SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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



                                    FORM 10-Q

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

For the quarterly period ended June 30, 2000

                                       OR

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

                         Commission File No. 33-19139-NY

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


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


 185 Berry Street, Suite 3515, San Francisco, CA                 94107
-------------------------------------------------          -----------------
   (Address of Principal Executive Offices)                   (Zip Code)


       Registrant's telephone number, including area code: (415) 371-9800

                                      n/a
--------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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

     YES X     NO
        ---


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

               17,411,174 shares common stock as of August 8, 2000
                                (Title of Class)


<PAGE>



<TABLE>

                             RATEXCHANGE CORPORATION

                                    FORM 10-Q

                       FOR THE QUARTER ENDED JUNE 30, 2000

<CAPTION>
PART I - FINANCIAL INFORMATION                                                                            Page
<S>                                                                                                        <C>
     Item 1 -

         Financial Statements

              Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999             3

              Consolidated Statements of Operations (unaudited) for the three and six months ended
              June 30, 2000and 1999                                                                         4

              Consolidated Statements of Cash Flows (unaudited) for the six months ended
                  June 30, 2000 and 1999                                                                    4

              Notes to Consolidated Financial Statements                                                    6

     Item 2 -

         Management's Discussion and Analysis of Financial Condition and

              Results of Operations                                                                         9

     Item 3 -

         Quantitative and Qualitative Disclosures About Market Risk                                        20

PART II - OTHER INFORMATION

     Item 1 - Legal Proceedings                                                                            21

     Item 2 - Changes in Securities and Use of Proceeds                                                    21

     Item 6 - Exhibits and Reports on Form 8-K                                                             21

SIGNATURES                                                                                                 22

</TABLE>


                                     Page 2
<PAGE>

<TABLE>


                                                   Part I - Financial Information

Item 1.       Financial Statements

RATEXCHANGE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                                                                   June 30,            December 31,
ASSETS                                                                                               2000                  1999
-------------------------------------------------------------------------------------------------------------          ------------
                                                                                                 (unaudited)
<S>                                                                                              <C>                   <C>
Current assets
         Cash and cash equivalents                                                               $  8,825,453          $    451,615
         Short term investments                                                                    15,593,875                  --
         Interest receivable                                                                             --                 150,608
         Prepaid expenses                                                                             244,449                 5,814
         Note receivable on stock sales                                                                  --               1,541,050
                                                                                                 ------------          ------------
                  Total Current Assets                                                             24,663,777             2,149,087

Property and equipment (net of accumulated depreciation
of $111,291 and $10,766 in 2000 and 1999)                                                             677,220               175,349

Other assets
         Investment in affiliate                                                                       75,000                75,000
         Deposits                                                                                     260,700               103,305
                                                                                                 ------------          ------------
Total assets                                                                                     $ 25,676,697          $  2,502,741
                                                                                                 ============          ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
         Accounts payable and accrued expenses                                                   $  2,908,272          $  1,639,301
         Other liabilities                                                                            103,000                85,000
         Short term debt                                                                            2,000,000               800,000
                                                                                                 ------------          ------------
                  Total current liabilities                                                         5,011,272             2,524,301

Commitments and Contingencies                                                                            --                    --

Stockholders' equity
         Preferred stock, 60,000,000 shares authorized; none  outstanding                                --                    --
         Common stock, $.0001 par value; 300,000,000 shares
         authorized; issued and outstanding; 17,136,174 shares and
         14,087,425 shares                                                                              1,714                 1,409
         Additional paid in capital                                                                49,000,879             8,891,088
         Retained deficit                                                                         (28,089,234)           (8,667,576)
         Notes receivable on stock sales                                                             (407,732)             (246,481)
         Accumulated other comprehensive income                                                       159,798                  --
                                                                                                 ------------          ------------
                       Total stockholders' equity                                                  20,665,425               (21,560)
                                                                                                 ------------          ------------
Total liabilities and stockholders' equity                                                       $ 25,676,697          $  2,502,741
                                                                                                 ============          ============


<FN>
                           The accompanying notes are an integral part of the financial statements
</FN>
</TABLE>


                                                              Page 3
<PAGE>


<TABLE>
RATEXCHANGE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                                                                                                  Beginning of
                                                                                                                Development Stage
                                                                                                              (September 30, 1998)
                                            Three Months ended June 30,        Six Months ended June 30,        through June 30,
                                                    (unaudited)                         (unaudited)                   2000
                                               2000              1999             2000              1999           (unaudited)
                                          ------------      ------------      ------------      ------------      ------------
<S>                                       <C>               <C>               <C>               <C>               <C>
REVENUE
Advertising revenue                       $      4,500      $       --        $      4,500      $       --        $      4,500

EXPENSES

Selling, general and administrative          5,237,280           571,888        10,093,247         1,532,584        15,054,202
Compensation expense - below
   market option grants                      1,540,943              --           7,643,921              --           7,905,756
Bad debt                                          --             746,188              --             746,188         1,748,750
Depreciation and amortization                   77,182             5,630           101,279             9,993           130,735
Write down of goodwill                            --                --                --                --           1,582,155
                                          ------------      ------------      ------------      ------------      ------------

     Total Expenses                          6,855,405         1,323,706        17,838,447         2,288,765        26,421,598

OTHER INCOME (EXPENSE)

Interest income                                305,502            45,219           212,261            50,808           365,751
Interest expense                              (301,184)             --            (301,472)             --            (325,264)
Other expenses (net)                        (1,500,000)             --          (1,498,500)             --          (1,498,280)
Loss allocated to minority interest               --                --                --                --               7,000
                                          ------------      ------------      ------------      ------------      ------------
Income (loss) before taxes                  (8,346,587)       (1,278,487)      (19,421,658)       (2,237,957)      (27,867,891)

Income tax provision (benefit)                    --                --                --                --                --
                                          ------------      ------------      ------------      ------------      ------------

NET LOSS                                  $ (8,346,587)     $ (1,278,487)     $(19,421,658)     $ (2,237,957)     $(27,867,891)
                                          ============      ============      ============      ============      ============

Basic and diluted net loss per
     share                                $      (0.49)     $     (0.11)      $      (1.23)     $     (0.21)
Weighted average number of
     shares of common stock                 17,133,613       11,962,203         15,817,530        10,602,949

