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, 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)

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


         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.

              17,783,000 shares common stock as of August 13, 2001
                                (Title of Class)


<PAGE>


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

PART I - FINANCIAL INFORMATION                                             Page

     Item 1 -

         Financial Statements

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

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

           Consolidated statement of cash flows (unaudited) for the
             six months ended June 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                                            11

PART II - OTHER INFORMATION

     Item 1 - Legal Proceedings                                             22

     Item 2 - Changes in Securities                                         22

     Item 6 - Exhibits and Reports on Form 8-K                              22

SIGNATURES                                                                  23

                                     Page 2

<PAGE>


<TABLE>
                                                   Part I - Financial Information

Item 1. Financial Statements

                                                       RATEXCHANGE CORPORATION
                                                    (A Development Stage Company)
                                                     CONSOLIDATED BALANCE SHEET


<CAPTION>
                                              ASSETS                                                June 30,           December 31,
                                                                                                      2001                 2000
                                                                                                   ------------        ------------
                                                                                                   (Unaudited)
<S>                                                                                                <C>                 <C>
Current assets
         Cash and cash equivalents                                                                 $  4,859,630        $  2,115,152
         Accounts receivable (net of an allowance for doubtful accounts
            of $9,460 at June 30, 2001 and $4,960 at December 31, 2000)                                 224,418              41,170
         Investment securities available for sale                                                                        12,124,635
         Interest receivable                                                                                                204,755
         Prepaid expenses                                                                                32,743             116,360
                                                                                                   ------------        ------------
                  Total current assets                                                                5,116,791          14,602,072

         Property, equipment and Software (net of accumulated depreciation of                         6,019,659           1,401,888
            $1,095,589 and $240,791 in 2001 and 2000)
         Other assets
         Investment in affiliate                                                                         75,000              75,000
         Deposits                                                                                       175,114             184,856
                                                                                                   ------------        ------------
Total assets                                                                                       $ 11,386,564        $ 16,263,816
                                                                                                   ============        ============

                                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

         Accrued expenses                                                                          $  1,876,446        $  1,061,960
         Accounts payable                                                                               601,831           1,538,910
         Notes payable                                                                                  500,000                --
                                                                                                   ------------        ------------
                  Total current liabilities                                                           2,978,277           2,600,870

Stockholders' equity

         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: 17,783,000 shares
            in 2001 and 2000                                                                              1,778               1,778
         Additional paid-in capital                                                                  79,730,807          72,132,890
         Accumulated deficit                                                                        (70,376,902)        (57,393,548)
         Deferred compensation                                                                         (684,500)
         Notes receivable on sales of common stock                                                     (263,096)           (363,661)
         Accumulated other comprehensive loss                                                                              (714,513)
                                                                                                   ------------        ------------
                  Total stockholders' equity                                                          8,408,287          13,662,946
                                                                                                   ------------        ------------
Total liabilities and stockholders' equity                                                         $ 11,386,564        $ 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
                                                                                                                      (September 30,
                                                 Three Months ended June 30,         Six Months ended June 30,            1998)
                                                         (unaudited)                        (unaudited)                  through
                                               ------------------------------      ------------------------------        June 30,
                                                   2001              2000              2001              2000              2001
                                               ------------      ------------      ------------      ------------      ------------
                                                                                                      (restated)        (unaudited)
<S>                                            <C>               <C>               <C>               <C>               <C>
REVENUE
Trading and consulting                         $    370,516      $      4,500      $    710,344      $      4,500      $    801,567

EXPENSES

Selling, general and
  administrative (includes
  non-cash expenses of
  $2,633,000 and $2,458,000
  for the three month periods
  in 2001 and 2000 and
  $4,178,000 and $11,547,000
  for the six month periods in
  2001 and 2000)                                  5,142,449         6,778,223        12,333,365        19,259,432        63,955,261
Write off advances to potential
     investee                                          --                --                                               1,298,681

Depreciation and amortization                       458,803            77,182           854,797           101,279         1,096,342
Purchase of subsidiaries
     (non-cash)                                        --                --                --                --           1,597,118
                                               ------------      ------------      ------------      ------------      ------------

     Total Expenses                               5,601,252         6,855,405        13,188,162        19,360,711        67,947,402

OTHER INCOME (EXPENSE)

