SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q/A-2


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

                For the quarterly period ended September 30, 2001
                         Commission File No. 33-19139-NY


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


             Delaware                                           11-2936371
-------------------------------                         ------------------------
(State or Other Jurisdiction of                         (IRS Employer ID Number)
 Incorporation or Organization)

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


       Registrant's telephone number, including area code: (415) 274-5650


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES ___ NO _X_

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

             18,278,174 shares common stock as of November 20, 2001
       2,000,000 shares preferred stock, Series A, as of November 20, 2001


<PAGE>


                                 RATEXCHANGE CORPORATION
                                        FORM 10-Q
                         FOR THE QUARTER ENDED SEPTEMBER 30, 2001


PART I - FINANCIAL INFORMATION                                              Page

    Item 1 -

       Financial Statements (Restated)

           Consolidated  balance sheet as of September 30, 2001
            (unaudited) and December 31, 2000                                3

           Consolidated statement of operations (unaudited)
             for the three months and nine months ended
             September 30, 2001 and 2000                                     4

           Consolidated  statement of cash flows (unaudited)
             for the nine months ended September 30, 2001 and 2000           5

           Notes to consolidated financial statements                        6

    Item 2 -

       Management's Discussion and Analysis of Financial Condition and
           Results of Operations                                            12

    Item 3 -

         Quantitative and Qualitative Disclosures about Market Risk         25

PART II - OTHER INFORMATION

    Item 1 - Legal Proceedings                                              25

    Item 2 - Changes in Securities                                          26

    Item 3 - Exhibits and Reports on Form 8-K                               26

SIGNATURES                                                                  26

                                     Page 2

<PAGE>


<TABLE>
                                                   PART I - FINANCIAL INFORMATION


Item 1. Financial Statements

                                                       RATEXCHANGE CORPORATION
                                                    (A Development Stage Company)
                                                     CONSOLIDATED BALANCE SHEET


<CAPTION>
ASSETS                                                                                        September 30,            December 31,
                                                                                              ------------             ------------
                                                                                                  2001                     2000
                                                                                              (Unaudited)
                                                                                              (restated)
                                                                                              ------------             ------------
<S>                                                                                           <C>                      <C>
Current assets
       Cash and cash equivalents                                                              $  2,130,884             $  2,115,152
       Accounts receivable (net of an allowance for
         doubtful accounts of $9,460 at September 30, 2001
         and $4,960 at December 31, 2000)                                                          403,427                   41,170
       Investment securities available for sale                                                       --                 12,124,635
       Notes Receivable                                                                              6,000                     --
       Interest receivable                                                                            --                    204,755
       Prepaid expenses                                                                              8,340                  116,360
                                                                                              ------------             ------------
              Total current assets                                                               2,548,651               14,602,072

Property and equipment (net of accumulated depreciation of
  $655,730 and $240,791 in 2001 and 2000)                                                        2,454,974                1,401,888

Other assets
       Investment in affiliate                                                                      75,000                   75,000
       Deposits                                                                                    195,293                  184,856
                                                                                              ------------             ------------
Total assets                                                                                  $  5,273,918             $ 16,263,816
                                                                                              ============             ============


                                                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
       Accrued expenses and liabilities                                                       $  2,174,330             $  1,061,960
       Accounts payable                                                                            450,944                1,538,910
       Notes payable                                                                               522,151                     --
                                                                                              ------------             ------------
              Total current liabilities                                                          3,147,425                2,600,870

       Convertible Note Payable and Accrued Interest                                               409,743
       Accrued Lease Liabilities                                                                 5,396,799                     --
                                                                                              ------------             ------------
                             Total Liabilities                                                   8,953,967                2,600,870

Stockholders' equity (deficit)

       Preferred stock, $.0001 par value, 60,000,000
         shares authorized; 2,000,000 issued and outstanding                                           200                     --

       Common stock, $.0001 par value; 300,000,000 shares
         authorized; issued and outstanding: 18,053,000
         shares in 2001 and 17,783,000 shares in 2000                                                1,805                    1,778
       Additional paid-in capital                                                               80,965,603               72,132,890
       Accumulated deficit                                                                     (84,190,657)             (57,393,548)
       Deferred compensation                                                                      (457,000)                    --
       Notes receivable on sales of common stock                                                      --                   (363,661)
       Accumulated other comprehensive loss
                                                                                                      --                   (714,513)
                                                                                              ------------             ------------
              Total stockholders' equity (deficit)                                              (3,680,049)              13,662,946
                                                                                              ------------             ------------
Total liabilities and stockholders' equity (deficit)                                          $  5,273,918             $ 16,263,816
                                                                                              ============             ============

<FN>
See notes to financial statements
</FN>
</TABLE>

                                                               Page 3

<PAGE>


<TABLE>
                                                       RATEXCHANGE CORPORATION
                                                    (A Development Stage Company)

                                                CONSOLIDATED STATEMENT OF OPERATIONS

<CAPTION>
                                                                                                                       Beginning of
                                                                                                                       Development
                                                                                                                         Stage
                                              Three Months ended                     Nine Months ended                 (September
                                                 September 30,                          September 30,                    30, 1998)
                                                  (unaudited)                            (unaudited)                      through
                                       --------------------------------        --------------------------------        September 30,
                                           2001                2000               2001                 2000                2001
                                        (restated)                              (restated)          (restated)          (unaudited)
                                       ------------        ------------        ------------        ------------        ------------
<S>                                    <C>                 <C>                 <C>                 <C>                 <C>
REVENUE
Trading and consulting                 $    410,439        $     52,755        $  1,120,783        $     57,255        $  1,212,006

EXPENSES
Selling, general and
  administrative
  (includes non-cash
  expenses of
  $1,042,000 and
  $9,974,000 for the
  three month periods
  in 2001 and 2000 and
  $5,552,000 and
  $21,884,000 for the
  nine month periods
  in 2001 and 2000)                       2,975,024          16,333,853          15,665,389          35,907,785          67,288,039
Write off advances to
  potential investee                           --                  --                  --                  --             1,298,681
Depreciation and
  amortization                              562,826              62,983           1,417,623             164,262           1,658,414
Purchase of
  subsidiaries
  (non-cash)                                   --                  --                  --                  --             1,597,118
Write-down of
  software assets                         3,010,371                --             3,010,371                --             3,010,371
Loss or settlement on
  leases                                  7,039,397                --             7,039,397                --             7,039,397
                                       ------------        ------------        ------------        ------------        ------------
    Total Expenses                       13,587,618          16,396,836          27,132,780          36,072,047          81,892,020

OTHER INCOME
  (EXPENSE)

Interest income                              41,925             392,300             316,205             604,561           1,487,397
Interest expense                            (29,132)         (1,581,234)            (40,644)         (1,882,706)         (1,893,149)
Loss on securities                             --                 --               (744,197)                               (744,197)
Other expenses (net)                       (207,107)           (324,375)           (207,107)         (1,822,875)         (2,029,982)
                                       ------------        ------------        ------------        ------------        ------------
Loss before taxes                       (13,371,493)        (17,857,390)        (26,687,740)        (39,115,812)        (83,859,945)

Income tax provision
  (benefit)                                    --                  --                  --                  --                  --
                                       ------------        ------------        ------------        ------------        ------------
NET LOSS                               $(13,371,493)       $(17,857,390)       $(26,687,740)       $(39,115,812)       $(83,859,945)
                                       ============        ============        ============        ============        ============

Basic and diluted net
  loss per share                       $      (0.75)       $      (1.03)       $      (1.50)       $      (2.40)
Weighted average
  number of shares
  of common stock                        17,880,391          17,356,043          17,815,821          16,334,695

<FN>
See notes to the financial statements
</FN>
</TABLE>

                                                               Page 4

<PAGE>


<TABLE>
                                                       RATEXCHANGE CORPORATION
                                                    (A Development Stage Company)
                                                CONSOLIDATED STATEMENT OF CASH FLOWS


