================================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 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, 2002

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

    For the Transition Period from __________________ to ___________________

                         Commission File Number 1-15831

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

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

               Delaware                                 11-2936371
    (State or Other Jurisdiction of        (I.R.S. Employer Identification No.)
    Incorporation or Organization)

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


                                 (415) 274-5650
              (Registrant's Telephone Number, Including Area Code)


         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 [ ]

         As of July 30,  2002,  20,875,859  shares  of the  registrant's  common
stock, $0.0001 par value, were outstanding.

================================================================================
<PAGE>

                             Ratexchange Corporation
                                    Form 10-Q
                    For the Three Months Ended June 30, 2002

<TABLE>
<CAPTION>
                                                                                                                     Page No.
                                                                                                                     --------
<S>          <C>                                                                                                       <C>
PART I       FINANCIAL INFORMATION

     ITEM 1. Financial Statements (unaudited)

             Condensed Consolidated Statements of Operations for the three months and
               six months ended June 30, 2002 and 2001......................................................            2

             Condensed Consolidated Statements of Financial Condition as of
               June 30, 2002 and December 31, 2001..........................................................            3

             Condensed Consolidated Statements of Cash Flows for the six months
               ended June 30, 2002 and 2001.................................................................            4

             Notes to Condensed Consolidated Financial Statements...........................................            5

     ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........            7

     ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.....................................           20

PART II      OTHER INFORMATION

     ITEM 1. Legal Proceedings..............................................................................           21

     ITEM 6. Exhibits and Reports on Form 8-K...............................................................           21

     Signatures.............................................................................................           22
</TABLE>

                                       1
<PAGE>

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)


                             RATEXCHANGE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended            Six Months Ended
                                                    ---------------------------   ---------------------------
                                                       June 30,      June 30,       June 30,       June 30,
                                                        2002           2001           2002           2001
                                                    ------------   ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>            <C>
Revenue:
     Commissions .................................  $  1,678,516   $     59,066   $  2,201,101   $     94,394
     Principal transactions ......................       106,168           --          124,776           --
     Investment banking ..........................       220,743           --          246,416           --
     Other .......................................         3,300         11,450         28,827         15,950
                                                    ------------   ------------   ------------   ------------
          Total revenue ..........................     2,008,727         70,516      2,601,120        110,344
                                                    ------------   ------------   ------------   ------------

Operating expenses:
   Compensation and benefits
       (inclusive of non-cash expenses of
       $97,250, $990,939, $446,530 and $2,535,513)     1,478,743      2,534,645      2,682,818      5,399,344
   Brokerage and clearing fees ...................       238,030           --          395,572           --
   Professional services .........................       129,917        515,507        270,036        749,809
   Occupancy and equipment .......................        44,797      1,679,407        125,220      3,784,302
   Communications and technology .................        57,008         65,793         88,292        183,714
   Depreciation and amortization .................       100,281        458,803        199,375        854,797
   Other .........................................       358,180        431,347        537,965      2,300,446
                                                    ------------   ------------   ------------   ------------
      Total operating expenses ...................     2,406,956      5,685,502      4,299,278     13,272,412
                                                    ------------   ------------   ------------   ------------
Operating loss ...................................      (398,229)    (5,614,986)    (1,698,158)   (13,162,068)
Interest income ..................................        12,221        121,893         27,717        272,170
Interest expense .................................      (363,848)       (11,512)      (727,620)       (11,512)
Other expense ....................................          --         (199,923)          --         (744,197)
                                                    ------------   ------------   ------------   ------------
Loss from continuing operations ..................      (749,856)    (5,704,528)    (2,398,061)   (13,645,607)
Income from discontinued operations ..............          --           29,360         32,641        329,360
                                                    ------------   ------------   ------------   ------------
Net loss .........................................  $   (749,856)  $ (5,675,168)  $ (2,365,420)  $(13,316,247)
                                                    ============   ============   ============   ============

Basic and diluted net loss per share .............  $      (0.04)  $      (0.32)  $      (0.12)  $      (0.75)
                                                    ============   ============   ============   ============

Weighted average number of common shares .........    20,292,922     17,783,000     20,111,950     17,783,000
</TABLE>

         The accompanying notes are an integral part of these condensed
                       consolidated financial statements