<FN>

                                     The accompanying notes are an integral part of the financial statements
</FN>
</TABLE>


                                                               Page 4
<PAGE>

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

                                                                             For the Six Months ended     Beginning of Development
                                                                                      June 30,               Stage (September 30,
                                                                                    (unaudited)             1998) through June 30,
                                                                                                                    2000
                                                                              2000              1999             (unaudited)
                                                                         ------------        ------------        ------------
<S>                                                                      <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                            $(19,421,658)       $ (2,237,957)       $(27,867,891)
     Adjustments to reconcile net loss to net cash
     provided by operating activities:
         Depreciation and amortization                                        300,525               9,993             329,981
         Bad debt                                                                --               746,188           1,748,750
         Stock options granted to employees below
            fair market value                                               7,643,921                --             7,905,756
         Stock options granted to service providers                         2,131,250                --             2,131,250
         Write off of goodwill                                                   --                  --             1,582,155
         Stock for services/expenses                                             --                22,029             702,244
         Stock for interest                                                      --                  --                10,773
         Stock for accounts payable conversion                                   --                  --               (30,000)
         Increase in deposits                                                (157,395)               --              (260,700)
         Increase (decrease) in accounts receivable
            and other assets                                                 (249,278)         (1,058,776)         (1,325,600)
         Increase (decrease) in accounts payable and
            accrued expenses                                                1,286,896              (5,510)          3,126,024
                                                                         ------------        ------------        ------------
                  TOTAL                                                    (8,465,739)         (2,524,033)        (11,947,258)

CASH FLOWS FROM INVESTING ACTIVITIES
         Purchase of short term investments                               (18,734,934)               --           (18,734,934)
         Sale of short term investments                                     3,300,858                --             3,300,858
         Purchase of RateXchange I                                               --                (9,000)           (450,000)
         Payment for purchase of equipment                                   (602,397)               --              (770,717)
         Cash purchased by stock acquisition of subsidiary                       --                  --               (78,550)
         Advances to affiliates                                                  --                  --              (721,871)
                                                                         ------------        ------------        ------------
                  TOTAL                                                   (16,036,473)             (9,000)        (17,455,214)

CASH FLOWS FROM FINANCING ACTIVITIES
         Proceeds from loans and other debt (net)                           1,200,000                --             2,013,000
         Net proceeds from stock sales                                     30,135,000                --            34,698,875
         Proceeds from note receivable                                      1,541,050           2,659,750           1,516,050
                                                                         ------------        ------------        ------------
                  TOTAL                                                    32,876,050           2,659,750          38,227,925

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            8,373,838             126,717           8,825,453

CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD                                                           451,615             528,516                --
                                                                         ------------        ------------        ------------
CASH AND CASH EQUIVALENTS END OF PERIOD                                  $  8,825,453        $    655,233        $  8,825,453
                                                                         ============        ============        ============


<FN>


                              The accompanying notes are an integral part of the financial statements
</FN>
</TABLE>

                                                               Page 5
<PAGE>

                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1     INTERIM FINANCIAL STATEMENTS AND 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  financial
           statements  and notes  thereto  included in our annual report on Form
           10-K for the year ended December 31, 1999. The accompanying financial
           statements  have not been  audited.  The  1999  financial  statements
           presented are currently being  reaudited by a newly appointed  public
           accounting  firm.  Certain  adjustments  will likely  result from the
           reaudit.  The results of operations  and cash flows for the three and
           six months ended June 30, 2000 may not be  indicative  of the results
           that may be expected for the year ended December 31, 2000.

           RateXchange  Corporation  or the Company is a  consolidated  group of
           companies including the parent corporation,  RateXchange  Corporation
           (RateXchange  Corp.),  and its subsidiaries,  RateXchange I, Inc. and
           PolarCap, Inc. (PolarCap).

           RateXchange Corp. (formerly NetAmerica.com Corporation) is a Delaware
           corporation  organized  on May 6, 1987 for the purpose of seeking out
           and developing any general  business  opportunity.  In April 2000, we
           changed our name to  RateXchange  Corporation to reflect the focusing
           of our efforts on the business of RateXchange I, Inc.

           RateXchange I, Inc., a Delaware  corporation  organized in June 1999,
           is in the  business  of  business-to-business  e-commerce  seeking to
           develop new exchange services for the telecommunications market.

           The Company is in its  planning  stages for its  eventual  day to day
           business  and  has  not  generated  any  revenues  from  its  planned
           operations.  The Company is defined as a development stage company in
           accordance with SFAS No. 7. Therefore, all operations since the start
           of the  development  stage,  September  30,  1998,  when the  Company
           acquired PolarCap, have been reported.

NOTE 2   CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS

           We consider all highly liquid  investment  securities with maturities
           from date of purchase of three months or less 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 June 30, 2000,  the  company's  investment  in short term
           securities had an unamortized cost of $15,434,077. 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   PRIVATE PLACEMENT

           In March 2000, the Company  completed a private placement in which it
           sold  2,733,329  shares of restricted  common stock at a subscription
           price of $12 per share plus warrants to purchase  1,366,673 shares of
           its  common  stock at an  exercise  price of $14.40  per  share.  The
           warrants are immediately exercisable and expire in three years. After
           deducting  $2,665,000  for costs  associated  with the  offering  the
           Company received $30,135,000.

                                     Page 6
<PAGE>

                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4     LOSS PER SHARE AND AVERAGE SHARES OUTSTANDING

           Loss per share is computed by dividing  the net loss by the  weighted
           average of the common  shares  outstanding.  Options and  warrants on
           shares of common stock were not  included in  computing  diluted loss
           per share because their effects were antidilutive  (8,105,000 options
           and 2,386,000 warrants).

NOTE 5     COMMITMENTS AND CONTINGENCIES

           In 1999, RateXchange I, Inc. entered into a term sheet agreement with
           a vendor to provide specialized  consulting and computer  programming
           to assist in RateXchange  I, Inc.'s  business plans and operations in
           the business-to-business e-commerce niche it was developing. The term
           sheet was never finalized into a formal agreement,  but some services
           were  provided,  and payments  were made for the  services  that were
           rendered.  The term sheet  provided for the vendor to receive a stock
           position in  RateXchange  I, Inc. of up to 10% for certain  services.
           The Company has reached a tentative agreement on terms for settlement
           of the dispute with the vendor. The parties are presently negotiating
           the terms of the final settlement documents.  At June 30, the company
           has estimated and accrued for the probable loss.