<CAPTION>
                                                                                                                        Beginning
                                                                                                                          of the
                                                                                                                       Development
                                                                                                                          Stage
                                                                                                                        September
                                                                                                                        30, 1998
                                                                                   For the nine months                      to
                                                                                   ended September 30,                September 30,
                                                                               2001                  2000                  2001
                                                                           ------------          ------------          ------------
                                                                            (Unaudited)           (Unaudited)           (Unaudited)
                                                                            (restated)            (restated)
<S>                                                                        <C>                   <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                 $(26,687,740)         $(39,115,812)         $(83,859,945)
  Adjustments to reconcile net loss to net
    cash used in operating activities
     Depreciation and amortization                                            1,417,623               164,262             1,658,414
     Write off advances to potential investee                                                                               206,898
     Write-down of software assets                                            3,010,371                                   3,010,371
     Stock options and warrants granted to
      service providers and strategic partners                                  633,831            13,547,868            18,024,044
     Stock options granted to employees below fair market value               1,294,694             9,127,572            11,686,126
     Stock options - termination adjustment                                     565,875               941,564             1,612,333
     Warrants issued in relation to bridge financing                                                1,801,775             1,657,988
     Warrants for purchase of common stock
      issued for services                                                          --                                     1,559,461
     Stock Issued for services                                                  145,200                                     145,200
     Purchase of outstanding shares of RateXchange                                 --                                     1,507,408
     Deferred lease payments                                                  1,286,000                                   1,286,000
     Loss or settlement on leases                                             7,039,397                                   7,039,397
     Deferred compensation                                                      958,109                                     958,109
     Loss on writedown of securities                                            744,197                                     744,197
     Increase in security deposits                                              (10,437)             (141,960)             (195,294)
     (Increase) decrease in accounts receivable and other advances              (55,481)             (393,279)             (417,766)
     Increase (decrease) in accounts payable and accrued expenses            (1,363,368)              246,352             1,127,987
                                                                           ------------          ------------          ------------
              Net cash used in operating activities                         (11,021,729)          (13,821,658)          (32,249,072)

CASH FLOWS FROM INVESTING ACTIVITIES
     Payment for purchase of equipment                                          (42,900)             (667,984)           (1,685,580)
     Purchase of Halo Stock                                                                                                (631,251)
     Purchase of investments available for sale                                                   (26,099,845)          (32,975,313)
     Sale of investments available for sale                                  11,580,361            12,484,257            32,347,777
     Investment in Affiliates                                                  (500,000)                                   (575,000)
                                                                           ------------          ------------          ------------
              Net cash provided by/(used in) investing activities            11,037,461           (14,283,572)           (3,519,367)

CASH FLOWS FROM FINANCING ACTIVITIES
     Loans and other debt                                                          --               1,200,000             1,500,000
     Proceeds from common stock sales (net)                                        --              29,702,360            34,809,004
     Proceeds from notes receivable                                                --               1,590,319             1,590,319
                                                                           ------------          ------------          ------------
              Net cash provided by financing activities                            --              32,492,679            37,899,323
                                                                           ------------          ------------          ------------
INCREASE IN CASH AND CASH EQUIVALENTS                                            15,732             4,387,449             2,130,884

CASH and CASH EQUIVALENTS BEGINNING OF PERIOD                                 2,115,152               536,615                  --
                                                                           ------------          ------------          ------------
CASH and CASH EQUIVALENTS END OF PERIOD                                    $  2,130,884          $  4,924,064          $  2,130,884
                                                                           ============          ============          ============

<FN>
See notes to financial statements
</FN>
</TABLE>

                                                               Page 5

<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 INTERIM FINANCIAL STATEMENTS-AS RESTATED; COMPANY BACKGROUND AND HISTORY

The interim  financial  statements  presented herein are unaudited and have been
prepared in accordance  with the  instructions  to Form 10-Q.  These  statements
should be read in  conjunction  with the financial  statements and notes thereto
included in our annual report on Form 10-K for the year ended December 31, 2000.
The results of  operations  and cash flows for the three and nine  months  ended
September 30, 2001 may not be indicative of the results that may be expected for
the year ending December 31, 2001.

The Company has restated its Form 10Q for the period ending  September 30, 2001.
As discussed in Note 11, the Company  modified its  severance  agreement  with a
former executive which was not properly  reflected in the previously filed 10-Q.
To  correct  this  misstatement,  the  revised  financial  statements  reflect a
$425,000  increase in  compensation  expense not previously  recorded during the
second quarter,  offset by a reduction in  compensation  expense of $25,000 that
should  not have been  reported  during  the third  quarter.  Also,  there was a
$271,000 reduction in compensation expense related to the continued amortization
of option  related  expense which should not have been  reported,  consisting of
$68,000   and   $203,000  in  the  second  and  third   quarters   respectively.
Additionally,  the  company  recorded  the related  note  payable  plus  accrued
interest totaling $409,743.

RateXchange Corporation (the "Company" or "RateXchange") is a consolidated group
of  companies   including  the  parent  corporation,   RateXchange   Corporation
(RateXchange Corp.), and its subsidiaries, RateXchange I, Inc., Xpit Corporation
("Xpit"),  RMG Partners  Corporation  ("RMG"),  and PolarCap,  Inc.  (PolarCap).
PolarCap is in the process of being liquidated.

RateXchange  Corporation  (formerly  NetAmerica.com  Corporation)  is a Delaware
corporation  originally  organized on May 6, 1987 for the purpose of seeking out
and  developing  any  general  business  opportunity.  The  Company's  operating
subsidiary  RateXchange I, Inc., a Delaware corporation  organized in June 1999,
has developed  proprietary  trading  software to support its electronic  trading
system for bandwidth and other  telecommunications  products. In March 2001, the
Company acquired Xpit.com,  Inc., an Idaho corporation offering trading and risk
management systems to the futures industry.  In October 2001,  substantially all
of the assets acquired were sold to CQG, Inc. In April 2001,  RateXchange formed
RMG Partners  Corporation,  a wholly owned subsidiary,  to provide  market-based
solutions through the use of derivative trading strategies.

RateXchange Corporation is an innovative transaction services firm that combines
the  strength of  traditional  voice  brokerage  with  technology-based  trading
systems  to help its  clients  understand  and  compete  in newly  commoditizing
marketplaces.  RateXchange's  mission is to provide  an  unbiased  view and help
increase liquidity in these marketplaces by providing brokerage,  consulting and
information  services  that  enable  network  providers,  energy  merchants  and
financial  services  firms to maximize the usage of their assets.  The brokerage
services include traditional voice brokerage, including securities brokerage, in
addition to a proprietary  trading system, the RateXchange Trading System (RTS),
that allows network providers, energy merchants,  financial institutions,  asset
managers   and   commodity   traders   the  ability  to  trade   bandwidth   and
bandwidth-related  products.  The consulting

                                     Page 6

<PAGE>


solutions  practice provides asset valuation tools,  risk management  strategies
and price analysis.  The information services include the provision of bandwidth
pricing  information,  market research and  comprehensive  analysis for industry
segments supported by the Company's trading system.

The  Company is defined  as a  development  stage  company  in  accordance  with
Financial  Accounting  Standard  No. 7. The  Company  began  revenue  generation
activities in 2000 but nominal revenue has been generated  through September 30,
2001.  The Company  anticipates  that the revenue  growth that has  occured,  in
addition to other factors  related to the Company's  operations,  will result in
the  removal  of the  development  stage  company  classification  in the fourth
quarter of 2001.

In April 2001,  as  previously  disclosed in the year 2000 Form 10K, the Company
received an irrevocable  commitment  from two investors to acquire a total of $9
million of common  stock to be issued  from  capital  shares.  During the second
quarter of 2001,  management  was informed by those  investors that they did not
expect to honor the  original  commitment  due to the  decline in the  Company's
share price.  As a result of this  development,  management is seeking a reduced
amount of financing in the amount of $2.5 million and in no event more than $3.5
million,  that the Company  expects to close before the end of November 2001. As
of November 20,  2001,  the Company had opened  escrow into which  approximately
$2.9 million had been received.  Additionally,  on October 29, 2001, the Company
sold substantially all of the assets related its Xpit Corporation subsidiary for
$1.0 million in net cash, in addition to the  retirement  of a related  $500,000
note payable (See Note 11 - Subsequent Events).

In November 2000,  new management  began to implement cost cuts in order to more
closely tie costs to revenue.  Significant  expense  reductions  have  continued
through October 2001,  which  included,  among other things,  staff  reductions,
settlement  of  outstanding  obligations  associated  with unused  equipment and
completion  of  certain  development  efforts  that have  significantly  reduced
expenditures  for outside  consulting  expertise.  The Company  believes  that a
successful  closing  of  the  current  financing  will  be  sufficient  to  fund
operations for the next 12 months.  The Company cannot make  assurances  that it
will be able to complete  the full  financing,  or that such  financing  will be
adequate for the Company's needs.