                                       2
<PAGE>

                             RATEXCHANGE CORPORATION
            CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                            June 30,    December 31,
                                                                             2002           2001
                                                                         ------------   ------------
<S>                                                                      <C>            <C>
                                     ASSETS
Cash and cash equivalents .............................................  $  3,100,689   $  4,358,091
Securities owned:
     Marketable, at fair value ........................................       232,096           --
     Not readily marketable, at estimated fair value ..................         7,150           --
Due from clearing broker ..............................................       726,540           --
Accounts receivable, net ..............................................        67,500           --
Equipment and fixtures, net ...........................................       478,352        674,618
Debt issuance costs ...................................................       646,874        658,434
Prepaid expenses and other assets .....................................       150,832        212,050
Assets of discontinued operations .....................................          --        1,603,588
                                                                         ------------   ------------
      Total assets ....................................................  $  5,410,033   $  7,506,781
                                                                         ============   ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Accounts payable ......................................................  $    551,519   $    401,505
Commissions payable ...................................................       436,896           --
Accrued liabilities ...................................................     1,281,097      1,164,866
Due to clearing and other brokers .....................................        89,640           --
Deferred revenue ......................................................        30,833           --
Convertible notes payable, net ........................................     8,343,671      8,141,704
Liabilities of discontinued operations ................................          --        1,240,439
                                                                         ------------   ------------
     Total liabilities ................................................    10,733,656     10,948,514
                                                                         ------------   ------------

Commitments and contingencies

Stockholders' deficit:
   Preferred stock, $0.0001 par value; 60,000,000 shares authorized;
     806,366 and 2,000,000 shares issued and outstanding as of June 30,
     2002 and December 31, 2001, respectively; aggregate liquidation
     preference of $2,618,184 as of June 30, 2002 .....................            81            200
   Common stock, $0.0001 par value; 300,000,000 shares authorized;
     20,875,859 and 18,328,204 shares issued and outstanding
     as of June 30, 2002 and December 31, 2001, respectively ..........         2,088          1,833
   Additional paid-in capital .........................................    84,906,051     84,516,375
   Accumulated deficit ................................................   (90,231,843)   (87,730,641)
   Deferred compensation ..............................................          --         (229,500)
                                                                         ------------   ------------
     Total stockholders' deficit ......................................    (5,323,623)    (3,441,733)
                                                                         ------------   ------------
       Total liabilities and stockholders' deficit ....................  $  5,410,033   $  7,506,781
                                                                         ============   ============
</TABLE>

         The accompanying notes are an integral part of these condensed
                       consolidated financial statements.


                                       3
<PAGE>
                             RATEXCHANGE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                        Six Months Ended June 30,
                                                                       --------------------------
                                                                          2002           2001
                                                                       -----------   ------------
<S>                                                                    <C>           <C>
Cash flows from operating activities:
 Net loss ...........................................................  $(2,365,420)  $(13,316,247)
   Adjustments to reconcile net loss to net cash used in
   operating activities:
    Depreciation and amortization ...................................      199,375        854,797
    Common stock issued for services ................................       83,338           --
    Stock-based compensation ........................................      363,192      2,535,513
    Note payable issued in connection with employee severance .......         --          400,000
    Amortization of discounts on convertible notes payable ..........      201,967           --
    Amortization of debt issuance costs .............................       34,060           --
    (Gain) loss on securities .......................................       (7,298)       744,197
    Common stock received for advisory services .....................      (11,000)          --
    Changes in operating assets and liabilities:
      Assets and liabilities of discontinued operations .............       63,149       (464,359)
      Due from clearing broker ......................................     (726,540)          --
      Receivables ...................................................      (67,500)        52,064
      Prepaid expenses and other assets .............................       61,218         97,609
      Accounts payable and accrued liabilities ......................      303,245       (336,835)
      Commissions payable ...........................................      436,896           --
      Due to clearing and other brokers .............................       89,640           --
      Deferred revenue ..............................................       30,833           --
                                                                       -----------   ------------
          Net cash used in operating activities .....................   (1,310,845)    (9,433,261)
Cash flows from investing activities:
    Purchase of equipment and fixtures ..............................       (3,109)      (588,768)
    Purchase of short-term investments ..............................   (1,925,517)          --
    Proceeds from sale of short-term investments ....................    1,704,569     12,094,951
    Proceeds from sale of discontinued operations ...................      300,000           --
                                                                       -----------   ------------
          Net cash provided by investing activities .................       75,943     11,506,183
Cash flows from financing activities:
    Debt issuance costs .............................................      (22,500)          --
                                                                       -----------   ------------
         Net cash used in financing activities ......................      (22,500)          --
                                                                       -----------   ------------
Increase (decrease) in cash and cash equivalents ....................   (1,257,402)     2,072,922
Cash and cash equivalents at beginning of period ....................    4,358,091      2,115,152
                                                                       -----------   ------------
Cash and cash equivalents at end of period ..........................  $ 3,100,689   $  4,188,074
                                                                       ===========   ============

