................................         --          --         200
Income tax expense.............................................................         --        (355)         --
                                                                                  --------    --------    --------
  Loss before discontinued operation...........................................     (1,499)    (19,710)    (49,470)
Discontinued operation.........................................................    (11,985)     19,091          --
                                                                                  --------    --------    --------
     Net loss..................................................................   $(13,484)   $   (619)   $(49,470)
                                                                                  --------    --------    --------
                                                                                  --------    --------    --------

Total assets:
  Internet services............................................................   $     --    $ 44,743    $ 31,047
  Investment and corporate.....................................................      4,522          --     129,376
                                                                                  --------    --------    --------
                                                                                  $  4,522    $ 44,743    $160,423
                                                                                  --------    --------    --------
                                                                                  --------    --------    --------
</TABLE>

(4) INVESTMENTS IN AFFILIATES

     During 1999, the Company made investments in 14 companies that possess
Internet-focused business models. The following is a summary of the carrying
value of investments held at December 31, 1999:

<TABLE>
<S>                                                                               <C>
Cost investments...............................................................   $20,875,902
Equity investment..............................................................     3,531,422
Marketable securities..........................................................     2,060,000
                                                                                  -----------
                                                                                  $26,467,324
                                                                                  -----------
                                                                                  -----------
</TABLE>

     The Company recognized a loss of $1,051,911 representing its proportionate
share of the losses of investee companies, for those investments carried under
the equity method. Additionally, the Company recognized $416,667 representing
the amortization of the net excess of investment over its proportionate share of
the affiliates net assets. Amortization is recorded on a straight line basis
over three years.

                                       46

<PAGE>

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

(5) PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                       1998          1999
                                                                    ----------    -----------
<S>                                                                 <C>           <C>
Property and equipment:
  Equipment......................................................   $1,469,759    $12,233,614
  Furniture and fixtures.........................................      168,910      2,258,566
  Leasehold improvements.........................................      629,179      1,648,634
                                                                    ----------    -----------
                                                                     2,267,848     16,140,814
  Less accumulated depreciation and amortization.................      349,575      4,040,577
                                                                    ----------    -----------
  Property and equipment, net....................................   $1,918,273    $12,100,237
                                                                    ----------    -----------
                                                                    ----------    -----------
</TABLE>

(6) ACCRUED LIABILITIES

     Accrued liabilities consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                       1998          1999
                                                                    ----------    ----------
<S>                                                                 <C>           <C>
Accrued liabilities:
  Accrued compensation...........................................   $  474,805    $1,064,947
  Accrued professional fees......................................      417,809     2,197,684
  Accrued interest payable.......................................      273,309        40,691
  Other liabilities..............................................      746,441     2,455,251
                                                                    ----------    ----------
  Total accrued liabilities......................................   $1,912,364    $5,758,573
                                                                    ----------    ----------
                                                                    ----------    ----------
</TABLE>

(7) 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
$22,200,000. The principal amount of the Note is payable in two equal annual
installments on the second and third anniversary of the date of issuance,
interest accrued at the prime rate and is 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 has been 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 are secured by all of the assets of Rare Medium. In
addition, the Company has guaranteed the obligations of Rare Medium under the
Note.

     In 1998 and 1999, the Company issued 2,951,814 shares and 1,431,756 shares,
respectively, to certain Noteholders in exchange for their beneficial interest
in $12,220,506 and $8,432,581, respectively.

     In 1999, $1,460,828 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. On December 31, 1999, as a result of
these transactions, there is a remaining principal balance of $1,993,530 payable
under the Note. In February 2000, the remaining principal balance of
$2.0 million was converted into common stock at fair value.

     Accrued interest, included in accrued expenses, on the remaining Notes
relating to the interest payment due April 1, amounted to $230,071 and $40,691
as of December 31, 1998 and 1999, respectively.

                                       47

<PAGE>

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

(8) SHAREHOLDERS' EQUITY

  Common Stock Transactions

     In 1998, the Company issued 5,775,003 shares of common stock as partial
consideration for the acquisition of Rare Medium, Inc. and other Internet
services business 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 1999, the Company issued 4,977,923 shares 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 and 1999, the Company issued 2,951,814 shares and 1,431,756 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, $1,460,828 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.

     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 $6,000,000
(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 $3,500,000 and Warrants to
purchase 404,625 shares of common stock. In 1999, $1,087,698 of noncash 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 9),
the Company sold the remaining $2,500,000 of Convertible Debentures and
Warrants. The Convertible Debentures and Warrants were then immediately
converted into 1,588,462 shares of common stock.

(9) 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.

                                       48

<PAGE>

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

(9) REDEEMABLE PREFERRED STOCK--(CONTINUED)

     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 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.

     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 will be paid in
additional shares of Series A securities or in cash. Dividends paid thereafter
will be paid 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
holder of the Series 1-A and Series 2-A warrant has 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, 1999, 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 47% 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 $29.9 million carrying value
up to the $87.0 million face redemption over 13 years.

(10) 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
had reserved a total of 18.6 million 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")

                                       49

<PAGE>

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

(10) EMPLOYEE COMPENSATION PLANS--(CONTINUED)

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 13
million 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 of 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.

     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 exerciseable for
three to five years subsequent to the grant date.

     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 per share weighted average fair value of stock options granted during,
1997, 1998 and 1999 was $1.38, $1.96 and $6.57, 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 5.4% to 6.5% in 1997,
4.5% to 5.6% in 1998 and 4.7% to 6.5% in 1999, (2) an expected life of six years
in 1997 and 1998, and five years in 1999, (3) volatility of approximately 73.9%
in 1997, 91.5% in 1998 and 96.3% in 1999, 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:

<TABLE>
<CAPTION>
                                                      1997           1998           1999
                                                   -----------    -----------    -----------
<S>                                                <C>            <C>            <C>
Net loss:
  As Reported...................................   $13,484,085    $   619,252    $49,470,380
  Pro Forma.....................................   $13,613,974    $ 6,053,743    $63,927,357

Net loss attributable to common stockholders:
  As Reported...................................   $      0.63    $      0.02    $      2.55
  Pro Forma.....................................   $      0.64    $      0.24    $      2.94
</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

                                       50

<PAGE>

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

(10) EMPLOYEE COMPENSATION PLANS--(CONTINUED)

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.