           The Company is involved in several lawsuits as follows:

           Gregory K. Martin v.  NetAmerica,  Inc. et al. In the spring of 1999,
           Gregory  K.  Martin,  a  former  officer  of  both  NetAmerica,  Inc.
           (Seattle)(NAI) and the Company,  brought suit against the Company and
           others  in  the  Superior  Court  of  Washington  (Civil  Action  No.
           99-2-09171-OSEA).  The suit  related  to,  among  other  things,  Mr.
           Martin's  claims  for   compensation,   reimbursement   for  business
           expenses,  certain  insurance  benefits,  payment  of  certain  other
           obligations  guaranteed by Mr. Martin (or  reimbursement  of payments
           made  by  him  as  guarantor),  payment  of  certain  tax  and  other
           obligations  of a  company  referred  to  as  SRG/Quantum  that  were
           purportedly  assumed by NAI and the  Company,  issuance of options to
           purchase  stock of the  Company  and other  remedies  relating to the
           terminated   acquisition  and  other   transactions.   The  suit  was
           conditionally  settled by an agreement  dated May 22, 1999 among NAI,
           the Company and Mr. Martin (with William Fritts  undertaking  certain
           limited obligations).  Pursuant to that agreement, Mr. Martin filed a
           voluntary non-suit (i.e., dismissed his suit without prejudice).  Mr.
           Martin  may have  the  ability  to  attempt  to void  the  settlement
           pursuant  to  noncompliance  on the part of NAI to their  part of the
           settlement. As of June 30, 2000, the Company has fulfilled all of its
           current obligations under the settlement  agreement and contends that
           the matter is resolved.

           NAI Office  Lease.  The Company has resolved  this lease dispute with
           its landlord. No claims against the Company remain.

           On February 24, 2000,  Concentric Network Corporation filed a lawsuit
           against NetAmerica,  Inc., aka A1 Internet,  Inc., and the Company in
           the Superior  Court of  California  for the County of Santa Clara (CV
           784335).  The  lawsuit  involves  claims for breach of  contract  and
           common  counts  based on A1  Internet's  nonperformance  in a service
           agreement  between A1 Internet and  Concentric.  Concentric is asking
           for compensatory damages of at least $167,794, restitution, costs and
           attorney fees. The matter is currently  pending in Superior Court and
           will soon proceed to arbitration.  The Company has fully reserved for
           this contingency.

NOTE 6     OPTIONS FOR PURCHASE OF COMMON STOCK

           Shareholders  authorized  the 1999 Stock  Option  Plan  during  1999.
           Shareholders authorized the 2000 Stock Option Plan on April 20, 2000.
           There  are  options  to  purchase  8,000,000  shares  authorized  for
           issuance under both plans. On February 24, 2000, the Board authorized
           additional  options to purchase  4,290,000  shares  outside of either
           plan. Total options granted to employees during the first quarter for
           less than fair  market  value were  3,940,000  for which the  Company
           recognized related  compensation expense of $7,643,921 and $1,540,943
           for the first six months and second quarter of 2000. In addition,



                                     Page 7
<PAGE>

                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           the company  granted  options to  non-employee  consultants  totaling
           275,000 for which the company  recorded related expense of $2,131,250
           and  $668,145  for the six months and second  quarter  ended June 30,
           2000.

NOTE 7     SHORT TERM DEBT

           In January 2000,  RateXchange I, Inc. closed a $2,000,000 convertible
           note offering  (the  "Notes"),  bearing  interest at a stated rate of
           10%. The Notes were convertible into RateXchange I, Inc. common stock
           at a price per share to be  determined in an  anticipated  subsequent
           financing of RateXchange I, Inc.

           As a result of the  Company's  new  business  strategy,  the  Company
           offered to such note  holders  the right to convert  their Notes into
           RateXchange  Corp.  common  stock at an  exchange  rate of $5.00  per
           share.  In  addition,  the  Company  agreed to issue such  holders an
           aggregate of 500,000  warrants to purchase  common stock at $5.00 per
           share.  Any note  holders who decline  this offer will be entitled to
           rescind their original investment and receive their principal back in
           full, including accrued interest. As of June 30, 2000, no conversions
           have occurred.

<TABLE>
NOTE 8     COMPREHENSIVE LOSS

           The comprehensive loss for the first six months and second quarter of
           2000 and 1999 was:

<CAPTION>
                                    Three Months Ended               Six Months Ended
                                         June 30                          June 30
                                   2000            1999            2000            1999
                               ------------    ------------    ------------    ------------
<S>                            <C>             <C>             <C>             <C>
Net loss                       $ (8,346,587)   $ (1,278,487)   $(19,421,658)   $ (2,237,957)
Other Comprehensive Income:
   Unrealized gains on short
     term investments               159,798            --           159,798            --
                               ------------    ------------    ------------    ------------
Comprehensive loss             $ (8,186,789)   $ (1,278,487)   $(19,261,860)   $ (2,237,957)
                               ============    ============    ============    ============
</TABLE>


NOTE 9     GOING CONCERN

            The accompanying  financial  statements have been prepared  assuming
            that the Company will continue as a going  concern.  The Company has
            had recurring  operating  losses and is dependent  upon financing to
            continue  operations.  The  financial  statements do not include any
            adjustments that might result from the outcome of this  uncertainty.
            Management intends to continue funding RateXchange Corp.  activities
            through  additional  equity  or  debt  financings  according  to its
            business  plan,  and  emerge  profitable  sometime  in  the  future.
            However, there can be no assurance that management's efforts will be
            successful.




                                     Page 8
<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."