Interest income                                     124,003           305,502           274,280           212,261         1,445,473
Interest expense                                     (8,750)         (301,184)           (8,750)         (301,472)       (1,852,505)
Loss on securities                                 (199,923)                           (744,197)                           (744,197)
Other expenses (net)                                               (1,500,000)                         (1,498,500)       (1,822,875)
                                               ------------      ------------      ------------      ------------      ------------
Loss before taxes                                (5,315,406)       (8,346,587)      (12,956,485)      (20,943,922)      (70,128,689)

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

NET LOSS                                       $ (5,315,406)       (8,346,587)     $(12,956,485)     $(20,943,922)     $(70,128,689)
                                               ============      ============      ============      ============      ============

Basic and diluted net loss per
     share                                    $      (0.30)     $      (0.49)     $      (0.73)     $      (1.33)

Weighted average number of
     shares of common stock                      17,783,000        17,133,613        17,783,000        15,817,530

<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
                                                                                       For the six months             30, 1998 to
                                                                                           ended June 30,                June 30,
                                                                                       2001              2000              2001
                                                                                   ------------      ------------      ------------
                                                                                    (Unaudited)       (Unaudited)       (Unaudited)
                                                                                                      (restated)
<S>                                                                                <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                         $(12,956,485)     $(20,943,922)     $(70,128,690)
  Adjustments to reconcile net loss to net cash used in operating
    activities
         Depreciation and amortization                                                  854,797           300,525         1,095,588
         Write off advances to potential investee                                                                           206,898
         Stock options and warrants granted to service providers and
           strategic partners                                                           540,000         3,653,514        17,930,213
         Stock options granted to employees below fair market value                   1,203,000         7,643,921        11,594,432
         Stock options - termination adjustment                                         565,875              --           1,612,333
         Warrants issued in relation to bridge financing                                   --                             1,657,988
         Warrants for purchase of common stock issued for services                         --                             1,559,461
         Purchase of outstanding shares of RateXchange                                     --                             1,507,408
         Deferred lease payments                                                        643,000                             643,000
         Deferred compensation and other                                                330,609                             330,632
         Loss on securities                                                             744,197                             744,197
         (Increase) decrease in security deposits                                         9,741          (157,395)         (175,115)
         (Increase) decrease in receivables and other advances                         (105,125)         (249,278)         (467,411)
         Increase (decrease) in accounts payable and accrued expenses                  (122,593)        1,286,896         2,368,762
                                                                                   ------------      ------------      ------------
                  Net cash used in operating activities                              (8,292,984)       (8,465,739)      (29,520,326)

CASH FLOWS FROM INVESTING ACTIVITIES
         Payment for purchase of equipment                                              (42,900)         (602,397)       (1,685,580)
         Purchase of Halo Stock                                                                                            (631,251)
         Purchase of investments available for sale                                                   (18,734,934)      (32,975,313)
         Sale of investments available for sale                                      11,580,361         3,300,858        32,347,776
         Investment in Affiliates                                                      (500,000)                           (575,000)
                                                                                   ------------      ------------      ------------
                  Net cash provided by (used in) investing activities                11,037,461       (16,036,473)       (3,519,368)

CASH FLOWS FROM FINANCING ACTIVITIES
         Loans and other debt                                                              --           1,200,000         1,500,000
         Proceeds from common stock sales (net)                                            --          30,135,000        35,242,893
         Proceeds from notes receivable                                                    --           1,541,050         1,590,319
         Loan to employee stock purchase program                                           --                --            (433,889)
                                                                                   ------------      ------------      ------------
                  Net cash provided by financing activities                                --          32,876,050        37,899,323
                                                                                   ------------      ------------      ------------
INCREASE IN CASH AND CASH EQUIVALENTS                                                 2,744,477         8,373,838         4,859,630

CASH and CASH EQUIVALENTS BEGINNING OF PERIOD                                         2,115,152           451,615              --
                                                                                   ------------      ------------      ------------
CASH and CASH EQUIVALENTS END OF PERIOD                                            $  4,859,630      $  8,825,453      $  4,859,630
                                                                                   ============      ============      ============

<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 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 the  financial
         statements and notes thereto included in our annual report on Form 10-K
         for the year  ended  December  31,  2000.  The  accompanying  financial
         statements  have not been audited.  The results of operations  and cash
         flows for the six months ended June 30, 2001 may not be  indicative  of
         the results that may be expected for the year ended December 31, 2001.