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

<TABLE>
<CAPTION>
                                                                    WEIGHTED
                                                                     AVERAGE          NUMBER OF
                                                                   EXERCISE PRICES      SHARES
                                                                   ---------------    ----------
<S>                                                                <C>                <C>
Outstanding at January 1, 1997..................................       $  4.09         3,010,326
  Granted.......................................................          3.15           716,998
  Forfeited.....................................................          6.58          (248,200)
  Exercised.....................................................          2.26          (207,644)
                                                                                      ----------

Outstanding at December 31, 1997................................          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
                                                                                      ----------
                                                                                      ----------
</TABLE>

     The following table summarizes weighted-average option price information:

<TABLE>
<CAPTION>
                                         NUMBER                                                NUMBER
                                      OUTSTANDING AT    WEIGHTED           WEIGHTED         EXERCISABLE AT     WEIGHTED
                                      DECEMBER 31,       AVERAGE           AVERAGE          DECEMBER 31,       AVERAGE
RANGE OF EXERCISE PRICES                  1999          REMAINING LIFE    EXERCISE PRICE        1999          EXERCISE PRICE
-----------------------------------   --------------    --------------    --------------    --------------    ---------------
<S>                                   <C>               <C>               <C>               <C>               <C>
$ 1.00-$ 2.82......................      3,222,937            6.2             $ 2.28           1,015,358           $2.08
$ 3.25-$ 4.77......................        889,081            4.7               4.24             496,110            3.82
$ 5.00-$ 8.56......................      4,647,855            5.5               6.80             233,288            5.30
$ 9.50-$15.82......................      3,877,019            5.3              11.83               5,275           12.23
$24.25-$39.06......................      1,036,000            5.4              30.70              30,000           30.53
                                        ----------           ----             ------          ----------           -----
                                        13,672,892            5.6             $ 8.80           1,780,031           $3.50
                                        ----------           ----             ------          ----------           -----
                                        ----------           ----             ------          ----------           -----
</TABLE>

(11) INCOME TAXES

     The difference between the statutory federal income tax rate and the
Company's effective tax rate for the years ended December 31, 1997, 1998 and
1999 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 $40 million expiring in 2008 through
2019, including $1 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 $48 million of net operating loss
carryforwards would be subject to an annual limitation in offsetting future
taxable income.

                                       51

<PAGE>

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

(11) 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):

<TABLE>
<CAPTION>
                                                                         DECEMBER 31
                                                                 ----------------------------
                                                                     1998            1999
                                                                 ------------    ------------
<S>                                                              <C>             <C>
Net operating loss carryforwards..............................   $ 12,099,000    $ 26,780,000
Alternative minimum tax carryforwards.........................        355,000         355,000
Other assets..................................................         86,000         247,000
Other accrued expenses........................................        281,000         294,000
                                                                 ------------    ------------
     Total gross deferred tax assets..........................     12,821,000      27,676,000
Less valuation allowance......................................    (12,821,000)    (27,676,000)
                                                                 ------------    ------------
     Net deferred tax assets..................................   $         --    $         --
                                                                 ------------    ------------
                                                                 ------------    ------------
</TABLE>

     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 1998 and 1999, the
valuation allowance decreased by $5,117,000 and increased by $14,855,000,
respectively. Of the total valuation allowance of $27,676,000, subsequently
recognized tax benefits, if any, in the amount of $4,395,000 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.

(12) RELATED PARTY TRANSACTIONS

     The Company loaned $230,467 to its then Chairman in July 1997 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 matures in five years. Such note
bears interest equal to the prime rate, with such rate adjusted to the current
prime rate at each anniversary date.

(13) 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, 1999:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31                                         AMOUNT
-----------------------------------------------------------   -----------
<S>                                                           <C>
2000.......................................................   $ 3,501,868
2001.......................................................     3,762,227
2002.......................................................     3,525,230
2003.......................................................     3,365,509
2004.......................................................     3,016,495
Thereafter.................................................     5,013,623
                                                              -----------
     Total minimum lease payments..........................   $22,184,952
                                                              -----------
                                                              -----------
</TABLE>

                                       52

<PAGE>

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

(13) COMMITMENTS AND CONTINGENCIES--(CONTINUED)

     Total rent expense under operating leases amounted to $315,048 and
$1,655,980 for 1998 and 1999, respectively.

  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 $1,354,081. 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. Incentive
compensation approximated $35,000 and $650,000, in 1998 and 1999, respectively.
In addition, 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.

(14) SUBSEQUENT EVENTS (UNAUDITED)

     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 February 11, 2000, the Company filed a registration
statement with the Securities and Exchange Commission to register the resale of
such shares.

     On January 5, 2000, we completed the acquisition of Notus Communications,
Inc., 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 common
stock and an approximate 12% interest in our majority owned subsidiary
iFace.com. Our effective ownership in Notus is 85.5%.

     The Company's 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 recognized when and if our investments in affiliates
and incubator companies become liquid, as defined, subject to vesting and other
requirements. The Company will have the right to pay such amount either in cash,
Company Stock or a combination thereof. No awards relating to this plan have yet
been made. Depending on the structure of the awards under this plan, we may be
required to record compensation expense in accordance with generally accepted
accounting principles.

                                       53



<PAGE>


                       REPORT OF INDEPENDENT ACCOUNTANTS


The Partners of Engelhard/ICC

We have audited the accompanying balance sheets of Engelhard/ICC (Partnership)
as of December 31, 1997 and 1996, and the related statements of operations,
changes in partners' capital and cash flows for the years ended December 31,
1997, 1996 and 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 statements presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Engelhard/ICC as of December
31, 1997 and 1996, the results of its operations and its cash flows for the
years ended December 31, 1997, 1996 and 1995 in conformity with generally
accepted accounting principles.

As more fully described in Notes 1 and 15, on February 27, 1998, the Partners
terminated the Partnership and divided its net assets into two separate limited
partnerships.

/s/ Coopers and Lybrand LLP

Coopers and Lybrand LLP

Philadelphia, Pennsylvania

March 20, 1998

                                       54

<PAGE>

                                  ENGELHARD/ICC
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                     December 31,          December 31,
                                                                                        1997                  1996
                                                                                     ------------          ------------
<S>                                                                                   <C>                  <C>
                              ASSETS
Current assets:
       Cash and cash equivalents                                                      $   275,717          $  1,192,997
       Accounts receivable, net of allowance for doubtful accounts
           of $444,823 and $39,786, respectively                                        2,118,138             2,623,769
       Accounts receivable - ICC Technologies, Inc.                                        17,720                17,035
       Inventories                                                                      3,061,684             4,570,952
       Prepaid expenses and other                                                          79,859               278,762
                                                                                      -----------          ------------
                  Total current assets                                                  5,553,118             8,683,515
Property, plant and equipment, net                                                      9,496,897             7,990,125
Cash held in escrow                                                                        15,010               307,476
Purchased intangibles, net                                                                866,116               991,883
Other assets, net                                                                         830,469               986,232
                                                                                      -----------          ------------
                        Total assets                                                   16,761,610          $189,959,231
                                                                                      ===========          ============
                    LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
       Short-term loan                                                                  2,750,000             2,750,000
       Current portion of long term debt                                                   69,557                64,529
       Accounts Payable:
           Trade                                                                          965,755             1,404,366
           Engelhard Corporation                                                                0               298,084
       Accrued liabilities                                                              3,802,839               481,230
                                                                                      -----------          ------------
                  Total current liabilities                                             7,588,151             4,998,209
                                                                                      -----------          ------------
Long-term debt                                                                          8,629,128             8,642,330
                                                                                      -----------          ------------
Partners' capital                                                                         544,331             5,318,692
                                                                                      -----------          ------------
                  Total liabilities and partners' capital                             $16,761,610          $ 18,959,231
                                                                                      ===========          ============
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       55
<PAGE>

                                  ENGELHARD/ICC
                            STATEMENTS OF OPERATIONS
              for the years ended December 31, 1997, 1996 and 1995