OVERVIEW

         We are a pioneer in the  development  of  business-to-business  ("B2B")
e-commerce for the telecommunications  industry. We are a development stage B2B,
e-commerce company seeking to develop new transaction services for the estimated
$1 trillion  international market for  telecommunications  services. We focus on
developing,  operating and maintaining  liquid,  efficient and automated  online
market services to trade  bandwidth and other  telecommunications  products.  In
February 2000, we announced the launch of the  RateXchange  Real-Time  Bandwidth
eXchange.  In July 2000 we  announced  we had  completed  beta testing for a new
market  service for bandwidth  trading  called  RateXmatch.  RateXmatch  uses an
approach to trading  similar to that used by the  electronic  trading  platforms
utilized  in on-line  natural gas and  electricity  commodity  trading.  We also
announced  the  opening  of our first six  delivery  hubs  where  carriers  will
interconnect  to  the  exchange.  During  2000,  we  expect  to  commence  other
revenue-generating  services such as RateXchange  CustomAuctions  for buying and
selling of other telecommunications products and services and to open additional
interconnection delivery hubs.

GENERAL DEVELOPMENT OF BUSINESS

         The Company was originally  incorporated as Venture World,  Ltd. on May
6, 1987 under the laws of the State of Delaware for the purpose of developing or
acquiring  general  business  opportunities.   We  did  not  have  any  material
operations from 1987 to 1998.

         On September 30, 1998, we acquired  PolarCap,  Inc. As a result of this
acquisition,  PolarCap  became  our  wholly  owned  subsidiary.  PolarCap  is  a
California  corporation  that was  organized  in April  1997 for the  purpose of
investing in and developing rights to a variety of software technologies related
to multimedia, development tools, and applications technologies.

         In  September  1998,  in  connection  with our  strategy to acquire and
consolidate  Internet  Service  Providers  ("ISPs"),  we  also  entered  into an
agreement with NetAmerica, Inc., a Washington corporation,  pursuant to which we
agreed to purchase the outstanding stock of Net America,  Inc. Net America, Inc.
subsequently  agreed to be renamed A1  Internet,  Inc.  and agreed to assign and
transfer to us all of its right,  title and interest in the name "Net  America."
We determined in March 1999 that it was not in our best interest to complete the
purchase of A1  Internet's  stock after A1 Internet  acknowledged  that  certain
representations made to us were inaccurate.  Consequently, on March 16, 1999, we
entered  into an  agreement  with A1 Internet to abandon the stock  purchase and
settle our differences.

         In  1999,  we  changed  the  name  of  the  Company  to  NetAmerica.com
Corporation.  Shortly  thereafter,  we  incorporated  Telenisus  Corporation,  a
Delaware  corporation,  as one of our wholly owned subsidiaries.  Telenisus is a
development  stage company that is seeking to become a single source provider of
secure and reliable  Internet-based  business-to-business  services to corporate
customers,  carriers, ISPs and marketers of telecommunications services. Through
acquisitions  and internal  business  development,  Telenisus seeks to develop a
full suite of  Internet  and data  network  management  tools  that will  enable
customers to increase  productivity,  to reduce costs and to access a wide range
of Internet, e-commerce, security and communication applications from a one-stop
network service delivery provider.

        On or about  November 3, 1999,  Telenisus  announced  the closing of its
first independent private placement  financing.  The common stock issued in this
financing,  together  with stock issued in a  Telenisus-subsidiary  acquisition,
reduced  our  percentage  ownership  interest  in  Telenisus  to less  than 10%.
Telenisus used the proceeds



                                     Page 9
<PAGE>

of the financing to expand its management team and to accelerate  development of
its four service families:  virtual private networks,  managed firewall/security
services, Web site and application hosting, and e-commerce. Telenisus is focused
on delivering its business Internet  solutions to large and mid-sized  corporate
customers.

         On July 6, 1999,  we  acquired  100% of the  outstanding  stock of Rate
Exchange,  Inc., a Colorado  corporation,  through a merger into  RateXchange I,
Inc.,  our wholly owned  Delaware  subsidiary.  The Delaware  subsidiary was the
surviving  entity. We paid 574,998 shares of common stock and $450,000 in a note
that was due one year from the date of closing.  This note is now fully paid. On
July 23, 1999,  RateXchange I, Inc.  entered into an agreement with a consultant
for market development expertise as applied to the telecommunications market. In
exchange for these  services,  RateXchange I, Inc.  agreed to issue up to 10% of
its  common  stock  based on  successful  completion  and  delivery  of  certain
software.  As of the date of this report,  no shares of RateXchange I, Inc. have
been issued under the  consultant  agreement and the parties are in  discussions
regarding termination of this agreement.

         On September 15, 1999, RateXchange I, Inc. and Donald H. Sledge entered
into an employment agreement under which RateXchange I, Inc. agreed to grant Mr.
Sledge an equity  position of 10% of  RateXchange  I, Inc.'s  outstanding  stock
through a stock purchase right.

         RateXchange  I, Inc. is a  development  stage B2B,  e-commerce  company
seeking to develop  new  transaction  services  for the  estimated  $1  trillion
international market for  telecommunications  services.  RateXchange I, Inc. has
operated an Internet-based  lead generation service for trading in long-distance
minutes, telephony minutes and bandwidth since January 1998.

         On April 20, 2000, we changed our name to  RateXchange  Corporation  to
focus our efforts on the business of RateXchange I, Inc.

<TABLE>
Results of Operations for Three and Six Months Ended June 30, 2000

         The following table  summarizes our results of operations for the first
six months and second quarter of 2000, compared to the same periods of 1999.

<CAPTION>
                                                                    Six Months Ended                        Three Months Ended
                                                                        June 30                                  June 30
                                                           ------------------------------------    ---------------------------------
                                                               2000                1999                2000                1999
                                                           ------------        ------------        ------------        ------------
<S>                                                        <C>                 <C>                 <C>                 <C>
Revenue                                                    $      4,500                --          $      4,500                --
Expenses (including Selling,                               $(17,838,447)       $ (2,288,765)       $ (6,855,405)       $ (1,323,706)
          General and Administrative)
Net Income (Loss)                                          $(19,421,658)       $ (2,237,957)       $ (8,346,587)       $ (1,278,487)
</TABLE>

Revenue

         We generated  revenue of $4,500  during the first six months and second
quarter of 2000 from banner ads placed on our internet  site.  In  addition,  we
generated  interest  income on the net proceeds from the $32.8  million  private
placement.  Interest  income for the first six months and second quarter of 2000
was $212,261  and $305,502  compared to $50,808 and $45,219 for the same periods
in 1999.  The  increase  in  interest  income is due to  interest  earned on the
proceeds from the private placement.