Supplementary disclosure of cash flow information:
   Cash paid during the period:
      Interest ......................................................  $   282,770   $       --
      Income taxes ..................................................  $     7,200   $      2,400
   Non-cash investing and financing activities:
      Preferred stock issued to purchase software assets ............  $      --     $  4,383,800
      Stock dividend accrued for preferred stock ....................  $   135,782   $     26,869
      Note issued to purchase software assets .......................  $      --     $    500,000
      Common stock issued to settle accrued liabilities .............  $    37,000   $       --

</TABLE>
         The accompanying notes are an integral part of these condensed
                       consolidated financial statements

                                       4
<PAGE>

                             RATEXCHANGE CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.  Basis of Presentation

     The interim  statements  included  herein for Ratexchange  Corporation,  or
Ratexchange,  have  been  prepared,  without  audit,  pursuant  to the rules and
regulations  of the  Securities  and Exchange  Commission.  In our opinion,  the
financial  statements  included  in this  report  reflect  all normal  recurring
adjustments that we consider  necessary for the fair presentation of the results
of operations for the interim periods covered and the financial  position at the
date of the interim statement of financial  condition.  Certain  information and
footnote  disclosures  normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations.  However,
we believe that the  disclosures  are  adequate to  understand  the  information
presented.  The  operating  results  for  interim  periods  are not  necessarily
indicative  of the  operating  results  for the  entire  year.  These  financial
statements  should be read in  conjunction  with our  December  31, 2001 audited
consolidated  financial  statements  and notes  thereto  included  in our Annual
Report on Form 10-K for the year ended December 31, 2001.

     Certain  prior year  amounts have been  reclassified  to conform to current
year consolidated financial statement presentation.

2.  Net Loss per Share

     Basic loss per share is  computed by dividing  the net loss,  less  accrued
dividends on preferred  stock,  by the weighted  average number of common shares
outstanding.  Stock options and warrants  outstanding to purchase 21,269,316 and
16,575,079  shares of common stock as of June 30, 2002 and 2001, and 806,366 and
2,000,000  shares  of  convertible  preferred  stock at June 30,  2002 and 2001,
respectively,  were not  included in computing  diluted  loss per share  because
their effects were anti-dilutive.

<TABLE>
<CAPTION>
                                             Three Months Ended June 30,    Six Months Ended June 30,
                                             ---------------------------   ---------------------------
                                                 2002           2001           2002          2001
                                             ------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>
Net loss ..................................  $   (749,856)  $ (5,675,168)  $ (2,365,420)  $(13,316,247)
Preferred stock dividends .................       (53,282)       (26,869)      (135,782)       (26,869)
                                             ------------   ------------   ------------   ------------
Net loss available to common stockholders .      (803,138)    (5,702,037)    (2,501,202)   (13,343,116)
Weighted-average number of common shares ..    20,292,922     17,783,000     20,111,950     17,783,000
                                             ------------   ------------   ------------   ------------
Basic and diluted net loss per common share  $      (0.04)  $      (0.32)  $      (0.12)  $      (0.75)
                                             ============   ============   ============   ============
</TABLE>

3.  Comprehensive Loss

     Comprehensive  loss  includes  the net loss  reported  on the  consolidated
statements of operations and changes in the fair value of investments classified
as available for sale.