<TABLE>
<CAPTION>
                                                                      1997               1996                 1995
                                                                 ------------        ------------         ------------
<S>                                                              <C>                 <C>                  <C>
Revenues                                                         $ 12,239,012        $ 10,504,609         $  8,944,279
Cost of goods sold                                                 17,460,782          13,776,459           10,883,995
                                                                 ------------        ------------         ------------
             Gross loss                                            (5,221,770)         (3,271,850           (1,939,716)
                                                                 ------------         ------------         ------------
Operating expenses:
       Marketing                                                    4,105,228           3,563,817            3,412,008
       Engineering                                                  2,074,295           1,053,809              936,415
       Research and development                                       901,523           1,055,758            1,133,780
       General and administrative                                   3,940,813           3,207,460            2,440,722
                                                                 ------------        ------------         ------------
             Total operating expenses                              11,021,859           8,880,844            7,922,925
                                                                 ------------        ------------         ------------
                  Loss from operations                            (16,243,629)        (12,152,694)          (9,862,641)
                                                                 ------------       ------------          ------------
Interest:
      Interest income                                                  54,472              94,766               50,679
      Interest expense                                               (535,204)           (531,736             (760,261)
                                                                     (480,732)           (436,970)            (709,582)
                                                                 ------------        ------------         ------------
Net loss                                                         $(16,724,361)       $(12,589,664)        $(10,572,223)
                                                                 ============        ============         ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                       56
<PAGE>

                                  ENGELHARD/ICC
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
              for the years ended December 31, 1997, 1996 and 1995


Partners' capital, December 31, 1994                              $  3,480,579
Conversion of general partners' loan to partners' capital            5,000,000

Capital contributions                                                6,000,000
Net loss                                                           (10,572,223)
--------                                                          ------------

Partners' capital, December 31, 1995                                 3,908,356
Capital contributions                                               14,000,000
Net loss                                                           (12,589,664)
                                                                  -------------

Partners' capital, December 31, 1996                                 5,318,692
Capital contributions                                               11,950,000
Net loss                                                           (16,724,361)
                                                                  -------------

Partners' capital, December 31, 1997                              $    544,331
                                                                  ============



    The accompanying notes are an integral part of the financial statements.



                                       57
<PAGE>

                                  ENGELHARD/ICC
                            STATEMENTS OF CASH FLOWS
              for the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                               1997           1996             1995
                                                                           ------------   ------------     ------------
<S>                                                                     <C>              <C>               <C>
Cash flows from operating activities:
   Net loss                                                             $(16,724,361)    $(12,589,664)     $(10,572,223)

   Adjustments to reconcile net loss to net cash used in operating
     activities:
       Depreciation and amortization                                       1,557,739        1,349,057         1,100,898
       Provision for doubtful accounts                                       443,356           40,000            31,104
       Provisions for inventory obsolescence and valuation                 1,278,040          941,030           600,000
       Write-off of equipment and other assets                               446,838           23,471                 0
       Gain on sale of assets                                                (18,000)               0                 0
   (Increase) decrease in:
        Receivables                                                          111,885         (606,349)       (1,424,973)
                                                                             231,228       (2,126,857)       (1,545,616)
        Prepaid expenses and other                                           198,903         (119,823)          (83,103)
   Increase (decrease) in:
       Accounts payable                                                     (457,577)         604,077          (509,281)
       Payables to ICC Technologies, Inc.                                    (31,191)        (178,008)           36,878
       Payables to Engelhard Corporation                                    (298,996)          93,548           141,697
       Accrued expenses and other liabilities                              3,322,380          127,634           119,368
                                                                        ------------     ------------      ------------
              Net cash used in operating activities                       (9,939,756)     (12,441,884)      (12,105,25l)
                                                                        ------------     ------------      ------------

Cash flows from investing activities:
    Purchases of property, plant and equipment                            (3,087,444)        (928,644)       (1,257,464)
    Purchases of intangibles                                                (142,371)        (346,327)         (134,244)
    Proceeds from sale of assets                                              18,000                0                 0
    Cash held in escrow                                                      292,466          558,268          (865,744)
                                                                        ------------     ------------      ------------
                  Net cash used in investing activities                   (2,919,349)        (716,703        (2,257,452)
                                                                        ------------     ------------      ------------

Cash flows from financing activities:
    Proceeds from long-term debt                                              40,458           57,072            69,956
    Repayments of long-term debt                                             (48,633)         (51,968)          (43,245)
    Proceeds from issuance of bonds                                                0                0         8,500,000
    Bond issuance costs                                                            0                0          (215,979)
    Capital contributions by general partners                             11,950,000       14,000,000         6,000,000
    Proceeds from short-term debt                                                  0                0         2,750,000
    Repayment of notes payable to general partners                                 0                0        (3,000,000)
                                                                        ------------     ------------      ------------
                  Net cash provided by financing activities               11,941,825       14,005,104        14,060,732
                                                                        ------------     ------------      ------------
Net increase (decrease) in cash and cash equivalents                        (917,280)         846,517          (301,971)
Cash and cash equivalents, beginning of period                             1,192,997          346,480           648,451
                                                                        ------------     ------------      ------------
Cash and cash equivalents, end of period                                $    275,717     $  1,192,997      $    346,480
                                                                        ============     ============      ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       58
<PAGE>

                                  ENGELHARD/ICC

                          NOTES TO FINANCIAL STATEMENTS

(1)      BUSINESS:

         Partnership Operations and Restructuring

Engelhard/ICC (the "Partnership") is a Pennsylvania general partnership. The
Partnership is engaged in the business of designing, manufacturing and marketing
climate control systems to supplement or replace conventional air conditioning
systems. The Partnership currently markets its systems to certain targeted
applications within the commercial air conditioning market primarily in North
America and Asia-Pacific. On February 7, 1994, ICC Technologies, Inc. ("ICC")
and Engelhard Corporation ("Engelhard"), through their respective subsidiaries
(the "general partners"), formed the Partnership.

On February 27, 1998, ICC and Engelhard restructured the Partnership (the
"Restructuring"). The Partnership was terminated and its net assets were divided
into two separate operating limited partnerships, one to manufacture and market
complete, Active Climate Control Systems under the name Fresh Air Solutions, LP
and the other to manufacture and market heat-exchange and desiccant coated
wheel-shaped rotors, which are components of the climate control systems, under
the name Engelhard HexCore, LP. ICC has a 90% ownership interest and control of
Fresh Air Solutions, LP. Engelhard retains a 10% interest in Fresh Air
Solutions. Engelhard has an 80% ownership interest and control of Engelhard
HexCore LP. ICC retains a 20% equity interest in Engelhard HexCore, LP. Fresh
Air Solutions will purchase rotors exclusively from Engelhard HexCore, LP.
Engelhard will continue its guarantee of the lease on Fresh Air Solutions, LP's
facility until April 2002 (Note 15) and will continue to guarantee $2,000,000 of
Fresh Air Solutions, LP's debt with the guarantee being reduced to $1,000,000
after February 1999 and completely terminated after February 2000. Going
forward, the financial statements of Fresh Air Solutions and Engelhard HexCore
will be consolidated into their majority owners' financial statements, ICC and
Engelhard respectively.