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

         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.  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.   This
         acquisition  enables the Company to offer  trading and risk  management
         systems to the futures industry. In April 2001,  RateXchange formed RMG
         Partners   Corporation,   a  wholly   owned   subsidiary,   to  provide
         market-based   solutions   through  the  use  of   derivative   trading
         strategies.

         The Company has generated nominal revenues from its planned operations.
         The Company is defined as a  development  stage  company in  accordance
         with Financial Accounting Standard No. 7. The Company had no operations
         or business before September 30, 1998. Cumulative results of operations
         since the start of the development stage,  September 30, 1998, when the
         Company purchased PolarCap, have been reported separately.

         From   inception,   the   Company   has  been   primarily   engaged  in
         organizational  activities,  including  designing  and  developing  its
         website, recruiting personnel,  establishing office facilities, raising
         capital, developing infrastructure and developing a marketing plan. The
         Company began revenue generation activities in 1999 but nominal revenue
         has been  generated  as of June 30, 2001.  Accordingly,  the Company is
         classified as a development stage company. Successful completion of the
         Company's  development  program  and,  ultimately,  the  attainment  of
         profitable  operations  is  dependent  upon  future  events,  including
         increasing its customer base,  implementing and successfully  executing
         its business and marketing  strategy and hiring and  retaining  quality
         personnel.  Negative  developments  in any of these events could have a
         material adverse effect on the Company's business,  financial condition
         and results of operations.

         As  previously  disclosed  in the 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. During the
         second  quarter,  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  from the original  investors,
         as well as other potential investors.

                                     Page 6

<PAGE>


                    RATEXCHANGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         The Company will need to raise additional capital prior to year end. 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 July,  which  included,  among other  things,  staff
         reductions  and  completion  of certain  development  efforts that have
         significantly  reduced  expenditures for outside consulting  expertise.
         The Company may sell additional debt or equity securities or enter into
         new credit  facilities to meet its cash needs.  The Company cannot make
         assurances  that it will be able to complete any  financing,  that such
         financing will be adequate for the Company's needs, or that a financing
         will be completed prior to the Company running out of funds.

         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 June 30, 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, the Company issued  2,000,000 shares of 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  ($99,500 and $82,500 for the first six months and
second quarter of 2001), by the weighted average number of common shares

                                     Page 7

<PAGE>


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 antidilutive. (10,774,000 options, 5,910,000 warrants and 2,000,000
convertible preferred shares).

NOTE 5   COMMITMENTS AND CONTINGENCIES

         The Company is involved in the following lawsuits:

         Concentric v. NetAmerica, Inc.

         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  related to the  Company's  former  operations
         during 1999.  The matter was heard in binding  arbitration  on April 4,
         2001.  The arbitrator  awarded  Concentric  $197,245.60,  plus interest
         thereon at the legal  rate of 10% per annum  from July 1,  1999,  until
         paid in full.

         Switch & Data Facilities Company v. RateXchange Corporation

         On May 18,  2001,  Switch & Data  Facilities  Company  filed a  lawsuit
         against the Company in the Superior  Court of California for the County
         of San Francisco (Action No. 321470).  The lawsuit involves a claim for
         breach  of  contract  based on a lease  for  colocation  space in North
         America. The suit specifies damages in the amount of $566,600.

         See note 11 for events subsequent to June 30, regarding these lawsuits.

NOTE 6   COMPREHENSIVE LOSS

<TABLE>
         The  comprehensive  loss for the first six months and second quarter of
         2001 and 2000 was:

<CAPTION>
                                                                 Three Months Ended                       Six Months Ended
                                                                     June 30                                  June 30
                                                            2001                 2000                 2001                  2000
                                                        ------------         ------------         ------------         ------------
<S>                                                     <C>                  <C>                  <C>                  <C>
Net loss                                                $ (5,315,406)        $ (8,346,587)        $(12,956,485)        $(20,943,922)
Other Comprehensive Income:

  Unrealized gains on short term
    investments net of realized losses                                            159,798                                   159,798
                                                        ------------         ------------         ------------         ------------
Comprehensive loss                                      $ (5,315,406)        $ (8,186,789)        $(12,956,485)        $(21,103,720)
                                                        ============         ============         ============         ============
</TABLE>


NOTE 7   OPERATING LEASES

         In connection with the Company's  business  activities,  it has entered
         into  various  leases for office  space and related  office  equipment,
         including  computers.  In  addition,  the Company  entered into various
         operating leases  associated with its delivery hubs,  including various
         telecommunications routing equipment and other infrastructure.