<TABLE>
<CAPTION>
                                       Three Months Ended June 30,  Six Months Ended June 30,
                                         -----------------------   --------------------------
                                            2002         2001          2002         2001
                                         ---------   -----------   -----------   ------------
<S>                                      <C>         <C>           <C>           <C>
Net loss ..............................  $(749,856)  $(5,675,168)  $(2,365,420)  $(13,316,247)
Change in unrealized loss on securities       --            --            --            1,050
                                         ---------   -----------   -----------   ------------
     Comprehensive loss ...............  $(749,856)  $(5,675,168)  $(2,365,420)  $(13,315,197)
                                         =========   ===========   ===========   ============
</TABLE>

                                       5
<PAGE>

                             RATEXCHANGE CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (unaudited)

4.  Discontinued Operations

     In 2001,  we formed RMG  Partners  Corporation,  or RMG, as a wholly  owned
subsidiary to provide risk  management  solutions  through the use of derivative
trading strategies. An affiliate of the principals of RMG, BL Partners, LLC, had
the right to purchase  our  interest  in RMG for  $300,000.  In April  2002,  BL
Partners,  LLC exercised its right to purchase RMG in accordance  with the terms
of the agreement.

     RMG  represented  a component  of our  business.  Pursuant to SFAS No. 144,
Accounting  for  the  Impairment  or  Disposal  of  Long-Lived  Assets,  we have
reclassified  the  balances  pertaining  to RMG in  our  condensed  consolidated
financial  statements  to  reflect  the  disposition  of  this  subsidiary.  The
revenues,  expenses, assets and liabilities,  and cash flows of these operations
have been segregated in our condensed  consolidated financial statements for all
periods   presented  and  have  been   separately   reported  as   "discontinued
operations."

     Income from  discontinued  operations is comprised of the following revenue
and expenses:

<TABLE>
<CAPTION>
                                       Three Months Ended June 30,  Six Months Ended June 30,
                                          --------------------      ------------------------
                                           2002        2001            2002          2001
                                          ------    ---------       ----------   -----------
<S>                                       <C>       <C>             <C>           <C>
Revenue of discontinued operations .....  $ --      $ 300,000       $  729,946    $ 600,000
Expenses of discontinued operations ....    --       (270,640)        (697,305)    (270,640)
                                          ------    ---------       ----------    ---------
     Income from discontinued operations  $ --      $  29,360       $   32,641    $ 329,360
                                          ======    =========       ==========    =========
</TABLE>

     The major classes of assets and liabilities of  discontinued  operations as
of December 31, 2001 are as follows:

                                                     December 31,
                                                         2001
                                                    -------------
Assets:
     Cash and cash equivalents..................... $   1,448,634
     Investments...................................       125,000
     Other.........................................        29,954
                                                    -------------
          Total.................................... $   1,603,588
                                                    =============

Liabilities:
     Accrued liabilities........................... $   1,166,973
     Other.........................................        73,466
                                                    -------------
          Total.................................... $   1,240,439
                                                    =============

5.  Equity Capital

     In April 2002,  we issued  1,149,876  shares of common stock in  connection
with RMG achieving  specified revenue  milestones during the twelve months ended
April 2002. We did not receive any proceeds from this transaction. Additionally,
in May 2002,  stockholders of our preferred  stock converted  1,193,634 of their
shares into common stock. We did not receive any proceeds from this transaction.

6.  Regulatory Requirements

Our broker-dealer subsidiary, RTX Securities Corporation,  or RTX Securities, is
subject  to  Rule  15c3-1  of the  Securities  and  Exchange  Commission,  which
specifies  uniform  minimum net  capital  requirements,  as  defined,  for their
registrants.  As of June 30, 2002, RTX Securities had regulatory net capital, as
defined,  of  $1,007,000,  which exceeded the amount  required by $880,000.  RTX
Securities  is exempt from Rules 15c3-3 and 17a-13 under the  Securities  Act of
1934  because it does not carry  customer  accounts,  nor does it hold  customer
securities or cash.

                                       6
<PAGE>

ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  contains certain  forward-looking  statements that involve risks and
uncertainties.  We  have  set  forth  in our  Form  10-K  Item  7  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations-Risk
Factors,"  as filed with the  Securities  and Exchange  Commission  on March 28,
2002, a detailed statement of risks and uncertainties  relating to our business.
In  addition,  set forth  below under the  heading  "Risk  Factors" is a further
discussion  of certain of those  risks as they  relate to the period  covered by
this report, our near-term outlook with respect thereto, and the forward-looking
statements set forth herein.  Investors  should review this quarterly  report in
combination with the Form 10-K in order to have a more complete understanding of
the principal risks associated with an investment in our common stock.