In connection with the Restructuring, Engelhard HexCore and Fresh Air Solutions
entered into a rotor supply agreement whereby Engelhard HexCore will supply
Fresh Air Solutions with its heat-exchange and desiccant rotor requirements.
Fresh Air Solutions will be obligated to purchase its rotor requirements from
Engelhard HexCore. All rotors will be sold at prices which are lower than the
best price Engelhard HexCore offers to other customers. The rotor supply
agreement is for a period of fifteen years. Furthermore, Engelhard HexCore and
Fresh Air Solutions entered into reciprocal technology license agreements
whereby nonexclusive, royalty free, perpetual license with the further right to
sublicense, technology related to Engelhard HexCore and Fresh Air Solutions
subject to patents or patent applications existing or filed within one year of
the Restructuring. Fresh Air Solutions was also granted a royalty free license
to use "Engelhard" as part of the "Engelhard/ICC" mark for a thirty month period
following the Restructuring. See note 15 for financial information related to
Fresh Air Solutions and Engelhard HexCore.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Basis of Presentation

The financial statements have been prepared on the accrual basis of accounting
and include the accounts of the Partnership for the years ended December 31,
1997, 1996 and 1995. Subsequent to 1997, the Partnership was restructured (Note
1 and Note 15) into two separate limited partnerships.


         Cash and Cash Equivalents

The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents for the purpose of
determining cash flows. The carrying amount approximates fair value due to the
short-term maturity of these instruments.

         Inventories

         Inventories are valued at the lower of cost (first-in, first-out) or
         market.



                                       59
<PAGE>

         Property, Plant and Equipment

Property, plant and equipment are stated at cost. Assets under capital lease are
recorded at the present value of the future lease payments. Costs of major
additions and improvements are capitalized and replacements, maintenance and
repairs, which do not improve or extend the life of the respective assets, are
charged to operations as incurred.

When an asset is sold, retired or otherwise disposed of, the cost of the
property and equipment and the related accumulated depreciation are removed from
the respective accounts, and any resulting gains or losses are reflected in
operations.

Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leased assets under capital leases are amortized
over the period of the lease or the service lives of the improvements, whichever
is shorter, using the straight-line method.

         Purchased Intangible Assets

Purchased intangible assets, consisting primarily of a license agreement
acquired in connection with the acquisition of certain assets (See note 6), are
amortized over ten years using the straight-line method.

         Patents

Patents are amortized over their estimated useful lives, not exceeding seventeen
years, using the straight-line method.

         Bond Issuance Costs

Bond issuance costs are deferred and amortized over the life of the bonds using
the straight-line method. Amortization of bond issuance costs is included in
interest expense.

         Income Taxes

Partnership income, if any, is taxable to the general partners. Accordingly, no
provision for income taxes has been made by the Partnership.

         Revenue Recognition

Revenues are recognized when equipment is shipped for equipment sales contracts,
and when equipment is installed and operating for installation contracts.
Maintenance service revenue is recognized when services provided are complete.
Processing fees for fabricating raw materials into substrate are recognized in
revenue in the period the substrate material is shipped.

         Research and Development Costs

Research and development costs are expensed as incurred. Research and
development costs amounted to approximately $902,000, $1,056,000 and $1,134,000
for the years ended December 31, 1997, 1996, and 1995, respectively.

         Warranties

The Partnership`s warranty on its equipment is for eighteen months from date of
shipment or one year from date of original installation, except for desiccant or
thermal rotors which are warranted for five years from the date of shipment. The
Partnership records a reserve for the estimated cost of repairing or replacing
any faulty equipment covered under the Partnership's warranty. During 1997, the
Partnership identified odor creation problems and other quality control issues
related to certain units it manufactured. As a result, management recorded a
provision of $2.2 million related to expenses to be incurred to address these
problems.

         Concentration of Credit Risk

The Partnership invests its cash primarily in deposits with major banks. At
times, these deposits may be in excess of federally insured limits. The
Partnership has sold its equipment and services to end-users in the retail
industry, primarily in the continental United States and Asia-Pacific rim.
Concentration of credit risk with respect to trade receivables is moderate due
to the relatively diverse customer base. At December 31, 1997, the Partnership
had trade receivables of approximately $1,000,124 from one customer. During
1997, revenues from this customer amounted to approximately $5.8 million, which
represents approximately 48% of the Partnership revenues. Trade receivables from
this customer were current at December



                                       60
<PAGE>

31, 1997. Ongoing credit evaluations of customers' financial condition are
performed and generally no collateral is required. The Partnership maintains
reserves for potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations. The partnership does not anticipate non
performance by any of the counterparties that have been granted credit or hold
instruments.

         Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

         Long-lived Assets

         In accordance with the Statement of Financial Accounting Standards SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Partnership reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. The Partnership is not aware of any events or change in
circumstances which indicate the existence of an impairment of assets which
would be material to the Partnership's financial position or results of
operatons.




 (3)     INVENTORIES:

         Inventories comprise the following:

                                                     December 31, December 31,
                                                         1997         1996
                                                         ----         ----

         Raw materials and purchased parts           $ 1,721,311   $ 2,013,913
         Work-in-process                               1,504,116     1,547,641
         Finished goods                                  309,128     1,591,228
                                                     -----------   -----------

                                                       3,534,555     5,152,782

         Less: Allowance for inventory obsolescence     (472,871)     (581,830)
                                                     -----------   -----------
                                                     $ 3,061,684   $ 4,570,952
                                                     ===========   ===========



Inventory is net of an allowance for inventory obsolescence of $472,871, and
$581,830 as of December 31, 1997 and 1996, respectively. The Partnership
recorded provisions of $1,278,040 and $941,000 for inventory obsolescence and
valuation which have been included in cost of goods sold in the statements of
operations for 1997 and 1996, respectively. In 1997 and 1996, the Partnership
wrote-off approximately $1,387,000 and $449,000, respectively, of obsolete
inventory against the allowance for inventory obsolescence.

Raw materials purchased from Engelhard amounted to approximately $155,000,
$272,000 and $86,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.

The Partnership designs, manufactures and markets desiccant based climate
control systems which have not yet achieved consistent sales levels and
consistent product mix. The Partnership's products are also subject to change
due to technological improvements. Consequently, the Partnership may from time
to time have inventory levels in excess of its short-term needs. Items in
inventory may become obsolete due to changes in technology or product design.
Management has developed a program to monitor inventory levels; however, it is
possible that a material loss could ultimately result in the disposal of excess
inventory or due to obsolescence.



                                       61
<PAGE>

(4)      PROPERTY, PLANT AND EQUIPMENT:

         Property, plant and equipment, net, consist of the following at

                                                            December 31:

                                                     1997                1996
                                                     ----                ----



          Land                                   $   390,000        $   390,000
          Building                                 1,805,741          1,779,721
          Machinery and equipment                  9,740,532          7,607,702
          Furniture, fixtures and
            leasehold improvements                 1,113,589            794,912
                                                 -----------        -----------

                                                  13,049,862         10,572,335
          Less - accumulated depreciation         (3,552,965)        (2,582,210)
                                                 -----------        -----------

                                                 $ 9,496,897        $ 7,990,125
                                                 ===========        ===========



(5)      OTHER ASSETS:

         Other assets consist of the following at December 31:

                                                    1997               1996
                                                    ----               ----


          Patents and Trademarks                 $  767,478         $  877,623
          Bond Issue Costs                          219,483            219,483
          Deposits                                      410             33,854
          Other                                      24,217              2,000
                                                 ----------         ----------

                                                  1,011,588          1,132,960
          Accumulated amortization                 (181,119)          (146,728)
                                                 ----------         -----------

                                                 $  830,469         $  986,232
                                                 ==========         ==========



(6)      ASSET ACQUISITION:

On December 1, 1994, the Partnership acquired for approximately $8.2 million in
cash, real property and substantially all other manufacturing assets of an
existing manufacturing facility located in Miami, Florida from Ciba-Geigy
Corporation ("Ciba"), which currently produces the small cell, honeycomb
structures that are the base material of the desiccant and thermal rotors that
are an integral part of the Partnership's products. The former Ciba plant
produced primarily large cell substrate which the Partnership is prohibited to
produce or sell other than to Ciba. The Partnership also acquired, as part of
the transaction, an exclusive technology license to use Ciba's proprietary
process which is necessary to manufacture such small cell, honeycomb structures.
Assets acquired consisted of approximately: $6.9 million of Plant, Property and
Equipment and $1.3 million of intangibles.