         Future annual  minimum lease  payments  related to equipment and office
         space under noncancelable operating leases as of June 30, 2001 were:

                      Year
                   ----------
                      2001 (Last six months)            $  607,520
                      2002                               1,790,059
                      2003                               4,776,996
                                                        ----------
                                                        $7,174,575
                                                        ==========

                                     Page 8

<PAGE>


         During the second quarter the Company restructured its equipment lease.
         The terms of the restructured  lease are 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.  The
         Company  issued  467,000  warrants to the lessor to  purchase  stock in
         connection with this restructuring. This table excludes one lease which
         was cancelled in August. (See footnote 11 for events subsequent to June
         30, 2001).

NOTE 8   ACQUISITION OF SUBSIDIARY

         On March 12, 2001, the Company  completed the  acquisition of Xpit.com,
Inc., a privately held Idaho  Corporation  for $5.5 million in preferred  stock,
cash and notes payable. The acquisition enables the Company to offer trading and
risk  management  systems to the futures  industry via the  RateXchange  Futures
System (RFS).  Xpit will operate as a  wholly-owned  subsidiary of  RateXchange.
Under the terms of the transaction, the Company acquired 100% of the outstanding
common shares of Xpit in exchange for $500,000 in cash; a $500,000 two-year note
bearing  interest at 7%; 2,000,000 Series A Convertible  Preferred  Shares;  and
$4.9 million in royalty  payments tied to the  achievement  of Xpit's  projected
revenues from 2001 through 2003. The acquisition  price of $5.5 million has been
allocated primarily to the software technology acquired.

NOTE 9   STOCK COMPENSATION

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.  Certain  employees  of RMG have 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.

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 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  SUBSEQUENT EVENTS

Concentric v. NetAmerica, Inc.

The Court  entered the  arbitrator's  award as a judgment on July 13,  2001.  On
August 6, 2001,  the Company paid  Concentric  (now known as XO  Communications,
Inc.) $239,991 in full and complete  satisfaction of Concentric's  claims.  This
matter is closed. The Company had fully accrued for this liability.

The  arbitrator's  award also  granted  the  Company's  request  for express and
equitable indemnity against  co-Defendant  NetAmerica,  Inc. By the terms of the
arbitrator's  award,  the  Company  has made a demand to  NetAmerica,  Inc.  for
reimbursement  of all  damages  paid by the  Company to  Concentric.  The demand
letter also seeks to recover the Company's  costs and attorney's fees associated
with the lawsuit. During the handling of the case, counsel for NetAmerica,  Inc.
represented that NetAmerica,  Inc. was insolvent. The Company has not received a
response from NetAmerica, Inc. to its demand.

Other

                                     Page 9

<PAGE>


In August the Company  renegotiated  the terms of one of its leases by providing
consideration  of $275,000  in cash and a note  payable of $95,000 in return for
elimination of all liabilities  related to the lease,  which  approximated  $1.2
million,  to eliminate all future  payments.  The cost of this agreement will be
reflected in the third quarter results.

                                    Page 10

<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."

General Development of Business

         On June 28, 2001,  RateXchange announced that Teleglobe  Communications
Corp. was posting bids and offers for capacity on the RateXchange Trading System
(RTS). Signing on in the first quarter of 2001, Teleglobe is one of 30 companies
currently using the RTS to buy and sell bandwidth.

         On June 27, 2001  RateXchange  announced it had  selected  Telseon's IP
(Internet  Protocol)  Service to  distribute  its  metropolitan  area  bandwidth
traffic.  Combining RateXchange's long-haul customers with Telseon's dense metro
footprint  will enable  buyers,  sellers,  and traders of IP bandwidth to reduce
lapsed time between the completion of a transaction and its actual delivery over
a secure, national IP network.

         On  April  26,  2001,  RateXchange  announced  the  establishment  of a
licensing  agreement with Refco Group Ltd.,  LLC, the world's  largest  non-bank
futures  commission  merchant  (FCM) to use the  RateXchange  Futures  System to
electronically execute futures trades entered into by it's clients.

         On  April  9,  2001,   announced  its  continued  expansion  into  risk
management services through the formation of RMG Partners Corporation ("RMG"), a
wholly owned  subsidiary  created to provide market based solutions  through the
use of derivative trading strategies.