Expenses

         Our total  expenses were  $17,838,447  and  $6,855,405 in the first six
months and second  quarter of 2000 compared to $2,288,765  and $1,323,706 in the
comparable periods of 1999. The increase was due primarily to:

         o   expense recorded on below market option grants;

                                    Page 10
<PAGE>

         o   increased marketing and development activity; and

         o   the expansion of our executive  management team and the addition of
             certain advisors.



Net Income (Loss):

         During the first six months and  second  quarter of 2000,  we  incurred
losses of  $19,421,658  and  $8,346,587  compared  to losses of  $2,237,957  and
$1,278,487  during  the same  period in 1999.  Included  in the loss for the six
months and second quarter of 2000 were:

         o   $7,643,000 and $1,540,000 in expenses  associated with below market
             stock option grants to employees;

         o   $2,243,000 and $1,127,000 in payroll costs;

         o   $1,500,000 in anticipated settlement of a dispute;

         o   $4,006,000 and $1,961,000 in outside services, including $2,131,000
             and $668,000 for options granted to service providers;

         o   $1,059,000 and $775,000 in marketing costs;

         o   $711,000 and $420,000 in delivery equipment maintenance costs; and

         Because we are in the early growth stage,  we  anticipate  that we will
continue  to  incur  operating  losses  and  cash  flow   deficiencies  for  the
foreseeable future.

Liquidity and Capital Resources

         We have financed our operations to date  primarily  through the sale of
equity  securities.  We  have  been  unprofitable  since  inception  and we have
incurred net losses in each year.

         We had working  capital of  $19,652,505  at June 30,  2000  compared to
negative working capital of $375,214 on December 31, 1999. At December 31, 1999,
we had common stock subscription receivables in the amount of $1,787,531,  which
were due and payable in 2001. As of June 30, 2000,  $1,541,050 has been paid. In
March 2000 we closed a $32.8 million  private  placement,  netting $30.1 million
after  expenses.  These funds should be sufficient to cover our  operations  and
working capital requirements for the next twelve months. Nevertheless, we may be
forced to seek additional financing sooner than expected.

         Our operating activities used $8,465,739 during the first six months of
2000 due primarily to our:

         o   increased marketing and development;

         o   expansion of our executive management team; and

         o   increased professional services and consulting costs.

         Our investing  activities used $16,036,472  during the first six months
of 2000, due primarily to investing the proceeds from the private placement.

         Financing activities generated  $32,876,050 during the first six months
of 2000.  Financing  activities  during  the six  months  ended  June  30,  2000
consisted primarily of proceeds from sales of common stock. Between February and
March 2000, we sold to accredited  investors a total of 2,733,329  shares of our
restricted  common  shares plus  warrants to  purchase  1,366,673  shares of our
common stock at an exercise price of $14.40 per share.



                                    Page 11
<PAGE>

The  shares  were  sold at a  subscription  price of  $12.00  per  share.  After
deducting the expenses  related to the offering,  we received  $30,135,000.  The
proceeds of the sales of common stock are being used to accelerate deployment of
our delivery hubs, expand our online marketplace for telecommunications products
and enhance our geographic reach and product line.

         We are executing an overall  business  plan that  requires  significant
additional capital for among other uses:

         o   additional equipment and facilities;

         o   expansion into new domestic and international markets;

         o   additional management and personnel;

         o   development of additional products and services; and

         o   acquisitions.

        Furthermore,  our  funding of working  capital  and  current  and future
operating losses will require additional capital investment. We do not currently
possess a bank source of financing and we have had minimal revenues.

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

Anticipated Increase to Operating Loss

         On  July  20,  2000,  the  Company   engaged  Arthur  Andersen  as  its
independent  auditors.  Arthur  Andersen  is  going  to  reaudit  the  Company's
accounting  records  for  1997,  1998 and  1999.  A  preliminary  review  of the
accounting  records  indicates  that  certain  transactions  in  1999  and  1998
involving common stock issued in exchange for services  received,  conversion of
bridge  financing and arrangement of financing appear to have been recorded at a
price lower than that generally  available in the  marketplace.  As disclosed in
the Company's  Annual Report on Form 10-K,  the Company  determined the value of
these stock transactions. An element of that determination was the consideration
of certain  variables such as whether the stock being issued was restricted and,
if so, the level of those  restrictions.  One such restriction was a requirement
that the stock  recipient  hold the  shares for at least a year  before  selling
them.  Another  restriction was that the Company generate $10 million in revenue
over a 12 month period  before the  restriction  on sale is lifted.  To date the
Company has not generated any revenue from operations.  As a result, some of the
stock was issued at a  discount.  An issue has arisen,  which will be  addressed
during the reaudit, as to whether the difference between the price of the shares
and the value that others in the  marketplace  placed on the shares  ought to be
reflected as an expense in the financial statements.

         The expense  amounts in  question  involve  7,504,347  shares of common
stock  issued for  $1,319,506.  No  determination  has been made as of this date
regarding the appropriated  valuation of the stock on the date issued due to the
following factors:

         o   Shares were being issued via a private  placement  memorandum at an
             average price of $1.07;

         o   Shares  trading on the over the counter market traded between $4.50
             and $8.88;

         o   The shares being traded on the over the counter market were limited
             in  availability  and  the  trading  process  itself  was  somewhat
             cumbersome; and

         o   Liquidity in the stock was provided  through the private  placement
             process, versus the over the counter market.

         At this time the outcome of the reaudit and the resolution of any other
potential issues that may arise is uncertain.

Outlook

         Historically,  we  have  not  had  any  long-term  successful  business
operations  and we are  concentrating  our efforts in  developing a new business
model  for  business-to-business   e-commerce  products  and  services  for  the
telecommunications  sector.  We are in an early stage of development  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  online  exchange  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;

         o   respond to competitive developments; and

         o   continue  to develop  and upgrade our  exchange  and  delivery  hub
             technology.



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:



                                    Page 12
<PAGE>

         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."