To finance the acquisition, the general partners each lent to the Partnership
$4,000,000 ("General Partners' Loan") bearing interest payable monthly at the
Prime Rate plus 1%. In April 1995, the Partnership obtained financing from the
issuance of $8,500,000 of industrial development revenue bonds (see note 8). In
1995, the proceeds of these bonds were used to repay $3,000,000 of the General
Partners' Loan, $1,500,000 to each general partner, and provide for improvements
and capital equipment at the Miami facility.



                                       62
<PAGE>

(7)      ACCRUED LIABILITIES:

         Accrued liabilities consist of the following at December 31:

                                                   1997                1996
                                                   ----                ----

         Accrued expenses                        $2,837,272           $168,987
         Payroll and employee benefits              748,051            130,301
         Commissions                                141,251            168,891
         Customer deposits                           76,265             13,051
                                                 ----------           --------

                                                 $3,802,839           $481,230
                                                 ==========           ========


 (8) LONG-TERM DEBT:

         Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                                          1997                  1996
                                                                                      -----------           -----------
         <S>                                                                          <C>                   <C>
         Industrial development revenue bonds; interest determined weekly and
              payable weekly; bonds mature on April 2020, but are subject to
              redemption at the option of the Partnership from April  2000            $ 8,500,000           $ 8,500,000
         Notes payable due April 2000; interest at 2% per annum;
              interest payable monthly; interest and principal payable in
              equal monthly installments over 60-month period
              commencing April 1995                                                        99,418               138,649
         Other                                                                             99,267                68,210
                                                                                      -----------           -----------
                                                                                        8,698,685             8,706,859
         Less- current portion                                                            (69,557)              (64,529)
                                                                                      -----------           -----------
                                                                                      $ 8,629,128           $ 8,642,330
                                                                                      ===========           ===========
</TABLE>


In connection with the issuance of the industrial revenue bonds (see note 6),
cash of $15,015 is held in escrow pending the Partnership's incurrence of
certain qualified expenditures.

         Maturities of long-term debt for each of the next five years are as
follows:


                           1998          $69,557
                           1999           64,093
                           2000           26,024
                           2001           19,506
                           2002           19,505
                     Thereafter        8,500,000
                                     -----------
                                     $ 8,698,685
                                     ===========



The general partners are guarantors on the long-term debt. Substantially all of
the assets are pledged as collateral under the various debt agreements. In
addition, Engelhard is the guarantor on the short-term loan which amounts to
$2,750,000 as of December 31, 1997. The short-term loan is payable on demand
with the interest rate adjusted on a weekly basis. The interest rate at December
31, 1997 was 6.0625%. The interest on the long-term debt is adjusted weekly to
current market rates. The fair value of the Partnership's debt was determined by
reference to quotations available in markets where similar issues are traded.
The estimated fair values of long-term debt at December 31, 1997 approximates
the carrying amount. In connection with the Restructuring of the Partnership,
Engelhard remained as guarantor of up to $2 million on the short-term debt that
was transferred to Fresh Air Solutions and became sole guarantor on the $8.5
million industrial revenue bond which was transferred to Engelhard HexCore.




                                       63
<PAGE>

(9)      REVENUES:

         Revenues are comprised of the following:

<TABLE>
<CAPTION>
                                                                         1997            1996               1995
                                                                    ------------     ------------       -----------
           <S>                                                      <C>              <C>                <C>
           Equipment sales                                          $  6,311,235     $  6,097,736       $ 2,558,250
           Substrate processing                                        5,823,538        4,302,233         5,801,666
           Licensing fees                                                      0                0           500,000
           Maintenance and service                                       104,239          104,640            84,363
                                                                    ------------     ------------       -----------
                                                                    $ 12,239,012     $ 10,504,609       $ 8,944,279
                                                                    ============     ============       ===========
</TABLE>


The Partnership fabricates large cell honeycomb substrate materials at its Miami
facility under a Manufacturing and Supply Agreement with Hexcel Corporation
("Hexcel"'). Hexcel provides the raw materials to be fabricated into large cell
honeycomb substrate and retains title to the raw materials, work-in-process and
finished goods. The Partnership receives processing fees for fabricating the raw
materials into large cell honeycomb substrate. Processing fees are recognized in
revenues in the period the fabricated substrate material is shipped. The
Manufacturing and Supply Agreement is for a period of five years. The
Partnership is in the fourth year of performing services under such Agreement.
Export sales of equipment were approximately $1,283.000, $1,457,000, and
$643,000 in 1997, 1996 and 1995, respectively.


(10)     PARTNERS' CAPITAL:

During 1997, $6,775,000 was contributed by the Company and $5,175,000 by
Engelhard. During 1996 and 1995, $7,000,000 and $3,000,000 respectively was
contributed by each of the general partners to the Partnership. In conjunction
with the General Partners' Loan of $8,000,000 and issuance of $8,500,000 of
industrial development revenue bonds (see note 6), $3,000,000 was repaid to each
general partner and the remaining $5,000,000 outstanding balance on the loan was
converted into a capital contribution, $2,500,000 for each general partner in
1995.


(11)     RELATED PARTY TRANSACTIONS:

The Partnership provided approximately $78,000, $95,000, and $83,000 in various
administrative office support services to ICC during the years ended December
31, 1997, 1996 and 1995, respectively. Engelhard provided approximately
$298,000, $504,000, and $351,000 in various administrative office support
services to the Partnership during the years ended December 31, 1997, 1996 and
1995, respectively. Engelhard provided approximately $8,000, $17,000, and
$162,000 in research and development to the Partnership during the years ended
December 31, 1997, 1996 and 1995, respectively. ICC provided approximately
$78,000, $47,000 and $72,000 in various administrative office support services
to the Partnership during the year ended December 31, 1997, 1996, and 1995,
respectively. The Partnership incurred approximately $328,000 during the year
ended December 31, 1995, respectively, of interest expense to the general
partners in connection with the $8,000,000 General Partners' Loan (see note 6).
In accordance with the Transfer Agreement entered into by the general partners,
a distribution of approximately $140,000 was paid to ICC in 1995.


(12)     SUPPLEMENTAL CASH FLOW DISCLOSURES:

Excluded from the Statement of Cash Flows for the year ended December 31, 1997
was the write-off of $1,386,999 of inventory and $38,319 of bad debts.

Excluded from the Statement of Cash Flows for the year ended December 31, 1996
was the write-off of $449,200 of inventory and $40,214 of bad debts.