The factors discussed above create substantial doubt about the Company's ability
to continue as a going concern and an uncertainty as to the  recoverability  and
classification  of recorded asset amounts and the amounts and  classification of
liabilities.   The  accompanying   financial   statements  do  not  include  any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

NOTE 2 CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS

We consider all highly liquid investment  securities with original maturities of
three  months or less from date of purchase to be cash  equivalents.  Short-term
investments  consist of debt securities with maturities between three months and
twelve months.

Management determines the appropriate  classification of investments at the time
of purchase and reevaluates  such  determination  at each balance sheet date. To
date, all marketable securities have been classified as  available-for-sale  and
are carried at fair value with unrealized gains and losses,  if any, included in
stockholders'  equity.  At September 30, 2001, the Company had no investments in
securities  available for sale.  Realized gains and losses and declines in value
of  securities  judged to be other than  temporary are included in other income,
net. Interest and dividends on all securities are included in other income, net.

NOTE 3 SERIES A PREFERRED STOCK

In the first quarter of 2001, in conjunction with the purchase of Xpit.com., the
Company issued 2,000,000 shares of

                                     Page 7

<PAGE>


its Series A Convertible  Preferred Stock with a cumulative dividend of 6% based
on a share  price of $2.75 per share.  Dividends  are paid in shares of Series A
Preferred  Stock.  The Series A Preferred  Stock is convertible on a one for one
basis into common shares of the Company at the  discretion  of the holders.  The
holder of each share of Series A  Preferred  Stock has the right to one vote for
each share of Common  Stock into  which such share of Series A  Preferred  Stock
could  then be  converted.  In the  event of any  liquidation,  dissolution,  or
winding up of the Company, whether voluntary or involuntary,  the holders of the
Series A Preferred Stock are entitled to receive, prior and in preference to any
distribution  of any assets or surplus  funds of the  Company to the  holders of
common stock, the aggregate amount of $2.75 per share (as adjusted for any stock
dividend,  combinations,  or splits with respect to such  shares).  The Series A
preferred stock is not redeemable.

NOTE 4 LOSS PER SHARE AND AVERAGE SHARES OUTSTANDING

Basic  loss per  share is  computed  by  dividing  the net  loss,  less  accrued
dividends on preferred stock ($82,500 and $182,000 for the three and nine months
ending  September 30,  2001),  by the weighted  average  number of common shares
outstanding.  Options,  warrants and  convertible  preferred  stock on shares of
common stock were not included in computing diluted loss per share because their
effects  were  anti-dilutive.   (10,537,000  options,   6,435,000  warrants  and
2,000,000 convertible preferred shares).

NOTE 5 COMMITMENTS AND CONTINGENCIES

The Company is involved in the following lawsuits:

Martin v. RateXchange

On October 3, 2001,  Gregory Martin and Patricia Whitney filed a lawsuit against
RateXchange  Corporation  in the United  States  District  Court for the Western
District of  Washington,  C01-1565R  alleging  breach of contract.  In 1998, Mr.
Martin was the President and CEO of NetAmerica International Corporation (NAMI),
a predecessor  of  RateXchange  Corporation.  In December of 1998 Mr. Martin was
terminated from his employment with NAMI. The claims allege breach of agreements
associated  with Mr.  Martin's  employment.  The  complaint  asks for damages of
approximately $150,000.

Mr. Martin had filed suit previously in the Washington State court.  That matter
was dismissed  following a settlement in May of 1999. Mr. Martin has now revived
his claim against the Company.

The Company was  recently  served with the lawsuit and has not yet  responded in
court.

YellowBrix, Inc. v. RateXchange Corporation

On  October  2,  2001,  YellowBrix,  Inc.  filed a lawsuit  against  RateXchange
Corporation in the Circuit Court for the City of Alexandria,  Virginia  alleging
breach of contract.  YellowBrix,  Inc.  provided  news wire  information  to the
Company in 2001. The complaint asks for damages of  approximately  $32,000.  The
Company was recently served with the lawsuit and has not yet responded in court.

RateXchange, Inc. v. PWREF/MCC-China Basin, LLC

In  September  of 2001,  RateXchange  I,  Inc.,  one of the  Company's  Delaware
subsidiaries,  terminated its lease and filed a lawsuit against  PWREF/MCC-China
Basin, LLC, its previous landlord,  alleging  constructive  eviction and seeking
declaratory  relief.  The  allegations of the complaint arise from the lease for
commercial  space  between  the parties  for the  property  located at 185 Berry
Street, in San Francisco,  California.  PWREF/MCC-China  Basin, LLC has recently
responded to the complaint and filed a  cross-complaint  against  RateXchange I,
Inc. The Company has reserved $132,000 to address this matter.

Based upon the facts known to the Company at this time and the  applicable  law,
RateXchange does not expect the above cases to result in significant exposure to
the Company and the Company has not set aside any  additional  reserves  for the
contingencies listed above.

                                     Page 8

<PAGE>


NOTE 6 COMPREHENSIVE LOSS

The comprehensive loss for the three and nine month periods ending September 30,
2001 and 2000 was:

<TABLE>
<CAPTION>
                                                              Three Months Ended                       Nine Months Ended
                                                                 September 30                              September 30
                                                         2001                   2000                 2001                  2000
                                                     ------------          ------------          ------------          ------------
<S>                                                  <C>                   <C>                   <C>                   <C>
Net loss                                             $(13,371,493)         $(17,857,390)         $(26,687,740)         $(39,115,812)
Other Comprehensive
Income:

Unrealized losses on short-term investments                                    (521,513)                                   (117,965)
                                                     ------------          ------------          ------------          ------------
Comprehensive loss                                   $(13,371,493)         $(18,378,903)         $(26,687,740)         $(39,233,777)
                                                     ============          ============          ============          ============
</TABLE>


NOTE 7  OPERATING LEASES

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

Future annual minimum lease payments related to equipment and office space under
non-cancelable operating leases as of September 30, 2001 were:

Year
2001 (Last three months)                         $ 393,320
2002                                             1,936,586
2003                                             4,895,888
                                                ----------
                                                $7,225,794
                                                ==========


During the second  quarter,  the  Company  and  Forsythe  McArthur  ("Forsythe")
entered into a  Restructure  Agreement  with  respect to an  equipment  lease on
delivery  hub  equipment.  The terms of the  Restructure  Agreement  required 12
monthly  payments of $74,056  beginning on May 1, 2001,  12 monthly  payments of
$148,113  beginning  on May 1, 2002  followed  by one  payment on May 1, 2003 of
$4,184,544.  In  September,  Forsythe  agreed to allow  RateXchange  to withhold
scheduled  payments  through  December 31, 2001,  subject to a proposed  further
restructuring of the lease.

The proposed modified Restructure  Agreement between RateXchange and Forsythe is
subject to the successful  closing of a minimum of $2 million in financing prior
to December 31,  2001.  The proposed  terms call for a $5.95  million  five-year
convertible  note issued to  Forsythe,  with  interest of 9% per annum,  payable
quarterly in cash or RateXchange  common stock. The corresponding  leased assets
would then be carried on  RateXchange's  balance sheet. No principal  repayments
are  required  prior to the  August  31,  2006  maturity  date,  and the note is
convertible  at maturity at a 20%  discount to the  prevailing  market  price of
RateXchange   common  stock.  In  consideration   for  agreeing  to  modify  the
Restructure Agreement, Forsythe will receive warrants to purchase $250,000 worth
of  RateXchange  common  stock  based on a price  equal  to 130% of the  average
closing price in October 2001,  or $0.48.  The warrants will not be  exercisable
until  October 31,  2002.  Because the outcome of the  financing is not known at
this time, the Company's September 30, 2001 financial  statements do not reflect
the impact of this pending modification to the Restructure Agreement.

As reported in the  previous  quarters,  management  has been  re-examining  its
business plans,  including  aspects of the business related to the delivery hubs
and  evaluating  alternative  uses for such leased  equipment.  During the third
quarter,  management concluded that it cannot determine a use for such equipment
in its ongoing  operations.  As a

                                     Page 9

<PAGE>


result  of the  related  assets  being  no  longer  utilized  in  the  Company's
operations,  RateXchange  took a $6.4  million  charge for the  acceleration  of
remaining  contractual  obligations and costs associated with the Forsythe lease
arrangement.

Also  during the third  quarter,  the  Company  settled  claims  and  additional
outstanding  lease  obligations  related to assets and facilities that no longer
fit with the revised  operating  plan. In August 2001,  the Company  settled its
outstanding  litigation with Switch and Data Facilities Company.  The settlement
had a value of $368,000,  including a cash payment of $250,000 and Company stock
valued at $118,000.