Overview

     We are a brokerage  services  firm that combines our expertise in bandwidth
and other emerging  commodity  markets with securities  brokerage and investment
banking  activities.  Our  RTX  Securities  Corporation  subsidiary  is  a  NASD
licensed,  fully disclosed  broker-dealer offering sales and trading services to
institutions  and private  clients,  as well as advisory and investment  banking
services to our corporate clients. Through our emerging commodities division, we
are  developing  channels to provide  valuable  and  marketable  information  to
clients of RTX Securities.

     We recognize  revenue from  brokerage  and  investment  banking  activities
through RTX Securities and, to a lesser extent,  from consulting and information
services  through  our  emerging  commodities  division.  We get  paid  for  our
investment   banking  and  brokerage   services  in  the  form  of  commissions,
transaction  fees,  capital  markets  services fees, and merger and  acquisition
advisory fees. We believe that our consulting and  information  services may, in
the future,  generate  revenues in the form of  subscription  fees,  transaction
fees, professional services fees and management fees.

     In 2001, we formed RMG Partners Corporation as a wholly owned subsidiary to
provide  risk  management  solutions  through  the  use  of  derivative  trading
strategies.  An affiliate of the  principals  of RMG, BL Partners,  LLC, had the
right to purchase our interest in RMG for $300,000.  In April 2002, BL Partners,
LLC  exercised  its right to purchase  RMG in  accordance  with the terms of the
agreement.  The Chairman of RMG obtained  control over  1,149,876  shares of our
common  stock by attaining  certain  revenue  goals set forth in the  agreement.
These shares of common stock were issued to RMG in April 2002.

Critical Accounting Policies and Estimates

     The condensed  consolidated financial statements are prepared in accordance
with  accounting  principles  generally  accepted  in the United  States,  which
require us to make estimates and judgments  that affect the reported  amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and  liabilities.  On an  on-going  basis,  we  evaluate  our  estimates,
including those related to bad debts,  stock-based  compensation,  income taxes,
and contingencies and litigation. We base our estimates on historical experience
and on various other  assumptions  that are believed to be reasonable  under the
circumstances,  the results of which form the basis for making  judgments  about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results could differ from those estimates. We believe the
following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.

     We  recognize  brokerage  revenue  once the  trade is  consummated  and the
earnings process is complete.  Fees for investment banking advisory services and
consulting  assignments  are recognized when services for the  transactions  are
substantially  completed  under  the  terms of the  engagement,  fees  from such
services  are  fixed  or   determinable,   and  their  collection  is  probable.
Transaction-related expenses to date have been expenses as incurred.

     We maintain  an  allowance  for  doubtful  accounts  for  estimated  losses
resulting from the inability of our customers to make required payments.  If the
financial  condition  of our  customers  were to  deteriorate,  resulting  in an
impairment  of their  ability to make  payments,  additional  allowances  may be
required.

                                       7
<PAGE>

     We utilize the  Black-Scholes  option  pricing  model to estimate  the fair
value of stock options and warrants granted to non-employees.  The Black-Scholes
option  pricing  model was  developed  for use in  estimating  the fair value of
traded options that have no vesting restrictions and are fully transferable.  In
addition,   option  pricing  models  require  the  input  of  highly  subjective
assumptions  including  the expected  stock price  volatility.  We use projected
volatility rates, which are based upon historical  volatility rates trended into
future years. Our stock options and warrants have characteristics  significantly
different  from those of traded  options,  and changes in the  subjective  input
assumptions can materially affect the fair value estimates.

     We have  concluded  that it is more likely than not that our  deferred  tax
assets  as of June 30,  2002 will not be  realized  based on the  scheduling  of
deferred  tax  liabilities  and  projected  taxable  income.  The  amount of the
deferred  tax  assets  actually  realized,  however,  could  vary if  there  are
differences in the timing or amount of future reversals of existing deferred tax
liabilities or changes in the actual amounts of future taxable income. Should we
determine  that we will be able to realize all or part of our deferred tax asset
in the future,  an  adjustment to the deferred tax asset will be recorded in the
period such determination is made.