Excluded from the Statement of Cash Flows for the year ended December 31, 1995
was the conversion of $5,000,000 of General Partners' Loans to Partners' Capital
and the write-off of $14,283 of bad debts.

Cash paid for interest amounted to approximately $504,000, $516,000 and $823,000
for the years ended December 31, 1997, 1996 and 1995, respectively.



                                       64
<PAGE>

(13)     401(K) PROFIT SHARING PLAN:

The Partnership provides a benefit for all employees through a 401(k) Profit
Sharing Plan ("the Plan"). Under the Plan, an employee may elect to contribute
on a pre-tax basis to a retirement account up to 15% of the employee's
compensation up to the maximum annual contributions permitted by the Internal
Revenue Code. The Partnership matches 50% of each participant's contributions up
to a maximum of 4% of the participant's compensation. Each employee is fully
vested at all times with respect to his or her contributions. The Partnership's
contribution and administration expense was approximately $104,380, $95,000 and
$80,000 for the years ended December 31, 1997 and 1996, and 1995, respectively.

(14)     LEASE COMMITMENTS:

The Partnership has operating lease commitments for its facilities, vehicles and
certain equipment. In certain instances, these leases contain purchase and
renewal options, both of which are at fair market value. The Partnership's
offices are leased on a month-to-month basis.

The future minimum lease payments for these leases at December 31, 1997 are as
follows:


                        1998                  $ 526,440
                        1999                    523,843
                        2000                    521,321
                        2001                    513,918
                        2002                    214,130

Rent expense under these operating leases was $655,551, $469,580, and $224,634
for the years ended December 31,
1997, 1996 and 1995, respectively.

In order to provide capacity and consolidate the Philadelphia office and
manufacturing operations, the Partnership entered into a ten-year lease
commitment which began April 1997, for approximately 140,000 square feet of
office, manufacturing and assembly space. The lease can be terminated after the
fifth year. The Partnership is responsible for paying its allocable portion of
all real estate taxes, water and sewer rates, and common expenses. The
obligations under the lease agreement are guaranteed by the general partners,
ICC and Engelhard.

(15)     RESTRUCTURING OF PARTNERSHIP:

As indicated in Note 1, on February 27, 1998, ICC and Engelhard terminated the
Partnership into two limited partnerships, Fresh Air Solutions, LP and Engelhard
HexCore LP. The historical information related to Fresh Air Solutions and
Engelhard HexCore have been designated as "Box Business" and "Wheel Business",
respectively in the accompanying financial presentations. The following
financial statements of Box business and Wheel business have been prepared from
the historical financial statements of the Partnership and contain certain
adjustments to carve out assets, liabilities, net assets, revenues, expenses and
cash flows between the two businesses.

Balance Sheets
As of December 31, 1997

<TABLE>
<CAPTION>
                                                       Box Business       Wheel Business        Partnership
                                                       ------------       --------------        -----------
<S>                                                    <C>                   <C>               <C>
Cash                                                   $   235,432           $    40,285       $   275,717
Receivables                                              1,043,734             1,092,124         2,135,858
Inventory                                                2,101,894               959,790         3,061,684
Other current assets                                        62,965                16,894            79,859
Property, plant and equipment                            2,634,389             6,862,508         9,496,897
Cash held in escrow                                             --                15,010            15,010
Other noncurrent assets                                    539,827             1,156,758         1,696,585
                                                       -----------           -----------       -----------


     Total assets                                      $ 6,618,241           $10,143,369       $16,761,610
                                                       ===========           ===========       ===========


Current liabilities                                      4,306,795               461,799         4,768,594
Short-term loan                                          2,750,000                    --         2,750,000
Long-term loan                                             198,685             8,500,000         8,698,685
Partners' capital (deficit)                               (637,239)            1,181,570           544,331
                                                                             -----------       -----------

     Total liabilities and capital                     $ 6,618,241           $10,143,369       $16,761,610
                                                       ===========           ===========       ===========
</TABLE>



                                       65
<PAGE>

Statements of Operations
for the year ended
December 31, 1997

<TABLE>
<CAPTION>
                                                 Box Business       Wheel Business      Eliminations     Partnership
                                                 ------------       --------------      ------------     -----------
<S>                                              <C>                 <C>               <C>               <C>
Revenues                                         $  6,415,474        $  6,926,538      $ (1,103,000)     $ 12,239,012
Cost of goods sold                                 11,661,030           6,902,752        (1,103,000)       17,460,782
                                                 ------------        ------------      ------------      ------------
Gross profit (loss)                                (5,245,556)             23,786                 -        (5,221,770)
                                                 ------------        ------------      ------------      ------------
Operating expenses:
     Marketing                                      4,105,228                   -                           4,105,228
     Engineering                                    2,074,295                   -                           2,074,295
     Research and developmen                          901,523                   -                             901,523
     General and administrative                     3,799,838             140,975                           3,940,813
                                                 ------------        ------------                        ------------
Loss from operations                              (16,126,440)           (117,189)                         16,243,629)
                                                 ------------        ------------                        ------------
Interest expense                                      136,283             344,449                             480,732
                                                 ------------        ------------      ------------      ------------
Net loss                                         $(16,262,723)       $   (461,638)                -      $(16,724,361)
                                                 ============        ============      ============      ============
</TABLE>

Condensed Statements of Cash Flows
for the year ended December 31, 1997

<TABLE>
<CAPTION>
                                                                     Box Business    Wheel Business     Partnership
                                                                     ------------    --------------     -----------
<S>                                                                 <C>              <C>               <C>
Cash flows from operating activities:
   Net loss                                                         $(16,262,723)    $   (461,638)     $(16,724,361)
   Adjustments to reconcile net loss
     to net cash (used in) provided by
     operating activities:
       Depreciation and amortization                                     692,641          865,098         1,557,739
       Provision for doubtful accounts                                   443,356               --           443,356
       Provisions for inventory obsolescence and
       Valuation                                                       1,278,040               --         1,278,040
       Write-off of equipment and other assets                           364,201           82,637           446,838
       Gain on sale of assets                                                 --          (18,000)          (18,000)
       (Increase) decrease in current assets                             635,470          (93,454)          542,016
       Current liabilities increase (decrease)                         2,545,000          (10,384)        2,534,616
                                                                    ------------     ------------      ------------
   Net cash (used in) provided by
       operating activities                                          (10,304,015)         364,259        (9,939,756)
                                                                    ------------     ------------      ------------

Cash flows from investing activities:
   Purchases of property, plant and equipment                         (2,490,707)        (596,737)       (3,087,444)
   Purchases of intangibles                                             (103,203)         (39,168)         (142,371)
   Proceeds from sale of assets                                               --           18,000            18,000
                                                                    ------------     ------------      ------------
   Cash held in escrow                                                        --          292,466           292,466
                                                                    ------------     ------------      ------------
Net cash used in investing activities                                 (2,593,910)        (325,439)       (2,919,349)
                                                                    ------------     ------------      ------------

Cash flows from financing activities:
   Proceeds from long-term debt                                           40,458               --            40,458
   Repayments of long-term debt                                          (48,633)              --           (48,633)
   Capital contributions by general partners                          11,950,000               --        11,950,000
                                                                    ------------     ------------      ------------
Net cash provided by financing activities                             11,941,825               --        11,941,825
                                                                    ------------     ------------      ------------