The Company also  settled the terms of its  collocation  lease with  Telecity by
providing consideration of $275,000 in cash and an agreement to pay $95,000 over
six months in return for  elimination of all  liabilities  related to the lease,
which totaled approximately $1.2 million.

Additionally, the Company agreed to settle an obligation to Science Applications
International Corp. ("SAIC") for goods and services associated with delivery hub
equipment.  Currently,  there  is an  amount  payable  to SAIC of  approximately
$158,000, with $50,000 payable in cash and the balance payable in 175,000 shares
of restricted RateXchange common stock.

The Company has an existing lease with Lawson  Software for accounting  software
that it no longer  utilizes.  The Company has  suspended  lease  payments  since
September 2001, when negotiations  began regarding a concession.  An outstanding
obligation of $263,000 remains on the lease, and has been fully expensed.

On October 5, 2001 RateXchange signed an 18-month sub-lease for new office space
at 100 Pine Street in San Francisco's  financial district.  Monthly payments are
approximately $7,800.

NOTE 8 AGREEMENT WITH AMEREX BANDWIDTH

In September  2001,  the Company and Amerex  extended  their  agreement  through
December 31, 2001.  Under the new terms of the extended  agreement,  the Company
maintains  its  receipt of 70% on all  bandwidth  brokerage  commission  revenue
generated,  and decreases its payment of monthly  expenses  associated with this
revenue  from  approximately  $70,000  per  month to  $15,000  per month for the
remainder of the year.

In July  2001,  RateXchange  agreed  to  preliminary  non-binding  terms for the
purchase of all of the outstanding stock of Amerex Bandwidth,  Ltd.,  subject to
the signing of a Definitive Agreement and the successful completion of a minimum
of $3 million in financing.  The transaction was structured as a stock-for-stock
purchase,  with a  portion  of the  purchase  price  payable  in stock  upon the
achievement of certain revenue targets.  Assuming a successful  closing,  Amerex
Bandwidth  would operate as a wholly-owned  subsidiary of RateXchange  and would
remain  in  its  Houston  offices.   Once  RateXchange's  current  financing  is
completed, the Company will continue to explore mutually agreeable terms for the
acquisition  of Amerex  Bandwidth.  Should the stock  purchase  not  occur,  the
Company expects to continue its partnership  agreement under mutually  agreeable
terms.  Because the future terms of our  agreement  with Amerex are not known at
this time, the Company's September 30, 2001 financial  statements do not reflect
the impact of this potential acquisition.

NOTE 9 RMG PARTNERS

In April 2001,  the Company  formed RMG Partners  Corporation  (RMG) as a wholly
owned subsidiary  created to provide  market-based  solutions through the use of
derivative trading strategies.  RMG principals receive 85% of revenues, which is
used to cover  payroll and all of the  operating  expenses of RMG. In connection
with his  hiring,  the CEO of RMG has been given the right to acquire a specific
number of shares of the Company with additional purchase rights upon achievement
of revenue targets in the future.  This deferred  compensation is reflected as a
component of equity in the balance sheet and is being amortized over a period of
12 months.  The Company has granted an  affiliate of the  principals  of RMG the
right to purchase RMG for $300,000 commencing in April 2002.

NOTE 10 NEW ACCOUNTING STANDARD

In the first quarter of 2001,  the Company was required to adopt the  provisions
of Financial  Accounting  Standard Statement No. 133,  Accounting for Derivative
Instruments and Hedging  Activities (FAS 133) as amended by FAS

                                    Page 10

<PAGE>
137 and FAS 138. This statement  establishes  accounting and reporting standards
for  derivative  contracts and for hedging  activities.  As the Company does not
currently  use any  derivative  instruments  or  engage in  hedging  activities,
adoption  of this new  standard  had no  impact  on the  Company's  consolidated
results of operations or consolidated financial position.

NOTE 11 Severance Agreement with Former Officer

In May 2001, the Company renegotiated the terms of the severance included in its
employment agreement with Donald Sledge,  former Chairman and CEO of RateXchange
Corporation.  Upon his leaving the Company, Mr. Sledge was originally to receive
one year's salary, or $300,000,  in addition to a $150,000  severance payment in
cash and the accelerated  vesting of certain stock option grants. In lieu of the
original agreement,  the Company renegotiated these terms to payments of $25,000
cash in May 2001,  $25,000  cash in July  2001 and the  issuance  of a  $400,000
two-year convertible  promissory note from the Company with interest at 7.0% per
annum.  The  principal  can be  converted to shares of common stock at $2.75 per
share  conversion rate at any time during the term.  Additionally,  an option to
purchase  300,000  shares of common  stock that was  granted  to Mr.  Sledge was
terminated as part of the negotiation.

NOTE 12 SUBSEQUENT EVENTS

Sale of Xpit Corporation Assets to CQG, Inc.

On October 29, 2001 the Company sold all of the material assets of the Company's
Xpit Corporation  subsidiary,  including the RateXchange Futures System ("RFS"),
to CQG, Inc. ("CQG"), a privately-held  quotation  services company.  The assets
were sold to CQG in exchange for $1.5 million in cash. Additionally, the Company
can earn  royalties  of up to $650,000  over the next four years if CQG achieves
future revenue targets via the RFS platform.

In view of the sale to CQG, the Company  recorded a $3.0 million non-cash charge
in the  third  quarter  to  reflect  the  impairment  in the  value  of the Xpit
Corporation  assets,  principally  the  carrying  value  of  the  RFS  platform.
Additionally,  the $500,000  note  payable  associated  with the  original  Xpit
purchase price,  payable to affiliates of two of  RateXchange's  Directors,  was
paid in full,  plus accrued  interest.  Net cash proceeds to the Company,  after
payment of the note and expenses associated with the transaction, were $902,000.

Private Placement of $2.5 million Convertible Subordinated Notes

As of November 20, 2001, the Company was in the process of raising $2.5 million,
and in no event more than $3.5 million, in a private placement financing,  which
the Company expects will close before the end of November. The offering consists
of 50 units,  with each unit  consisting of a ten-year  $50,000 12%  convertible
subordinated  note and warrants to acquire 12,500 shares of  RateXchange  common
stock.  The conversion  price of the note and the exercise price of the warrants
will be the greater of $0.35 or the closing price of RateXchange common stock as
evidenced  by the last trade on the AMEX prior to the closing of the sale of the
units. The warrants will be exercisable for three years following the closing.

The offering is on a best efforts basis, with current funds raised being held in
an escrow account. However, upon closing, all funds raised, less the expenses of
the offering,  will be made available for use by the Company.  No assurances can
be made that the Company  will  complete  the full  funding.  As of November 20,
2001, approximately $2.9 million had been received in the escrow account.

Establishment of a Broker/Dealer Operation

RateXchange  plans  to  supplement  its  transaction  services  business  with a
traditional  broker/dealer  operation  focused on the trading and  brokerage  of
stocks,  bonds  and  derivatives   thereof.   Management  believes  the  current
retrenchment  and   consolidation  in  the  brokerage   business   provides  the
opportunity to capitalize on the availability of high quality  employees.  Given
the volatility of the market for telecom debt and equity securities, RateXchange
has seen  considerable  interest in bandwidth  pricing and other telecom related
data  from  institutional  fund  managers.  RateXchange  owns  a  NASD  approved
broker/dealer,  has  entered  into an initial  clearing  agreement  with a bulge
bracket  clearing  firm,  and has  begun its  recruiting  process.  The  Company
anticipates  beginning  NASD fully approved  brokerage  operations in January of
2002.

NOTE 12 RELATED PARTY REVENUE

In October 2001, the Company  successfully  completed the process of obtaining a
broker/dealer license for its subsidiary,  RMG Partners  Corporation.  With this
approval,  the Company can  continue to pursue its various  consulting  and risk
management  services.  Prior to obtaining  this  separate  license,  the Company
completed certain of its consulting and risk management  transactions  through a
registered  broker/dealer  in which certain  Company  personnel have a financial
interest.

                                    Page 11

<PAGE>


Item 2 MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS
       OF OPERATIONS

The following  discussion  should be read in conjunction  with our  Consolidated
Financial  Statements  and the notes  thereto  presented  in "Item 1 - Financial
Statements."  The  information  set forth in this  "Management's  Discussion and
Analysis  of   Financial   Condition   and  Results  of   Operations"   includes
forward-looking  statements that involve risks and  uncertainties.  Many factors
could cause  actual  results to differ  materially  from those  contained in the
forward-looking statements below. See "Outlook."