         Subsequent  to  the  end of the  second  quarter,  on  July  16,  2001,
RateXchange announced an agreement with Avantrust,  LLC, a joint venture between
American  International  Group,  Inc. and Dun &  Bradstreet,  whereby  Avantrust
Passport  and  TradeCredit  Insurance  will be provided to  participants  on all
RateXchange telecom markets.

Results of Operations for Three and Six Months Ended June 30, 2001

<TABLE>
         The following table  summarizes our results of operations for the first
six months and second quarter of 2001, compared to the same periods of 2000.

<CAPTION>
                                                                Six Months Ended                        Three Months Ended
                                                                     June 30                                  June 30
                                                        ---------------------------------         ---------------------------------
                                                            2001                 2000                  2001                 2000
                                                        ------------         ------------         ------------         ------------
                                                                              (restated)
<S>                                                     <C>                  <C>                  <C>                  <C>
Revenue                                                 $    710,344         $      4,500         $    370,516         $      4,500
Expenses (including selling,
  general and administrative)                           $ 13,188,162         $ 19,360,711         $  5,601,252         $  6,855,405
Net income (loss)                                       $(12,956,485)        $(20,943,922)        $ (5,315,406)        $ (8,346,587)
</TABLE>


Revenue

         We  generated  revenue of $710,000  during the first six months of 2001
and  $371,000  during the second  quarter of 2001.  Revenue in both  periods was
primarily from consulting and trading commissions.  In the comparable periods of
2000, we generated $4,500 from banner advertising.

                                    Page 11

<PAGE>


Expenses

         Our total  expenses  for the first six months of 2001 were  $13,188,000
compared to $19,361,000 in the first six months of 2000. The major components of
our expenses for the six month periods were:

         Non-cash Expenses

         o        $1,203,000 in the first half of 2001 compared to $7,644,000 in
                  the first  half of 2000 for  amortization  expense  associated
                  with the year 2000  grant of below  market  stock  options  to
                  employees;

         o        $566,000  in the  first  half of 2001 for  option  revaluation
                  related to terminated  employees.  There were no such expenses
                  in the first half of 2000;

         o        $540,000 in the first half of 2001 compared to $3,653,000  for
                  the first half of 2000 for  options  and  warrants  granted to
                  service providers.

         o        $716,000 for deferred and accrued compensation.  There were no
                  such expenses in the first half of 2000.

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

         o        $310,000 of accruals  related to contingent  liabilities.  The
                  comparable amount in 2000 period was $250,000.

         o        $200,000 related to a write down in value of a security, where
                  the decline in value was judged to be other than temporary.

         Cash Expenses

         o        $2,322,000  in  payroll  costs  during  the first half of 2001
                  compared to $2,243,000 in the first half of 2000;

         o        $1,775,000 in outside  services  during the first half of 2001
                  compared to $1,875,000 during the first half of 2000, and;

         o        $2,436,000  in the first half of 2001  compared to $711,000 in
                  the first half of 2000 for delivery equipment costs.

         For the  second  quarter  of 2001 our total  expenses  were  $5,601,000
compared to $6,855,000 in the second  quarter of 2000.  The major  components of
our expenses for the second quarter were:

         Non-cash Expenses

         o        $479,000 in the second  quarter of 2001 compared to $1,540,000
                  in  the  second  quarter  of  2000  for  amortization  expense
                  associated  with the year  2000  grant of below  market  stock
                  options to employees;

         o        $285,000 in the second quarter of 2001 compared to $668,000 in
                  the second quarter of 2000 for options and warrants granted to
                  service providers.

         o        $716,000 for deferred and accrued compensation.  There were no
                  such expenses in the second quarter of 2000.

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

         o        $310,000 of accruals  related to contingent  liabilities.  The
                  comparable amount in the 2000 period was $250,000.

                                    Page 12

<PAGE>


         o        $200,000 related to a write down in value of a security, where
                  the decline in value was judged to be other than temporary.

         Cash Expenses

         o        $1,037,000 in payroll costs during the second  quarter of 2001
                  compared to $1,127,000 in the second quarter of 2000;

         o        $743,000 in outside services during the second quarter of 2001
                  compared to $1,293,000 during the second quarter of 2000, and;

         o        $613,000 in the second quarter of 2001 compared to $420,000 in
                  the second quarter of 2000 for delivery equipment costs.