Net increase (decrease) in cash and cash equivalents                    (956,100)          38,820          (917,280)
Cash and cash equivalents, beginning of period                         1,191,532            1,465         1,192,997
                                                                    ------------     ------------      ------------
Cash and cash equivalents, end of period                            $    235,432     $     40,285      $    275,717
                                                                    ============     ============      ============
</TABLE>



                                       66
<PAGE>

<TABLE>
<CAPTION>

Balance Sheets
As of December 31, 1996                                              Box Business   Wheel Business     Partnership
                                                                     ------------   -------------      -----------
<S>                                                                  <C>              <C>               <C>
Cash                                                                 $ 1,191,532      $     1,465       $ 1,192,997
Receivables                                                            2,091,908          548,896         2,640,804
Inventory                                                              3,435,349        1,135,603         4,570,952
Other current assets                                                     265,444           13,318           278,762
Property, plant and equipment                                            917,593        7,072,532         7,990,125
Cash held in escrow                                                           --          307,476           307,476
Other noncurrent assets                                                  719,550        1,258,565         1,978,115
                                                                     -----------      -----------       -----------
Total assets                                                         $ 8,621,376       10,337,855        18,959,231
                                                                     ===========      ===========       ===========

Current liabilities                                                    1,989,033          194,647         2,183,680
Short-term loan                                                        2,750,000               --         2,750,000
Long-term loan                                                           206,859        8,500,000         8,706,859
Partners' capital                                                      3,675,484        1,643,208         5,318,692
                                                                     -----------      -----------       -----------
  Total liabilities and net assets                                   $ 8,621,376      $10,337,855      `$18,959,231
                                                                     ===========      ===========       ===========
</TABLE>


Statements of Operations
for the year ended December 31, 1996

<TABLE>
<CAPTION>

                                                  Box Business     Wheel Business    Eliminations      Partnership
                                                  ------------     --------------    ------------      -----------
<S>                                               <C>               <C>              <C>               <C>
Revenues                                          $  6,202,609      $  6,032,000     $ (1,730,000)     $ 10,504,609
Cost of goods sold                                   9,190,145         6,316,314       (1,730,000)       13,776,459
                                                  ------------      ------------     ------------      ------------
Gross profit (loss)                                 (2,987,536)         (284,314)              --        (3,271,850)
                                                  ------------      ------------     ------------      ------------
Operating expenses:
     Marketing                                       3,563,817                --                          3,563,817
     Engineering                                     1,053,809                --                          1,053,809
     Research and development                        1,055,758                --                          1,055,758
     General and administrative                      3,068,859           138,601                          3,207,460
                                                  ------------      ------------                       ------------
Loss from operations                               (11,729,779)         (422,915)                       (12,152,694)
                                                  ------------      ------------                       ------------
Interest expense                                        98,872           338,098                            436,970
                                                  ------------      ------------     ------------      ------------
Net loss                                          $(11,828,651)     $   (761,013)              --      $(12,589,664)
                                                  ============      ============     ============      ============
</TABLE>



                                       67
<PAGE>

Condensed Statements of Cash Flows
For the year ended December 31, 1996



<TABLE>
<CAPTION>
                                                                   Box Business       Wheel Business   Partnership
                                                                   ------------      -------------- -----------
<S>                                                                 <C>              <C>               <C>
Cash flows from operating activities:
   Net loss                                                         $(11,828,651)    $   (761,013)     $(12,589,664)
   Adjustments to reconcile net loss to net cash (used in)
     Provided by
       Operating activities:
       Depreciation and amortization                                     581,092          767,965         1,349,057
       Provision for doubtful accounts                                    40,000               --            40,000
       Provisions for inventory
       obsolescence and valuation                                        941,030               --           941,030
       Write-off of equipment                                             23,471               --            23,471
        (Increase) decrease in current assets                         (3,038,921)         185,892        (2,853,029)
       Increase (decrease) in current liabilities                        641,348            5,903           647,251
                                                                    ------------     ------------      ------------
        Net cash (used in) provided by operating activities          (12,640,631)         198,747       (12,441,884)

Cash flows from investing activities:                                   (211,189)        (717,455)         (928,644)
    Purchases of property, plant and equipment                          (305,799)         (40,528)         (346,327)
    Purchases of intangibles                                                  --          558,268           558,268
                                                                    ------------     ------------      ------------
       Cash held in escrow                                              (516,988)        (199,715)         (716,703)
        Net cash used in investing activities

Cash flows from financing activities:
    Proceeds from long-term debt                                          57,072               --            57,072
    Repayments of long-term debt                                         (51,968)              --           (51,968)
    Capital contributions by general partners                         14,000,000               --        14,000,000
                                                                      ----------     ------------      ------------
       Net cash provided by financing activities                      14,005,104               --        14,005,104


Net increase (decrease) in cash and cash equivalents                     847,485             (968)          846,517

Cash and cash equivalents, beginning of period                           344,047            2,433           346,480
                                                                    ------------     ------------     ------------
Cash and cash equivalents, end of period                            $  1,191,532     $      1,465      $  1,192,997
                                                                    ============     ============      ============
</TABLE>



                                       68
<PAGE>

Statements of Operation
for the year December 31, 1995


<TABLE>
<CAPTION>

                                                    Box Business   Wheel Business     Elimination      Partnership
                                                    ------------   --------------     -----------      -----------
<S>                                               <C>               <C>                  <C>           <C>
Revenues                                          $  3,142,613      $  6,768,666         (967,000)     $  8,944,279
Cost of goods sold                                   5,190,059         6,660,936         (967,000)       10,883,995
                                                  ------------      ------------        ---------      ------------
Gross profit (loss)                                 (2,047,446)          107,730               --        (1,939,716)
                                                  ------------      ------------        ---------      ------------
Operating expenses:
   Marketing                                         3,412,008                                            3,412,008
   Engineering                                         936,415                                              936,415
   Research and development                          1,133,780                                            1,133,780
   General and administrative                        2,305,888           134,834                          2,440,722
                                                  ------------      ------------                       ------------
Loss from operations                                (9,835,537)          (27,104)                        (9,862,641)
Interest expense                                       438,447           271,135                            709,582
                                                  ------------      ------------        ---------      ------------
Net loss                                          $(10,273,984)     $   (298,239)                      $(10,572,223)
                                                  ============      ============        =========       ==========
</TABLE>



Statements of Cash Flows
for the year ended December 31, 1995


<TABLE>
<CAPTION>

Cash flows from operating activities                              Box Business      Wheel Business      Partnership
                                                                  ------------      --------------      -----------
<S>                                                                 <C>              <C>               <C>
   Net loss                                                         $(10,273,984)    $   (298,239)     $(10,572,223)
   Adjustments to reconcile net loss to net cash used in
      Operating activities:
      Depreciation and amortization                                      401,851          699,047         1,100,898
      Provision for doubtful accounts                                     31,104               --            31,104
      Provisions for inventory obsolescence and valuation                600,000               --           600,000
      (Increase) decrease in current assets                             (758,389)      (2,295,303)       (3,053,692)
      Current liabilities increase (decrease)                           (405,374)         194,036          (211,338)
                                                                    ------------     ------------      ------------
           Net cash used in operating activities                     (10,404,792)      (1,700,459)      (12,105,251)