The  Company is defined  as a  development  stage  company  in  accordance  with
Financial  Accounting  Standard  No. 7. The  Company  began  revenue  generation
activities in 2000 but nominal revenue has been generated  through September 30,
2001.  The Company  anticipates  that the revenue  growth that has occurred,  in
addition to other factors  related to the Company's  operations,  will result in
the  removal  of the  development  stage  company  classification  in the fourth
quarter of 2001.

GENERAL DEVELOPMENT OF BUSINESS

RateXchange Corporation is an innovative transaction services firm that combines
the  strength of  traditional  voice  brokerage  with  technology-based  trading
systems  to help its  clients  understand  and  compete  in newly  commoditizing
marketplaces.  RateXchange's  mission is to provide  an  unbiased  view and help
increase  liquidity in these  marketplaces  by providing the following  services
that enable network providers,  energy merchants and financial services firms to
maximize the usage of their assets:

         o        Brokerage Services - These services include  traditional voice
                  brokerage,  including securities  brokerage,  in addition to a
                  proprietary  trading system,  the  RateXchange  Trading System
                  (RTS),  that  allows  network  providers,   energy  merchants,
                  financial  institutions,  asset managers and commodity traders
                  engaged  on  the  RTS  the  ability  to  trade  bandwidth  and
                  bandwidth-related products.

         o        Consulting  Solutions  -  The  consulting  solutions  practice
                  provides asset valuation tools, risk management strategies and
                  price analysis.

         o        Information Services - These services include the provision of
                  bandwidth   pricing    information,    market   research   and
                  comprehensive  analysis for industry segments supported by the
                  Company's trading system.

RateXchange  plans  to  supplement  its  transaction  services  business  with a
traditional  broker/dealer  operation  focused on the trading and  brokerage  of
stocks,  bonds  and  derivatives   thereof.   Management  believes  the  current
retrenchment  and   consolidation  in  the  brokerage   business   provides  the
opportunity to capitalize on the  availability  of high quality  employees.  Jon
Merriman,  Chairman and CEO of RateXchange,  has significant depth of experience
in  the  brokerage  business.  Merriman's  representative  background  includes:
management of Wells Fargo Van Kasper's  Capital  Markets area,  where he oversaw
research,  sales,  trading,  derivatives  and syndicate;  formation of an equity
brokerage and investment banking operation at Dabney/Resnick/Imperial LLC, which
was  subsequently  acquired by Imperial  Credit  Industries;  management  of the
equity market neutral hedge fund Merriman Capital Management Inc; and employment
as a risk arbitrage  trader and investment  banker at Bear,  Stearns and Merrill
Lynch & Co., respectively.

Given the  volatility  of the market  for  telecom  debt and equity  securities,
RateXchange  has seen  considerable  interest  in  bandwidth  pricing  and other
telecom  related data from  institutional  fund managers.  Senior  management of
RateXchange,  as well as the  company's  Board of  Directors,  has  considerable
experience  and contacts in the  securities  business  and believes  there is an
opportunity to drive bandwidth  information  revenues through a traditional NASD
broker/dealer  structure.  RateXchange owns a NASD approved  broker/dealer,  has
entered into an initial  clearing  agreement with a bulge bracket clearing firm,
and has begun its recruiting  process.  The company  anticipates  beginning NASD
fully approved brokerage operations in January of 2002.

                                    Page 12

<PAGE>


On August 18, 2001,  RateXchange  entered into an agreement  with Reuters  Group
PLC,  a  major  financial  news  organization  with  over  600,000   subscribers
worldwide,   to  offer  real-time   bandwidth  pricing  information  and  market
commentary.  The companies expect to formally and jointly announce the agreement
in the  fourth  quarter  of 2001,  after  the  completion  of beta  testing  and
successful deployment of the service. The Company expects that this arrangement,
if successful,  will strengthen RateXchange's branding as a recognized leader in
bandwidth pricing information.

On August 14,  2001,  RateXchange  and Dorado  Software  announced  a  strategic
agreement  to  automate  Internet  Protocol  or  "IP"  service  delivery  in the
bandwidth  trading  marketplace.  Dorado's  software  can  reserve,  deliver and
monitor  services  in the  bandwidth  trading  market,  overcoming  many  of the
challenges of managing the delivery of IP services.

On July 31, 2001, RateXchange announced that it had completed development of its
new Metro Bandwidth  Trading Service designed to allow customers to buy and sell
metro  bandwidth  capacity.  This new product is a solution  for  trading  metro
capacity and helps break down the local loop bottleneck  that currently  exists.
This trading  solution was developed in close  cooperation  with several optical
metropolitan-area  network  providers.  The Metro Bandwidth  Trading Service was
designed to accommodate the needs of both these new metro providers,  as well as
being available for use by the incumbent  providers.  The service is expected to
facilitate  overall  bandwidth  trading by addressing a critical area in today's
market - connectivity at the local level.

On July 16, 2001,  RateXchange  announced an agreement  with  Avantrust,  LLC, a
joint venture between American  International  Group, Inc.  (NYSE:AIG) and Dun &
Bradstreet (NYSE:DNB), whereby Avantrust Passport and TradeCredit Insurance will
be provided to participants on all RateXchange telecom markets. As a result, all
RateXchange buyers will have their credit information  available to do business,
and all qualified  sellers will be able to arrange for trade credit insurance to
cover against buyer  non-payment.  This product offering provides a unique value
proposition to RateXchange's sellers, who will have insured payments on approved
parties, as well as RateXchange's buyers, who can avoid cash deposits or letters
of credit. The Company expects this product offering to be available for all RTS
bandwidth markets including TDM bandwidth and IP trading products.

Results of Operations for Three and Nine Months Ended September 30, 2001

         The following table  summarizes our results of operations for the three
and nine month periods ending  September 30, 2001,  compared to the same periods
of 2000.

<TABLE>
<CAPTION>
                                                               Three Months Ended                        Nine Months Ended
                                                                   September 30                             September 30
                                                        ---------------------------------         ---------------------------------
                                                            2001                 2000                 2001                 2000
                                                        ------------         ------------         ------------         ------------
                                                         (Restated)                                (Restated)           (Restated)
<S>                                                     <C>                  <C>                  <C>                  <C>
Revenue                                                 $    410,439         $     52,755         $  1,120,783         $     57,255
Recurring Operating Expenses                            $  3,537,850         $ 16,396,836         $ 17,083,012         $ 36,072,047
Non-Recurring Operating Expenses                        $ 10,049,768                 --           $ 10,049,768                 --
Net income (loss)                                       $(13,371,493)        $(17,857,390)        $(26,687,740)        $(39,115,812)
</TABLE>


Third quarter results:

Revenue

The Company  generated  revenue of $410,439 for the  three-month  period  ending
September 30, 2001.  Revenue in this period was primarily from consulting  fees,
and to a lesser extent trading  commissions.  In the comparable  period of 2000,
the Company generated revenue of $52,755, primarily from consulting fees.

                                    Page 13

<PAGE>


Recurring Operating Expenses

Total recurring  operating  expenses for the third quarter ending  September 30,
2001 were $3.5 million  compared to $16.4 million for the third quarter of 2000,
reflecting  an  improvement  of 77%  year-over-year.  The  decrease in recurring
operating  expenses was  primarily a result of staff  reductions,  a significant
decrease  in option  and  warrant  expense  related  to  employees  and  service
providers, and the elimination of expenses not directly tied to revenue growth.

Total recurring cash operating  expenses  decreased 69% to $2.0 million compared
to $6.4  million for the third  quarter of 2000.  The  decrease  was a result of
staff  reductions,  cost  reductions  associated  with the completion of systems
development  efforts, and the elimination of delivery equipment costs. The major
components of our recurring cash expenses for the third quarter of 2001 were:

         Recurring Cash Expenses

         o        $925,000  in payroll  costs  during the third  quarter of 2001
                  compared to $1,910,000 in the third quarter of 2000;

         o        $309,000 in outside  services during the third quarter of 2001
                  compared to $725,000 during the third quarter of 2000, and;

         o        $222,000 in delivery  equipment costs for the third quarter of
                  2001  compared  to  $1,719,000  in the third  quarter  of 2000
                  (excluding the acceleration of $6.4 million of remaining lease
                  commitments as described below).