Results of Operations

Overview

     Our results of operations  for the three and six months ended June 30, 2002
are  significantly  different from those of the  comparable  periods in 2001. We
transitioned   our  strategy  during  2001  away  from  the   hardware-intensive
facilitation of brokering  telecommunications  bandwidth through our own network
hubs to operating a securities  broker-dealer  and aggregating  price and market
data  related to  bandwidth  and other  emerging  commodities  for sale to third
parties.  We  began  operating  RTX  Securities   Corporation,   a  wholly-owned
subsidiary,   in  January  2002  by  offering  sales  and  trading  services  to
institutions  and private clients,  as well as, advisory and investment  banking
services to our corporate  clients.  The overall level of our  expenditures  has
decreased as a result of this change in our business strategy.

     Additionally, the results of our continuing operations for the three months
and six months  ended June 30, 2002 and 2001  exclude  the revenue and  expenses
attributed to RMG. The results of operations related to RMG have been separately
reported as discontinued operations.

Three Months ended June 30, 2002 Compared to Three Months ended June 30, 2001

Revenue

     Revenue from  continuing  operations  was $2,009,000 and $71,000 during the
three months ended June 30, 2002 and 2001, respectively. The increase in revenue
of approximately  $1,938,000, or 2,730%, from 2001 to 2002 was attributed to our
securities  broker-dealer   operations.   Commissions  for  buying  and  selling
securities  on our  customer's  behalf  amounted to  $1,679,000,  or 84%, of our
revenue  during the three months ended June 30, 2002.  This  represented  a 221%
sequential  increase over the $523,000  recognized during the three months ended
March 31, 2002.  The higher  revenue was primarily  attributed to an increase in
the number of active client accounts  during the second  quarter 2002, and first
quarter  brokerage  activity  did  not  begin  until  February  2002.  Principal
transaction revenue, including proprietary trading for our own account, amounted
to $106,000,  or 5%, of our revenue during the three months ended June 30, 2002.
This represented a 471% sequential  increase over the $19,000  recognized during
the three months ended March 31, 2002.  Investment  banking revenue  amounted to
$221,000,  or 11%, of our revenue  during the three  months ended June 30, 2002.
This represented a 760% sequential  increase over the $26,000  recognized during
the three months  ended March 31,  2002.  Investment  banking  revenue  resulted
primarily  from advisory  service fees in  connection  with the closing of three
initial fund raising transactions.

     Revenue from continuing  operations  during the three months ended June 30,
2001 consisted mostly of  telecommunications  bandwidth trading fees. We did not
transact any of these services  during 2002.  During the three months ended June
30,  2002,  one  customer  accounted  for  38% of our  revenue  from  continuing
operations,  while no single customer accounted for more than 10% of our revenue
from continuing operations during the three months ended June 30, 2001.

                                       8
<PAGE>

Compensation and Benefits

     Compensation and benefits expense was $1,479,000 and $2,535,000  during the
three  months  ended  June 30,  2002 and 2001,  respectively.  The  decrease  of
approximately  $1,056,000,  or 42%,  from 2001 to 2002 was due to a decrease  in
non-cash  stock-based  compensation of $828,000 and a decrease in headcount from
34 in June 2001 to 26 in June 2002,  partially offset by higher  commissions and
variable   compensation.   Compensation  and  benefits  expense   increased  23%
sequentially  from $1,204,000 during the first quarter 2002 to $1,479,000 during
the  second  quarter  2002.  The  increase  was  due  to  higher  headcount  and
commissions and variable compensation.

Brokerage and Clearing Fees

     Brokerage  and clearing  fees were  $238,000 and $0 during the three months
ended June 30, 2002 and 2001, respectively.  RTX Securities is a fully-disclosed
broker-dealer, which has engaged a third party clearing broker to perform all of
the clearance functions.  The clearing  broker-dealer  processes and settles the
customer  transactions  for RTX Securities  and maintains the detailed  customer
records.   Additionally,   security   trades   are   executed   by   third-party
broker-dealers and electronic  trading systems.  We did not incur these expenses
during the three months ended June 30, 2001 since RTX  Securities  was formed in
December  2001.  Brokerage and clearing fees  increased  51%  sequentially  from
$158,000  during the first  quarter 2002 to $238,000  during the second  quarter
2002.  The  increase  was directly  related to the higher  securities  brokerage
activities.