Cash flows from investing activities
    Purchases of property, plant and equipment                          (572,097)        (685,367)       (1,257,464)
    Purchases of intangibles                                            (102,544)         (31,700)         (134,244)
    Cash held in escrow                                                       --         (865,744)         (865,744)
                                                                    ------------     ------------      ------------
           Net cash used in investing activities                        (674,641)      (1,582,811)       (2,257,452)
                                                                    ------------     ------------      ------------
Cash flows from financing activities:
    Proceeds from long-term debt                                          69,956               --            69,956
    Repayments of long-term debt                                         (43,245)              --           (43,245)
    Proceeds from issuance of bonds                                           --        8,500,000         8,500,000
    Transfer of bond proceeds between businesses                       5,000,000       (5,000,000)               --
    Bond issuance costs                                                                  (215,979)         (215,979)
    Capital contributions by general partners                          6,000,000               --         6,000,000
    Proceeds from short-term debt                                      2,750,000               --         2,750,000
    Repayment of notes payable to general partner                     (3,000,000)              --        (3,000,000)
                                                                    ------------     ------------      ------------
           Net cash provided by financing activities                  10,776,711        3,284,021        14,060,732
                                                                    ------------     ------------      ------------
Net increase (decrease) in cash and cash equivalents                    (302,722)             751          (301,971)

Cash and cash equivalents, beginning of period                           646,769            1,682           648,451
                                                                    ------------     ------------      ------------
Cash and cash equivalents, end of period                            $    344,047     $      2,433      $    346,480
                                                                   `============     ============      ============
</TABLE>


                                       69

<PAGE>

                               RARE MEDIUM GROUP

                SCHEDULE II--VALUATIONS AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                   ADDITIONS
                                                                    CHARGED     ADDITIONS
                                                    BALANCE AT     TO COSTS      CHARGED                   BALANCE AT
                                                    BEGINNING         AND       TO OTHER                     END OF
DEDUCTIONS -- DESCRIPTION                            OF YEAR       EXPENSES     ACCOUNTS     DEDUCTIONS       YEAR
-------------------------------------------------   ----------     ---------    ---------    ----------    ----------
<S>                                                 <C>            <C>          <C>          <C>           <C>
Reserves and allowances deducted asset accounts:

Allowances for uncollectible accounts receivable

Year ended December 31, 1997.....................           --            --           --            --            --
Year ended December 31, 1998.....................           --            --    $  82,445(1)         --    $   82,445
Year ended December 31, 1999.....................   $   82,445       544,747           --    $ (82,445)    $  544,747

Allowances for uncollectible notes receivable

Year ended December 31, 1997.....................           --            --           --            --            --
Year ended December 31, 1998.....................           --            --    $ 375,000            --    $  375,000
Year ended December 31, 1999.....................   $  375,000     (200,000)           --            --    $  175,000
</TABLE>

------------------
(1) Existing reserves for acquired companies.

                                       70

<PAGE>

                                   SIGNATURES

     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.

<TABLE>
<CAPTION>
                SIGNATURE                                      TITLE                             DATE
------------------------------------------  -------------------------------------------   -------------------
<S>                                         <C>                                           <C>

         /s/ Glenn S. Meyers                Chairman of the Board, President and            February 23, 2000
------------------------------------------  Chief Executive Officer
             Glenn S. Meyers


         /s/ Andrew D. Africk              Director                                        February 23, 2000
------------------------------------------
             Andrew D. Africk


          /s/ Michael Gross                 Director                                        February 23, 2000
------------------------------------------
              Michael Gross


         /s/ Jeffrey Killeen                Director                                        February 23, 2000
------------------------------------------
             Jeffrey Killeen


       /s/ Richard T. Liebhaber             Director                                        February 23, 2000
------------------------------------------
           Richard T. Liebhaber


          /s/ Marc J. Rowan                 Director                                        February 23, 2000
------------------------------------------
              Marc J. Rowan

         /s/ Steven Winograd                Director                                        February 23, 2000
------------------------------------------
             Steven Winograd


        /s/ Jeffrey J. Kaplan               Executive Vice President and Chief              February 23, 2000
------------------------------------------  Financial Officer (Principal Financial
            Jeffrey J. Kaplan               Officer)


       /s/ Michael A. Hultberg              Vice President and Controller (Principal        February 23, 2000
------------------------------------------  Accounting Officer)
           Michael A. Hultberg
</TABLE>

                                       71

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                                                                                                    SEQUENTIAL
NUMBER   DESCRIPTION                                                                                        PAGE NO.
------   -----------------------------------------------------------------------------------------------   -----------
<S>      <C>   <C>                                                                                         <C>
  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.
</TABLE>

                                       72

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT                                                                                                    SEQUENTIAL
NUMBER   DESCRIPTION                                                                                        PAGE NO.
------   -----------------------------------------------------------------------------------------------   -----------
<S>      <C>   <C>                                                                                         <C>
  3.1     --   Restated Certificate of Incorporation of Rare Medium Group, Inc.
  3.2     --   Amended and Restated By-Laws of Rare Medium Group, Inc.
 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. 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.
</TABLE>

                                       73

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT                                                                                                    SEQUENTIAL
NUMBER   DESCRIPTION                                                                                        PAGE NO.
------   -----------------------------------------------------------------------------------------------   -----------
<S>      <C>   <C>                                                                                         <C>
 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.
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<CAPTION>
EXHIBIT                                                                                                    SEQUENTIAL
NUMBER   DESCRIPTION                                                                                        PAGE NO.
------   -----------------------------------------------------------------------------------------------   -----------
<S>      <C>   <C>                                                                                         <C>
 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, 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.
 16       --   Letter regarding change in certifying accountant from PricewaterhouseCoopers LLP to the
               Securities and Exchange Commission, dated August 26, 1998, which was filed as
               Exhibit 16.1 to the Company's Current Report on Form 8-K dated August 13, 1998, and is
               hereby incorporated herein by reference.
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<CAPTION>
EXHIBIT                                                                                                    SEQUENTIAL
NUMBER   DESCRIPTION                                                                                        PAGE NO.
------   -----------------------------------------------------------------------------------------------   -----------
<S>      <C>   <C>                                                                                         <C>
 21       --   Subsidiaries of the Company are Rare Medium, Inc., a New York corporation; Rare Medium
               Atlanta, Inc., a Delaware corporation; Rare Medium San Francisco, Inc., a Delaware
               corporation; Rare Medium Detroit, Inc., a Delaware corporation; Rare Medium Austin, Inc.,
               a Delaware corporation; Evit__Caretni Interactive, 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 Michigan
               corporation.
 23.1     --   Consent of KPMG LLP, Independent Accountants.
 23.2     --   Consent of PricewaterhouseCoopers LLP, Independent Accountants.
 23.3     --   Independent Auditor's Report on Schedule.
 27       --   Financial Data Schedule.
 99       --   Letter on behalf of ICC Technologies, Inc. to PriceWaterhouseCoopers LLP pursuant to
               Item 304 of Regulation S-K, which was filed as Exhibit 99.1 to the Company's Current
               Report on Form 8-K dated August 13, 1998, and is hereby incorporated herein by reference.
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