Total recurring  non-cash operating expenses for the third quarter decreased 84%
to $1.6  million  compared  to $10.0  million  for third  quarter of 2000.  This
decrease was primarily due to the significant decrease in option expense related
to  service  providers  and  employees  no longer  with the  Company.  The major
components of our non-cash expenses for the third quarter of 2001 were:

         Recurring Non-Cash Expenses

         o        $643,000  related to  amortization of deferred lease payments.
                  There were no such expenses in the same period of 2000

         o        $160,000  compared to  $1,484,000 in the third quarter of 2000
                  for amortization  expense  associated with the year 2000 grant
                  of below market stock options to employees;

         o        $563,000 compared to $63,000 for the third quarter of 2000 for
                  depreciation expense;

         o        $93,000  compared to $8,095,000  for the third quarter of 2000
                  for options and warrants to service providers

Non-Recurring Operating Expenses

Other  non-recurring  operating  expenses  for the  third  quarter  amounted  to
approximately  $10.1  million  compared  to none in the third  quarter  of 2000.
During the quarter,  the Company  recognized the acceleration of $7.0 million in
lease   obligations,   settlements  and  costs  associated  with  equipment  and
facilities  no longer in use, in addition to a $3.0 million  write-down  of Xpit
Corporation  assets  subsequently  sold to CQG, Inc.,  principally  the carrying
value of the RFS platform.  Of these  non-recurring  charges,  $9.5 million were
non-cash.  $5.3 million of these charges are related to the Forsythe lease,  are
currently  due in May 2003 and will be  rescheduled  for  payment in August 2006
upon successful completion of the Company's current funding round.

Interest Income/Expense:

                                    Page 14

<PAGE>


Interest  income for the third quarter of 2001 was $42,000  compared to $392,000
for the third  quarter in 2000.  The decrease in interest  income is due to less
interest earned on a smaller average investment  portfolio.  Interest expense of
$29,000 for the third  quarter was primarily  attributable  to the $500,000 note
payable,  which was subsequently  repaid during the fourth quarter upon the sale
of the Xpit Corporation assets.

Other Expenses

Other  non-recurring  expenses for the third quarter  amounted to  approximately
$207,000  compared to $325,000 in the third quarter of 2000, due to cost cutting
measures enacted by the Company during the third quarter of 2001.

Net Loss:

During the third quarter of 2001,  the Company  incurred a loss of $13.4 million
compared to $17.9 million during the third quarter of 2000. The major components
of the net loss for the third quarter were $7.0 million in non-recurring charges
associated with leased assets no longer in use, a $3.0 million write-down on the
value of the Xpit Corporation  assets,  and additional cash expenditures of $2.0
million  associated with operating the business.  These cash  expenditures  were
down from  $2.5  million  in the  second  quarter  of 2001,  representing  a 20%
quarter-over-quarter improvement.

Due to the recognition of one-time charges  associated with unused equipment and
facilities  and the  write-down of the Xpit assets,  the Company  expects future
results to more directly reflect current operations.

Nine-month results:

Revenue

The Company  generated  revenue of $1,121,000 for the  nine-month  period ending
September  30, 2001,  primarily  from  consulting  fees,  and to a lesser extent
trading  commissions.  In the comparable  period of 2000, the Company  generated
$57,000, primarily from consulting fees.

Recurring Operating Expenses

Total recurring operating expenses for the nine-months ending September 30, 2001
were $17.1 million  compared to $36.1 for the same period in 2000,  reflecting a
decrease of 53%. This decrease was primarily due to the significant  decrease in
option  expense  related to service  providers  and employees no longer with the
Company during 2001.

Total recurring cash operating  expenses for the nine-month period decreased 29%
to $10.1 million compared to $14.2 for the same period in 2000. The decrease was
a  result  of  cost  reductions   associated  with  the  completion  of  systems
development  efforts,  staff  reductions,  and the  elimination  of expenses not
directly tied to revenue growth.  The major  components of our cash expenses for
the nine-month period ending September 30, 2001 were:

         Recurring Cash Expenses

         o        $3,247,000  in  payroll  costs  during the  nine-month  period
                  compared to $3,880,000 during the same period of 2000;

         o        $2,084,000 in outside services  compared to $2,584,000  during
                  the same period in 2000, and;

         o        $2,436,000 for delivery equipment costs compared to $2,454,000
                  in the same period in 2000.

                                    Page 15

<PAGE>


Total recurring  non-cash  operating  expenses for the nine-month  period ending
September  30, 2001  decreased  68% to $7.0 million from $22.0 million for 2000,
primarily due to the  significant  decrease in option expense related to service
providers and employees no longer with the Company.  The major components of our
recurring  non-cash expenses for the nine-month period ending September 30, 2001
were:

         Recurring Non-cash Expenses

         o        $1,295,000  compared to $9,128,000 for the same period in 2000
                  for amortization  expense  associated with the year 2000 grant
                  of below market stock options to employees;

         o        $1,418,000  compared to  $164,000  for the same period in 2000
                  for depreciation expense;

         o        $958,000 for deferred and accrued compensation.  There were no
                  such expenses in the similar period of 2000;

         o        $633,000  for  option   revaluation   related  to   terminated
                  employees.  There were no such expenses in the similar  period
                  of 2000;

         o        $379,000  compared to  $11,711,000  in the same period of 2000
                  for options and warrants granted to service providers;

         o        $1,286,000 related to amortization of deferred lease payments.
                  There were no such expenses in the same period of 2000.

         o        $577,000 of accruals  related to contingent  liabilities.  The
                  comparable amount in the 2000 period was $250,000.

Non-Recurring Operating Expenses

Other  non-recurring   operating  expenses  for  the  nine-month  period  ending
September 30, 2001 amounted to  approximately  $10.1 million compared to none in
the  similar  period of 2000.  During  the third  quarter of 2001,  the  Company
recognized the  acceleration of $7.0 million in lease  obligations,  settlements
and costs associated with equipment and facilities no longer in use, in addition
to a $3.0 write-down of Xpit Corporation  assets  subsequently sold to CQG, Inc.
Of these non-recurring charges in the third quarter, $9.5 million were non-cash.
$5.3 million of these charges are related to the Forsythe  lease,  are currently
due in May 2003 and will likely be  rescheduled  for payment in August 2006 upon
completion of the Company's current funding round.

Interest Income/Expense:

Interest  income  for the first nine  months of 2001 was  $316,000  compared  to
$605,000 for the same period in 2000. The decrease in interest  income is due to
less interest earned on a smaller average investment portfolio. Interest expense
of $41,000 for the nine-month period was primarily  attributable to the $500,000
note payable,  which was subsequently  repaid during the fourth quarter upon the
sale of the Xpit Corporation assets.

Other Expenses:

Other non-recurring expenses for the nine-month period ending September 30, 2001
amounted to  approximately  $1.0 million compared to $1.8 million in the similar
period of 2000. During the first two quarters of 2001, the Company  recognized a
loss on sale of securities held of $0.7 million.

Net Loss:

                                    Page 16

<PAGE>


During the nine-month  period ending  September 30, 2001, the Company incurred a
loss of $26.7 million  compared to $39.1 million during the same period of 2000.
The major components of the net loss for the recent  nine-month period were $7.1
million in non-recurring  charges  associated with leased assets, a $3.0 million
write-down on the value of the Xpit  Corporation  assets,  and  additional  cash
expenditures of $10.1 million associated with operating the business.

LIQUIDITY AND CAPITAL RESOURCES

RateXchange  has financed its operations to date  primarily  through the sale of
equity  securities.  The Company has been  unprofitable  since inception and has
incurred net losses in each year.

Cash and cash  equivalents  at September 30, 2001 were $2.1 million  compared to
$4.9 million on June 30, 2001 and $14.2 million on December 31, 2000.

As  previously  disclosed in the year 2000 Form 10K, in April 2001,  the Company
received an irrevocable  commitment  from two investors to acquire a total of $9
million of newly issued common shares of the Company.  During the second quarter
of 2001,  management was informed by those investors that they did not expect to
honor the original  commitment due to the decline in the Company's  share price.
As a  result  of  this  development,  in  addition  to  the  expense  reductions
undertaken by the Company, management is in the process of raising $2.5 million,
and in no event more than $3.5 million,  in a private  placement of  convertible
subordinated notes, which it expects to close before the end of November.  As of
November 20, 2001, the Company has opened escrow into which  approximately  $2.9
million  has been  received.  Management  expects  that this  financing  will be
sufficient to fund its  operations for at least the next twelve months (See Note
11 - Subsequent Events).