Interest Income:

         Interest income for the first six months of 2001 was $274,000  compared
to $212,000 for the same period in 2000.  Interest income for the second quarter
of 2001 was  $124,000  compared to $305,000  for the second  quarter of 2000.The
decrease in interest  income is due to less interest earned on a smaller average
investment portfolio.

Net Loss:

         During  the  first  half of 2001,  we  incurred  a loss of  $12,956,000
compared to $20,944,000  during the same period of 2000. The major components of
the net loss for the  first  half of 2001,  were  non cash  expenses  for  stock
options and warrants to purchase  company  stock of  $3,978,000  and  additional
expenditures  associated with developing the business of $8,978,000.  During the
second  quarter of 2001 we incurred a loss of  $5,315,000  compared to a loss of
$8,347,000  in the second  quarter of 2000 and a loss of $7,641,000 in the first
quarter of 2001. The second quarter loss of 2001 comprised non cash expenses for
stock  options  and  warrants  to  purchase  company  stock  of  $2,999,000  and
additional   expenditures   associated   with   developing   the   business   of
$2,314,000.Cash  expenditures in the first quarter were  $6,396,000.  Because we
are  developing  liquidity  in new  marketplaces  , 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  $2,139,000  at June 30,  2001  compared to
$12,001,000 on December 31, 2000.

         As  previously  disclosed  in the 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,  management was informed by those  investors that they do 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 from the original investors, as well as other potential investors.

          The Company will need to raise additional  capital prior to year end .
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 July,  which  included,  among other things,  staff  reductions  and the
elimination of nearly all outside  consulting  services.  We may sell additional
debt or equity  securities or enter into new credit  facilities to meet our cash
needs. We cannot assure you that we will be able to complete any financing, that
such  financing  will be adequate for the Company's  needs,  or that a financing
will be completed prior to the Company running out of funds.

         The  factors  discussed  above  create   substantial  doubt  about  the
Company's  ability to continue as a going

                                    Page 13

<PAGE>


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 are taking the following steps
to achieve profitability:

         o        We are pursuing  additional revenue  generating  opportunities
                  such as  acquisition of profitable  securities  broker-dealers
                  that may  accelerate our  development of a financial  services
                  business model;

         o        We are  reviewing  our  options  regarding  the  delivery  hub
                  business,   which  include:   exploring   potential  sales  to
                  operators of delivery  hubs whereby they would operate and own
                  our delivery hub equipment, or redeploying the hubs toward one
                  of our developing revenue lines,

         o        We have  restructured  and deferred  payments on the operating
                  lease  underlying our delivery  equipment,  resulting in a net
                  savings of $75,000 per month for 12 months,

         o        We have reduced our headcount and associated  personnel costs;
                  our employee  headcount in our San Francisco location has been
                  reduced  from 37 at  December  31,  2000 to 17  currently.  In
                  addition the  formation  of RMG Partners and Xpit  Corporation
                  added 12 new employees in these new lines of business; and

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

In addition, we have substantially  completed the development of the RateXchange
Trading System and do not  anticipate  significant  expenditures  related to it.
Nevertheless,  we need to seek additional financing during the remainder of 2001
in order to accelerate market penetration  through the execution of our business
plan.  As the  Company is  determining  how it will  utilize  its  delivery  hub
equipment,  we are  currently in the process of assessing  the status and likely
use of the operating  leases covering the related  equipment.  We expect to make
final  determination as to the likely use of these leases in the near future and
may take a non-cash charge at that time.

         Our operating  activities used $8.3 million during the first six months
of 2001 due primarily to:

         o        Costs  associated  with  the  development  of the  RateXchange
                  Futures System;

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

         o        increased and ongoing business development activities.

         Our investing  activities  generated $11.0 million during the first six
months of 2001, due to sales of investments.

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

         o        expansion into new domestic and international markets;

         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 nominal revenues.