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 have had  recurring  operating  losses and is  dependent  upon  financing  to
continue  operations.

         The accompanying  financial statements have been prepared assuming that
the Company  will  continue as a going  concern.  The Company has had  recurring
operating  losses and is dependent  upon financing to continue  operations.  The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.  Management intends to continue funding RateXchange
Corp.  activities through additional equity or debt financings  according to its
business plan, and emerge profitable sometime in the future.  However, there can
be no assurance the management's efforts will be successful.

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 with a limited  operating  history.
Our  activities to date,  including  the  activities  of our  predecessor,  have
concentrated on:

         o   planning,  developing  and  implementing  our online  exchange  for
             trading bandwidth, and other telecommunications products.

         o   offering a free  online  lead-generation  service in order to build
             clientele and educate  potential  exchange  participants  about the
             benefits of online trading; and

         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  such risks,  and the failure to do so could
have a material adverse effect on our business and results of operations.

Our success depends on our ability to successfully  secure  participation in the
exchange and connect participants to our network.

         The success of our online  exchange is  ultimately  dependent  upon the
creation of a network of physically  interconnected  users.  Prior to trading on
the exchange,  users who elect to take delivery over our network must connect to
our network at one of our delivery hubs. We have delivery hub equipment in place
in six cities  within the  United  States.  We  currently  lease this  switching
capacity.

         The success of our business  depends on our ability to attract users to
our online  exchange.  While we have  identified  target users,  there can be no
assurance that we will be able to secure their participation in the exchange. In
addition,  we do not presently have  commitments  from any of the members of our
free online  lead-generation  service to  participate  in the  fee-based  online
exchange,  and  therefore,  there can be no assurance that any such members will
use the online exchange.

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

         At  June  30,  2000,  our  accumulated   deficit  since  inception  was
$(28,089,234).  For the first six months and second quarter of 2000, we incurred
net losses of  $(19,421,658)  and  $(8,346,587).  We have incurred a net loss in
each year of our existence,  and have financed our operations  primarily through
sales of  equity  securities.  Our  expense  levels  are  high and our  revenues
insignificant.  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 in the future.

                                    Page 13
<PAGE>

If our online exchange does not achieve commercial acceptance,  our results will
suffer.

         We will rely  primarily on a single source (fees and  commissions  from
transactions  facilitated  on the  online  exchange)  for our  revenues  for the
foreseeable future. Online trading of  telecommunications  bandwidth and minutes
currently has only a limited market acceptance.  As a result, our future ability
to gain commercial acceptance of our online exchange is critical to our success.
Any failure to successfully  gain  commercial  acceptance of our online exchange
would not only have a material  adverse  effect on our  business  and results of
operation but also on our ability to seek additional revenue opportunities.

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

         The market for online  bandwidth and minutes  trading  services is new,
rapidly  evolving  and  very  competitive,   as  are  the  online  commerce  and
business-to-business e-commerce markets generally. We expect competition in this
market to intensify in the future. Several of our existing competitors,  such as
Band-X,  Arbinet and  InterXion,  currently  operate  online  exchanges and have
established customer bases. Our ability to compete with them will depend largely
upon our ability to capture  market share by obtaining  sufficient  participants
for our online exchange.

         In  addition,  we compete  with all  companies  who trade,  broker,  or
otherwise assist in the buying and selling of  telecommunications  bandwidth and
minutes.  Therefore, we currently or potentially compete with a variety of other
companies,  including established  clearinghouses,  lead-generation services and
traditional offline brokers. We are aware of established clearinghouses, such as
GRIC, ITXC and AT&T Global  Clearinghouse,  that aggregate supply and demand and
contract directly with buyers or sellers,  rather than facilitate  trades.  Many
established  companies,  such as Band-X,  Min-X, Asia Capacity Exchange and Cape
Saffron offer  lead-generation  services which provide  opportunities for buyers
and sellers to identify trading opportunities through online listings.  Barriers
to entry  in the  lead-generation  category  are  minimal,  as  current  and new
competitors  can launch  sites at a  relatively  low cost.  Traditional  offline
brokers act as agents for buyers and sellers of bandwidth  for a commission  and
have the advantage of established industry practices and industry contacts.  The
increased use and acceptance of any other method of facilitating  the buying and
selling of excess telecommunications  bandwidth and minutes may adversely impact
the commercial viability of our online exchange.

         Large  telecommunications  companies such as AT&T and MCI Worldcom have
the ability and resources to compete in the online bandwidth and minutes trading
services  market if they choose to do so,  including  launching their own online
exchanges or offering  clearinghouse  and 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 impact 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 results of operations.  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 results of operations.  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 may become subject to regulation by the Commodity Futures Trading  Commission
depending on the types of products and services we eventually introduce.

         We propose to develop an online  exchange  for trading spot and forward
contracts  for the  purchase or sale of bandwidth  and other  telecommunications
products.  Spot  contracts  for the near term  delivery of a  commodity  are not
subject to regulation  by the Commodity  Futures  Trading  Commission  ("CFTC").
Forward contracts, which


                                    Page 14
<PAGE>

impose  binding  obligations  for the deferred  delivery of a commodity  between
commercial parties, also are excluded from the CFTC's jurisdiction. We currently
intend to operate  our online  exchange  in a manner  consistent  with  existing
regulatory guidance concerning transactions and services that are not subject to
regulation by the CFTC.

         The Commodity  Exchange Act provides that futures contracts may only be
entered into on an exchange  that has been  designated by the CFTC as a contract
market.  If we elected in the future to provide trading and/or clearing services
for futures contracts and options on futures  contracts,  we would have to apply
to  the  CFTC  for  designation  as  a  contract  market.  The  contract  market
designation  process is complicated,  time consuming,  and expensive.  We cannot
assure that we could satisfy all of the  regulatory  requirements  applicable to
obtaining designation as a contract market or predict how long the process would
take.

         Contract  markets  must  comply  on  an  ongoing  basis  with  numerous
regulatory  requirements.  Those  requirements  currently include submitting all
proposed  rules and  contracts,  and  proposed  changes  to  existing  rules and
contracts, to the CFTC for prior review and approval, implementing and enforcing
disciplinary  rules, and submitting  reports to the CFTC on, among other things,
trading volume, open contracts, and prices.