In the fourth quarter of 2000,  new  management  began to implement cost cuts in
order to more closely tie costs to revenue.  Significant expense reductions have
continued through October 2001, which included,  among other things, the sale of
the Xpit assets, staff reductions,  elimination of obligations related to leased
equipment and facilities,  and the elimination of nearly all outside  consulting
services.  Although the Company expects its current financing will be sufficient
to meet its needs,  it cannot make  assurances that it will be able to raise the
total amount, or that such amount will be adequate for the Company's needs.

The factors discussed above create substantial doubt about the Company's ability
to continue as a going concern and an uncertainty as to the  recoverability  and
classification  of recorded asset amounts and the amounts and  classification of
liabilities.   The  accompanying   financial   statements  do  not  include  any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

The Company has continued to lower its operating costs, including a reduction in
its workforce, a further reduction in management salaries and the elimination of
additional operating expenses, including all consulting expenses.  Management is
working aggressively on these factors to ensure that it is fully able to execute
on its  current  business  plan.  We have taken the  following  steps to achieve
profitability:

         o        We  completed  the  sale  of  the  Xpit  assets  to  CQG  help
                  strengthen  the Company's  balance  sheet,  reduce the monthly
                  cash  burn,  and  allow  the  Company  to  focus  on its  core
                  businesses of brokerage, consulting and information services.

         o        We are pursuing  additional revenue  generating  opportunities
                  such as the establishment of a securities  broker/dealer  that
                  may  accelerate  our  development  of  a  financial   services
                  business model;

         o        We  have   re-negotiated   or  settled   existing  claims  and
                  obligations  with respect to unused  equipment  and space at a
                  discount to the value of the associated liabilities;

         o        Upon the successful  completion of our current financing above
                  a minimum of $2 million, we will effect a restructuring of our
                  agreement with respect to the operating  lease  underlying our
                  delivery  equipment,  resulting  in the  creation  of a  $5.95
                  million  five-year 9% convertible  note, with interest payable
                  in cash

                                    Page 17

<PAGE>


                  or Ratexchange common stock. This will reduce our cash expense
                  associated  with this lease  from  $74,000  per month  through
                  April 2002 and  $148,000  per month  through  April  2003,  to
                  approximately  $44,000 per month through August 2006, and will
                  extend an increased balloon payment from $4.2 million to $5.95
                  million out an additional 39 months to August 2006;

         o        We  have  reduced  our  number  of  employees  and  associated
                  personnel costs;  our employee  headcount in our San Francisco
                  location  has been  reduced from 37 at December 31, 2000 to 11
                  currently.  Including the five employees at our subsidiary RMG
                  Partners, there are a total of 16 employees; and

         o        We  have  significantly   reduced  our  marketing  and  public
                  relations costs.

Net cash used in  operating  activities  was $11.0  million  for the nine months
ending September 30, 2001,  compared to $13.8 million for the comparable  period
in 2000. Net cash used in operating  activities  during the first nine months of
2001 was due primarily to:

         o        Costs  associated  with  accelerating  the  deployment  of the
                  RateXchange Trading System;

         o        Ongoing business development activities;

         o        Settlement of claims and lease  obligations  related to unused
                  equipment and space.

Net Cash provided by investing  activities  was $11.0 million for the first nine
months of 2001, due primarily to the sale of marketable securities.

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

         o        Funding operating losses and ongoing working capital needs;

         o        Development  of additional  products and services,  such as IP
                  and Metro Trading products;

         o        Support of the operating expenses of Amerex Bandwidth; and

         o        Development and growth of a securities broker/dealer


We currently  anticipate  that our available  funds,  consisting  of cash,  cash
equivalents and  investments,  combined with those funds raised through the sale
of the Xpit assets and the anticipated net proceeds from our current  financing,
will be sufficient to meet our anticipated needs for working capital and capital
expenditures  through at least the next 12 months.  Our future long-term capital
needs  will  depend  significantly  on the rate of growth of our  business,  the
timing of expanded  service  offerings,  the success of these services once they
are launched and our ability to adjust our operating  expenses to an appropriate
level  if  the  growth  rate  of our  business  is  slower  than  expected.  Any
projections  of future  long-term  cash  needs and cash  flows  are  subject  to
substantial  uncertainty.  If  our  available  funds  and  cash  generated  from
operations are insufficient to satisfy our long-term liquidity requirements,  we
may seek to sell additional  equity or debt securities,  obtain additional lines
of credit,  curtail expansion of our services or potentially  liquidate selected
assets. If we issue additional  securities to raise funds,  those securities may
have  rights,  preferences  or  privileges  senior to those of the rights of our
common stock and our stockholders may experience dilution.  We cannot be certain
that  additional  financing  will be  available  to us on  favorable  terms when
required, or at all.

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

OUTLOOK

RateXchange  is a  transaction  services  firm that  combines  the  strengths of
traditional  voice  brokerage and  technology-based  trading systems to help its
clients understand and compete in newly commoditizing  industries.  As

                                    Page 18

<PAGE>


a neutral  entity that acts as agent rather than taking  positions,  the Company
provides a window to evolving  commodity  marketplaces by providing  information
and consulting,  similar to the securities industry. The Company also provides a
neutral  trading  system,  which offers  buyers and sellers the dual benefits of
price  discovery and anonymity.  Customers of RateXchange  who are interested in
trading  bandwidth,  such as  telecommunications  firms,  energy  merchants  and
financial  services  companies,  seek in-depth,  unbiased market information and
pricing on bandwidth,  as well as a trusted system to execute their trades.  The
Company's  information  services  group  provides  pricing data,  supported with
market research and comprehensive  analysis for industry  segments  supported by
RateXchange's  trading  systems.  The  Company's  consulting  services  practice
provides asset valuation tools, risk management  strategies and price analytics.
This  combination  of  RateXchange   services  helps  create  liquidity  in  the
marketplace - generating  increased  trading activity and price information that
the Company reflects back into the market.

We plan to move into the  brokering  of  additional  products  that fit into the
brokerage,  consulting  and  information  services  model.  We are  pursuing the
formation of a securities  broker-dealership that may accelerate our development
of a financial services business model.

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

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

         o        Continue to retain, attract and motivate qualified personnel;

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

         o        Implement and successfully  execute our business and marketing
                  strategy; and

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

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

Forward-Looking Statements

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

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

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

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

         o        Changes  in  external  competitive  market  factors  or in our
                  internal  budgeting  process  which might impact trends in our
                  results of operations, and

         o        Other risks described below in "Factors That May Affect Future
                  Results."

                                    Page 19

<PAGE>


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

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

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

As previously discussed, we will need additional funds for enhancement of the IP
and Metro  Trading  products,  support of the  operations  of Amerex  Bandwidth,
general  and   administrative   costs  and  to  fund  losses  before   achieving
profitability.  We will need to raise additional funds through additional equity
and/or debt  financing to meet our capital  requirements.  We cannot  assure you
that such financings will be available in amounts or on terms needed to meet our
requirements,  or at all.  Further,  our lack of tangible assets to pledge could
prevent us from  establishing a source of financing.  The inability to raise all
needed funding would adversely affect our ability to successfully  implement the
objectives of our business plan.

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

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

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

At September 30, 2001, our accumulated  deficit since inception was $84,051,914,
including  $39,823,000  related to stock grants,  options and warrants.  For the
third  quarter of 2001,  we incurred a net loss of  $13,592,512,  consisting  of
$7,039,000 in non-recurring  charges  associated with unused lease equipment and
facilities,  including  warrant  and  stock  option  charges,  and a  $3,010,000
write-down  of the Xpit assets.  We have incurred a net loss in each year of our
existence,  and have financed our development stage operations primarily through
sales of equity  securities.  We have recorded nominal revenues from operations.
We expect to incur net losses for the foreseeable  future.  We may never achieve
or sustain significant revenues or profitability on a quarterly or annual basis.

If the RateXchange  Trading System does not achieve commercial  acceptance,  our
results will suffer.

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

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

In September 2000, we entered into a strategic  alliance with Amerex  Bandwidth,
Ltd., a leading energy and power broker. Under our agreement with Amerex, Amerex
brokers execute trades for the sale or purchase of

                                    Page 20

<PAGE>


telecommunications   capacity,   Internet   protocol   products   and/or   other
telecommunications-related  products with the assistance of our trading  system,
and we share with Amerex the revenues generated by these trades. As a result, we
depend on the efforts of the Amerex brokers who execute those trades to generate
revenues for us. There can be no assurance that these brokers will be successful
in expanding our business.