                                    Page 14

<PAGE>


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

OUTLOOK

         We provide trading, consulting and information services enabling market
participants  to maximize their assets.  These trading  solutions  allow network
providers,  energy merchants,  financial  institutions,  and commodity  managers
engaged on the RateXchange  Trading System (RTS) and RateXchange  Futures System
(RFS) the  ability to trade  bandwidth  and  futures  globally.  Our  consulting
solutions  practice provides asset valuation tools,  risk management  strategies
and analytics.  The information  solutions group provides  pricing  information,
market research,  and industry  background.  We are a trading  solutions company
enabling  the  creation  of  liquid   marketplaces   for   bandwidth  and  other
telecommunications  products.  We plan to move into the  brokering of additional
products following the consulting,  trading and information  solutions model and
are pursuing the acquisition of profitable  securities  broker-dealers  that may
accelerate the 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;

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

         o        Continue to develop and upgrade our electronic trading system.

         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 15

<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  working capital for
enhancement  of the  RateXchange  Futures  System,  marketing  and  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  June  30,  2001,  our  accumulated   deficit  since  inception  was
$70,129,000,   including  $38,137,000  related  to  stock  grants,  options  and
warrants.  For the second quarter of 2001, we incurred a net loss of $5,315,000,
including  $2,999,000  related to stock grants and warrants.  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 and RateXchange Futures System do 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,  RateXchange  Futures System and
related consulting and brokerage services,  for the foreseeable  future.  Online
trading of  telecommunications  bandwidth and minutes currently has only limited
market acceptance, as does online trading of futures contracts. As a result, our
future ability to gain commercial  acceptance of the RateXchange  Trading System
and  RateXchange  Futures  System is  critical  to our  success.  Any failure to
successfully  gain commercial  acceptance of the RateXchange  Trading System and
RateXchange  Futures 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.

                                    Page 16

<PAGE>


We depend on the  efforts of the Amerex  Bandwidth,  Ltd.  brokers  who  execute
trades on 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
telecommunications   capacity,   Internet   protocol   products   and/or   other
telecommunications-related  products  on 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.

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

         The  market for  online  bandwidth,  minutes  and  derivatives  trading
services is new,  rapidly  evolving  and highly  competitive,  as are the online
commerce and  business-to-business  markets generally.  We expect competition in
this  market  to  intensify  in  the  future.  Several  of the  existing  online
exchanges,  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
by obtaining  sufficient  customers for the  RateXchange  Trading System and our
brokerage activities.

         In addition,  we compete with 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  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  and  minutes  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 and minutes 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.

                                     Page 17

<PAGE>


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 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.

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 online 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        Intellectual property;

         o        Distribution; and

         o        Characteristics and quality of products and services.

                                    Page 18

<PAGE>


         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  of existing  law to the Internet and
other online services  governing  issues such as property  ownership,  sales and
other taxes and personal  privacy to the  Internet and other online  services 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.

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.

         The  satisfactory  performance,  reliability  and  availability  of the
RateXchange  Trading  System and  RateXchange  Futures System is 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
systems and the volume of trading that is facilitated.  Any system interruptions
that  result in the  unavailability  of our web site or reduced  performance  of
these Systems could reduce the volume of bandwidth and futures traded.

         There  may  be a  significant  need  to  upgrade  the  capacity  of the
RateXchange  Trading  System and  RateXchange  Futures 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,  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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<PAGE>


         To remain  competitive,  we must  continue  to enhance  and improve the
responsiveness, functionality and features of the RateXchange Trading System and
RateXchange  Futures System.  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  RateXchange
Futures 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 and RateXchange Futures 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.

                                    Page 20

<PAGE>


         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.

         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 e-commerce; 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.

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<PAGE>


         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

Item 1.  Legal Proceedings.

         Switch   & Data Facilities Company v. RateXchange Corporation

         On May 18,  2001,  Switch & Data  Facilities  Company  filed a  lawsuit
         against the Company in the Superior  Court of California for the County
         of San Francisco (Action No. 321470).  The lawsuit involves a claim for
         breach  of  contract  based on a lease  for  colocation  space in North
         America.  The suit prays for  damages in the  amount of  $566,600.  The
         Company  answered the complaint and discovery has begun.

Item 2.  Changes in Securities and Use of Proceeds.

         a)       Not applicable.

         b)       Not applicable.

         c)       Not applicable

         d)       Not applicable.

Item 6.  Exhibits and Reports on Form 8-K

                                    Page 22

<PAGE>


         a)       Exhibits

       Exhibit No.          Exhibit Name
       -----------          ------------
         10.1               Employment agreement with Robert Ford
         10.2               Contract by and between RMG Partners and RateXchange


         b)       Reports on 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 18th day of August, 2001.


                                      RATEXCHANGE CORPORATION

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

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