         The CFTC has never  determined  whether some or all swap agreements are
futures  contracts.  Nevertheless,  depending  on the  type  of  trading  and/or
clearing  services that we elected in the future to provide for swap agreements,
we may need to  request an  exemption  from the CFTC from the  requirement  that
futures  contracts  and  options  on  futures  contracts  only  be  traded  on a
CFTC-designated  contract  market.  The CFTC is under no  obligation  to reach a
decision within a certain period or to grant an exemption.

         Future  regulatory  changes also could affect our  operations.  Pending
regulatory  proposals,  if they become law, may remove some of the  obstacles to
our providing  trading and/or clearing  services for swap  agreements  involving
telecommunications  products.  Some  of  those  proposals  still  would  subject
possible  future services to CFTC  regulation.  We are unable to predict at this
time, however,  whether pending regulatory proposals,  if enacted, would have an
affect  on our  ability  to offer  trading  and/or  clearing  services  for swap
agreements,  futures  contracts  and  options  on  futures  contracts  involving
telecommunications products.

We are dependent on the continued  growth of online  commerce and the acceptance
by users of the Internet as a means for trading excess bandwidth and minutes.

         Our future  revenues and profits are  substantially  dependent upon the
widespread  acceptance  and  use of  the  Internet  and  online  services  as an
effective  medium of  commerce  by  businesses.  Rapid  growth in the use of and
interest in the Internet and online services is a recent  phenomenon,  and there
can be no assurance  that  acceptance and use will continue to develop or that a
sufficiently  broad base of businesses or customers will adopt,  and continue to
use, the Internet and online services as a medium of commerce.

         Demand and market  acceptance  for  recently  introduced  services  and
products over the Internet are subject to a high level of  uncertainty.  We will
rely on  customers  who have  historically  used  traditional  offline  means of
commerce to buy and sell excess telecommunications bandwidth and minutes. For us
to be  successful,  these  customers  must  accept  and  utilize  novel  ways of
conducting business and exchanging information over the Internet.

         Critical issues concerning the commercial use of the Internet,  such as
ease of access,  security,  reliability,  cost and  quality of  service,  remain
unresolved  and may affect the growth of Internet use or the  attractiveness  of
conducting  commerce online.  In addition,  the Internet and online services may
not be  accepted  as a viable  commercial  marketplace  for a number of reasons,
including   potentially   inadequate   development  of  the  necessary   network
infrastructure or delayed  development of enabling  technologies and performance
improvements.  To the extent that the Internet and online  services  continue to
experience significant growth, there can be no assurance that the infrastructure
of the Internet and online  services  will prove  adequate to support  increased
user  demands.  In addition,  the Internet or online  services  could lose their
viability  due to delays in the  development  or adoption of new  standards  and
protocols  required to handle  increased  levels of  Internet or online  service
activity. Changes in or insufficient availability of telecommunications services
to support the Internet or online  services also could result in slower response
times and adversely  affect usage of the Internet and online services  generally
and us in



                                    Page 15
<PAGE>

particular. If use of the Internet and online services does not continue to grow
or grows more slowly than expected,  if the  infrastructure for the Internet and
online  services does not  effectively  support growth that may occur, or if the
Internet and online services do not become a viable commercial  marketplace,  we
would be materially adversely affected.

We face online commerce security risks.

         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 us and our  reputation.  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.

Our  operating  results  could  be  impaired  if we are  or  become  subject  to
burdensome governmental regulation of online commerce.

         We are not  currently  subject to direct  regulation by any domestic or
foreign  governmental  agency,  other than regulations  applicable to businesses
generally,  including  e-commerce  companies.  However,  due to  the  increasing
popularity  and use of the Internet and other  online  services,  it is possible
that a  number  of laws and  regulations  may be  adopted  with  respect  to the
Internet or other online services covering issues such as:

         o   user privacy;

         o   pricing;

         o   content;

         o   copyrights;

         o   distribution; and

         o   characteristics and quality of products and services.

         The adoption of any  additional  laws or  regulations  may decrease the
growth of the Internet or other online services,  which could, in turn, decrease
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,  the  applicability  to the  Internet  and  other  online
services  of existing  laws in various  jurisdictions  governing  issues such as
property ownership,  sales and other taxes and personal privacy is uncertain and
may take years to resolve.

         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.

                                    Page 16
<PAGE>

We may face liability for information retrieved from our website.

         Due to the fact that  material may be  downloaded  from our website 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.

         The  satisfactory  performance,  reliability  and  availability  of our
online  exchange  and the related  network  infrastructure  are  critical to our
reputation  and our ability to attract and retain  users and  maintain  adequate
customer  service  levels.  Our  revenues  depend on the  number of users of our
online  exchange and the volume of trading that the  exchange  facilitates.  Any
system interruptions that result in the unavailability of our website or reduced
performance of the online  exchange could reduce the volume of bandwidth  traded
and the attractiveness of our website as a means for such trading.

         As a start-up venture,  we may experience system  interruptions,  which
may  continue  to occur from time to time.  There may be a  significant  need to
upgrade the capacity of our website 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 network infrastructure to accommodate increased traffic on our online
bandwidth  exchange 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 results of operations.

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

         Our ability to  successfully  facilitate  bandwidth  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, telecommunications failure, break-ins, earthquake and similar
events.  We do not have a formal  disaster  recovery plan and carry only limited
business  interruption  insurance  to  compensate  us for losses that may occur.
Despite  the  implementation  of network  security  measures,  our  servers  are
vulnerable to computer  viruses,  physical or  electronic  break-ins and similar
disruptions,  which  could lead to  interruptions,  delays,  loss of data or the
inability to accept and fulfill customer orders. In addition,  we rely on online
trading  software  developed by third  parties.  Disruptions  or failures in the
online trading software systems, or the occurrence of any of the other foregoing
system  disruptions,  could have a material  adverse  effect on our business and
results of operations.

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

         To remain  competitive,  we must  continue  to enhance  and improve the
responsiveness,  functionality and features of our online exchange. 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  online
exchange  and  proprietary  technology  and systems  obsolete.  Our success will
depend,  in part, on our ability to license leading  technologies  useful in our
business,  enhance our existing  services,  develop new services and  technology
that address the increasingly  sophisticated and varied needs of our prospective
customers, and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.