Our  agreement  with  Amerex,  which  terminates  at the end of 2001,  currently
obligates us to pay for a portion of Amerex's operating expenses. Our failure to
renew  this  agreement  on terms  acceptable  to us could  adversely  affect our
business.

Pursuant  to  our  agreement  with  Amerex,  although  we  receive  70%  of  any
commissions  generated  by voice  brokerage  sales  effected  by Amerex,  we are
currently obligated to pay up to $15,000 monthly,  reduced recently by amendment
from $70,000,  to cover Amerex's negative  operating  expenses.  Current monthly
brokerage  commissions  approximate $20,000.  Based on current bandwidth trading
activity,  we estimate  that Amerex's  negative cash flow from these  operations
approximates  $50,000 per month. Our agreement with Amerex terminates at the end
of 2001. We cannot assure that we will be able to extend this agreement on terms
acceptable to us, if at all, or if we do that our monthly  obligation to pay for
Amerex's  negative  operating  expenses  will not  increase  substantially.  Our
failure to extend this agreement, or, in the alternative,  internally develop or
otherwise  acquire  an  adequate  bandwidth  voice  brokerage   operation  would
adversely affect our business.

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

The  market  for the  brokerage  of  bandwidth  and  related  commodities,  both
regulated and unregulated,  is new, rapidly evolving and highly competitive.  We
expect  competition  in this market to intensify  in the future.  Several of the
existing  online  exchanges  and  brokers,  such  as  E-Speed,  Intercontinental
Exchange and Altra currently operate online marketplaces in commodities and have
large  established  customer bases.  These companies may start bandwidth trading
marketplaces.  Our  ability to compete  with them will depend  largely  upon our
ability to capture market share.

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

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

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

We face online commerce security risks.

                                    Page 21

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

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

Laws and regulations  directly applicable to Internet  communications,  commerce
and advertising are becoming more prevalent,  but the legislative and regulatory
treatment of the  Internet  remains  largely  unsettled.  The U.S.  Congress has
adopted  Internet  laws  regarding  copyright,  taxation and the  protection  of
children.  In addition,  a number of other legislative and regulatory  proposals
under consideration by federal,  state, local and foreign governments could lead
to additional laws and regulations affecting, among other things:

         o        the  right  to  collect   and  use   personally   identifiable
                  information;

         o        pricing;

         o        intellectual property;

         o        online content;

         o        user privacy;

         o        taxation;

         o        access charges;

         o        distribution;

         o        liability for third-party activities; and

         o        characteristics and quality of products and services.

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

The adoption of any additional  laws or  regulations  may decrease the growth of
the Internet or other online services,  which could, in turn,  reduce the demand
for our  products and  services  and  increase  our cost of doing  business,  or
otherwise  have an adverse  effect on our  business  and results of  operations.
Moreover,  courts may seek to apply existing laws not explicitly relating to the
Internet  in ways that  could  impact  the  Internet,  and it may take  years to
determine  whether and how laws such as those governing  intellectual  property,
privacy, libel and taxation will affect the Internet and our use of it.

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

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

We have  registered our wholly owned  subsidiary RMG Partners Corp. with the SEC
as a  securities  broker/dealer,

                                    Page 22

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and as a result are  subject to  extensive  regulation  under  federal and state
laws. The principal  purpose of regulation and discipline of  broker/dealers  is
the protection of customers and the securities markets rather than protection of
creditors and  stockholders  of  broker/dealers.  The SEC is the federal  agency
charged  with  administration  of  the  federal  securities  laws.  Much  of the
regulation of  broker/dealers,  however,  has been delegated to  self-regulatory
organizations,  such as the National  Association  of Securities  Dealers,  Inc.
("NASD"),   and  national  securities   exchanges.   The  NASD  is  our  primary
self-regulatory  organization.  These self-regulatory  organizations adopt rules
(which are subject to approval by the SEC) that govern the  industry and conduct
periodic examinations of member broker/dealers.  Broker-dealers are also subject
to regulation by state  securities  commissions  in the states in which they are
registered.  The  regulations  to which  broker/dealers  are  subject  cover all
aspects of the securities business,  including net capital  requirements,  sales
methods, trading practices among broker/dealers, capital structure of securities
firms, record keeping and the conduct of directors,  officers and employees. The
SEC and the self-regulatory bodies may conduct administrative proceedings, which
can result in censure,  fine,  suspension or expulsion of a  broker/dealer,  its
officers or  employees.  If we fail to comply with these rules and  regulations,
our business would be materially and adversely affected.

We may face liability for information retrieved from our web site.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>


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

The volatility of our securities prices may increase.

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

         o        Quarter to quarter variations in operating results;

         o        Adverse news announcements;

         o        The introduction of new products and services;

         o        Market  conditions  in  the  telecommunications   industry  in
                  general,   Internet-based   services   and   commodity   voice
                  brokerage; and

         o        General market conditions.

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

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

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

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Short Term Investments

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

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


                           PART II - OTHER INFORMATION

                                    Page 25


<PAGE>


Item 1.  Legal Proceedings.

         Switch & Data Facilities Company v. RateXchange Corporation

         In August of 2001 this action was dismissed following settlement of the
         claims.  In exchange for a full release and the dismissal,  the Company
         paid $250,000 in cash and issued  200,000  shares of restricted  common
         stock to Switch & Data.

         Martin v. RateXchange

         On October 3, 2001, Gregory Martin and Patricia Whitney filed a lawsuit
         against RateXchange Corporation in the United States District Court for
         the  Western  District  of  Washington,  C01-1565R  alleging  breach of
         contract.  In 1998,  Mr. Martin was the President and CEO of NetAmerica
         International   Corporation   (NAMI),   a  predecessor  of  RateXchange
         Corporation.  In December of 1998 Mr.  Martin was  terminated  from his
         employment with NAMI. The claims allege breach of agreements associated
         with  Mr.  Martin's  employment.  The  complaint  asks for  damages  of
         approximately $150,000.

         Mr.  Martin had filed suit  previously in the  Washington  State court.
         That matter was dismissed  following a settlement  in May of 1999.  Mr.
         Martin has now revived his claim against the Company.

         The  Company  was  recently  served  with the  lawsuit  and has not yet
         responded in court.

         YellowBrix, Inc. v. RateXchange Corporation

         On  October  2,  2001,   YellowBrix,   Inc.  filed  a  lawsuit  against
         RateXchange   Corporation   in  the  Circuit  Court  for  the  City  of
         Alexandria,  Virginia  alleging  breach of contract.  YellowBrix,  Inc.
         provided news wire  information  to the Company in 2001.  The complaint
         asks for damages of  approximately  $32,000.  The Company was  recently
         served with the lawsuit and has not yet responded in court.

         RateXchange, Inc. v. PWREF/MCC-China Basin, LLC

         In September  of 2001,  the  RateXchange,  Inc.,  one of the  Company's
         Delaware subsidiaries,  filed a lawsuit against  PWREF/MCC-China Basin,
         LLC, its previous landlord,  alleging constructive eviction and seeking
         declaratory  relief.  The  allegations of the complaint  arise from the
         lease for commercial space between the parties for the property located
         at 185 Berry  Street,  in San  Francisco,  California.  PWREF/MCC-China
         Basin,  LLC  has  recently  responded  to the  complaint  and  filed  a
         cross-complaint  against  RateXchange,  Inc.  The Company has  reserved
         $132,000 to address this matter.

         Based  upon  the  facts  known  to the  Company  at this  time  and the
         applicable law,  RateXchange  does not expect the above cases to result
         in  significant  exposure  to the  Company  and the Company has not set
         aside any additional reserves for the contingencies listed above.


Item 2. Changes in Securities and Use of Proceeds.

a)       Not applicable.

b)       Not applicable.

c)       Not applicable

d)       Not applicable.


Item 3. Exhibits and Reports on Form 8-K

                                    Page 26


<PAGE>

Exhibits

4.1  Certificate  of  Designation  of Series A  Convertible  Preferred Stock

Form 8-K

none

                                   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. Dated this 12th day of November, 2001.


                                        RATEXCHANGE CORPORATION


                                        By: /s/ D. Jonathan Merriman
                                            ------------------------------------
                                            D. Jonathan Merriman
                                            Chairman and Chief Executive Officer


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