                                    Page 17
<PAGE>

         The development of the online exchange 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  online
exchange 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 retain and hire 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 only recently been hired,
and our  ability to attract  highly  skilled  employees.  If any key  officer or
employee  were unable or unwilling to continue in their present  positions,  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. Competition for employees in our industry is intense, particularly in
the San Francisco Bay Area where we are located.  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 on our proprietary
technology, including, but not limited to the design of our online exchanges and
delivery  hubs. We regard our  copyrighted  material,  trade secrets and similar
intellectual  property as critical to our success,  and we rely on trademark and
copyright  law,  trade secret  protection  and  confidentiality  and/or  license
agreements  with our  employees,  customers,  partners and others to protect our
proprietary  rights.  There can be no  assurance  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 and limited
access to and distribution of our software,  documentation and other proprietary
information.  There can be no assurance  that the steps taken by us 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.

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

We may not be able to secure  licenses  for  technology  from  third  parties on
commercially reasonable terms.

         We rely on a variety of  software  and  hardware  technologies  that we
license from third parties, including our database and Internet server software,
components of our online trading software, and  transaction-processing  software
which is used in our online  exchange to perform key functions.  There can be no
assurance  that these  third  party  technology  licenses  will  continue  to be
available to us on  commercially  reasonable  terms.  The loss of our ability to
maintain or obtain upgrades to any of these technology  licenses could result in
delays in completing our proprietary software  enhancements and new developments
until  equivalent  technology  could be  identified,  licensed or developed  and
integrated. Any such delays could have a material adverse impact on our business
and results of operations.

                                    Page 18
<PAGE>

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

         We anticipate incurring substantial costs in developing,  operating and
maintaining  the online  exchange  and in  implementing  the  objectives  of our
business  plan.  We  may  need  significant   amounts  of  working  capital  for
infrastructure,   software  development,   marketing,   personnel,  general  and
administrative costs, and to fund losses prior to achieving profitability.

         We may need to raise additional funds through  additional equity and/or
debt  financings  to  meet  our  capital  requirements.  We may  need  to  raise
additional  funds if we have  underestimated  our  capital  needs or if we incur
unexpected  expenses.  There can be no assurance  that such  financings  will be
available in amounts or on terms acceptable to us, if 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.

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   adverse news announcements;

         o   the introduction of new products and services;

         o   market  conditions in the  telecommunications  industry in general,
             Internet-based services and B2B e-commerce;

         o   quarter to quarter variations in operating results; 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 may adversely impact the price of our common stock.

We may be  required  to issue  stock in the future that will dilute the value of
our existing 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  shareholders' percentage ownership of our common stock. Any sales
resulting  from  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 will likely exercise the options
and  warrants  when we would also wish to enter the market to obtain  capital on
terms more favorable than those  provided by these  securities.  We lack control
over the  timing of any  exercise  or the  number  of  shares  issued or sold if
exercises occur.

                                    Page 19
<PAGE>


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 investment portfolio.


                                    Page 20
<PAGE>


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

         There  were no  material  additions  to, or  changes  in status of, any
ongoing,  threatened or pending legal proceedings  during the three months ended
June 30, 2000.  From time to time, we are a party to various  legal  proceedings
incidental  to  our  business.  None  of  these  proceedings  is  considered  by
management  to be  material  to the  conduct  of  our  business,  operations  or
financial condition.

Item 2.       Changes in Securities and Use of Proceeds.

         a)  Not applicable.

         b)  Not applicable.

         c)  In February 2000, we issued 198,898 shares of our restricted common
             stock  to  certain  warrant  holders  upon  such  warrant  holders'
             cashless exercise of certain of our warrants.  We issued the shares
             to accredited  investors  only in reliance upon Section 4(2) of the
             1933 Act.

             Between  February  and  March  2000,  we  sold to  certain  private
             placement investors 2,733,329 shares of our restricted common stock
             plus warrants to purchase  1,366,673  shares of our common stock at
             an exercise price of $14.40 per share. The warrants are immediately
             exercisable and expire in three years.  After deducting  $2,665,000
             for expenses related to the offering, we received  $30,135,000.  We
             issued the shares to  accredited  investors  only in reliance  upon
             Rule 506 of Regulation D of the 1933 Act.

             In April 2000, we issued 116,522  shares of our  restricted  common
             stock  to  certain  warrant  holders  upon  such  warrant  holders'
             cashless exercise of certain of our warrants.  We issued the shares
             to accredited  investors  only in reliance upon Section 4(2) of the
             1933 Act.

         d)  Not applicable.

Item 6. Exhibits and Reports on Form 8-K

         a)  Exhibits.

         Exhibit No.            Exhibit Name
         -----------            ------------
          3.1                   Certificate   of   Incorporation,   as   amended
                                (incorporated herein by reference to Exhibit 3.1
                                to the Company's  Registration Statement on Form
                                S-1 (Registration No. 333-37004))

         10.1                   2000   Stock   Option   and    Incentive    Plan
                                (incorporated herein by reference to Exhibit 4.1
                                to the Company's  Registration Statement on Form
                                S-8 (Registration No. 333-41290))

         27.1                   Financial Data Schedule

         b)  Reports on Form 8-K.

             None.

                                    Page 21
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated this 11th day of August, 2000.

                             RATEXCHANGE CORPORATION

                              By:
                                 -----------------------------------------------
                                  Philip Rice
                                  Chief Financial Officer


                                    Page 22
<PAGE>


                                INDEX TO EXHIBIT

Exhibit No.      Exhibit Name                                        Page No.
-----------      ------------                                        --------
 3.1             Certificate  of  Incorporation,  as amended
                 (incorporated   herein  by   reference   to
                 Exhibit 3.1 to the  Company's  Registration
                 Statement  on Form  S-1  (Registration  No.
                 333-37004))

10.1             2000  Stock  Option  and   Incentive   Plan
                 (incorporated   herein  by   reference   to
                 Exhibit 4.1 to the  Company's  Registration
                 Statement  on Form  S-8  (Registration  No.
                 333-41290))

27.1             Financial Data Schedule