Professional Services

     Professional  services  expense was $130,000 and $516,000  during the three
months ended June 30, 2002 and 2001, respectively. The decrease of approximately
$386,000,  or 75%,  from  2001 to  2002  was  primarily  attributed  to  outside
consulting  services incurred in connection with our bandwidth trading business.
Professional services expense decreased 7% sequentially from $140,000 during the
first  quarter  2002 to  $130,000  during the second  quarter  2002.  The higher
professional  services  expense  in the  first  quarter  was  due  primarily  to
consulting costs incurred in establishing the broker-dealer operations.

Occupancy and Equipment

     Occupancy and equipment expense was $45,000 and $1,679,000 during the three
months ended June 30, 2002 and 2001, respectively. The decrease of approximately
$1,634,000,  or 97%,  from  2001 to 2002  was the  result  of costs  related  to
transporting  telecommunications  bandwidth  through our own network hubs during
2001.  Occupancy and equipment  expense  incurred in 2001 included  $919,000 for
equipment  rental,  $260,000 for hub  disposal  costs,  $150,000  for  equipment
expense, $95,000 for co-location costs, $91,000 for equipment delivery costs and
$90,000  for  office  rents.  Occupancy  and  equipment  expense  decreased  44%
sequentially  from $80,000  during the first quarter 2002 to $45,000  during the
second  quarter 2002.  The higher  occupancy and equipment  expense in the first
quarter was due mostly to  equipment  cost  incurred  to support the  securities
brokerage activities.

Communications and Technology

     Communications  and  technology  expense was $57,000 and $66,000 during the
three  months  ended  June 30,  2002 and 2001,  respectively.  The  decrease  of
approximately  $9,000, or 14%, from 2001 to 2002 was due to accounting  software
licenses  fees in 2001  that  were  not  incurred  in 2002.  Communications  and
technology  expense  increased 82%  sequentially  from $31,000  during the first
quarter 2002 to $57,000 during the second quarter 2002. The sequential  increase
was due to higher  telephone  and data  charges  resulting  from the  securities
brokerage activities.

Depreciation and Amortization

     Depreciation and amortization  expense was $100,000 and $459,000 during the
three  months  ended  June 30,  2002 and 2001,  respectively.  The  decrease  of
approximately $359,000, or 78%, from 2001 to 2002 was due mostly to depreciation
expense  recorded in 2001 for certain  software  assets that were disposed of in
late 2001.

                                       9
<PAGE>


Depreciation and  amortization  expense  increased 1% sequentially  from $99,000
during the first  quarter 2002 to $100,000  during the second  quarter  2002. We
purchased $3,000 of equipment during the second quarter 2002. We did not dispose
of any equipment or fixtures during the second quarter 2002.

Other Operating Expenses

     Other  operating  expense was $358,000 and $431,000 during the three months
ended  June 30,  2002 and 2001,  respectively.  The  decrease  of  approximately
$73,000, or 17%, from 2001 to 2002 was primarily  attributed to lower travel and
entertainment  costs.  Other operating  expense  increased 99% sequentially from
$180,000  during the first  quarter 2002 to $358,000  during the second  quarter
2002.  The  sequential  increase  resulted  primarily  from the  write-down of a
minority  equity  investment  in the  amount of  $75,000  and  higher  insurance
expense.

Interest Income

     Interest income was $12,000 and $122,000 during the three months ended June
30, 2002 and 2001, respectively. The decrease of approximately $110,000, or 90%,
from 2001 to 2002 was due to a lower average balance of interest earning assets,
which was  significantly  lower  during the three  months ended June 30, 2002 as
compared  to  the  similar  period  in  2001.   Interest  income  decreased  21%
sequentially  from $15,000  during the first quarter 2002 to $12,000  during the
second quarter 2002. The sequential  decrease was due to a lower average balance
of interest earning assets.

Interest Expense

     Interest  expense was  $364,000  and $12,000  during the three months ended
June 30, 2002 and 2001, respectively.  The 2002 amount consisted of $246,000 and
$118,000 for interest  expense and  amortization  of discounts and debt issuance
costs related to the convertible  notes payable issued during the fourth quarter
2001, respectively. Interest expense was unchanged from the first quarter 2002.

Other Expense

     Other  expense was $0 and  $200,000  during the three months ended June 30,
2002 and 2001,  respectively.  The 2001 amount  represented  the write-down of a
minority equity investment.

Income from Discontinued Operations

     Income from  discontinued  operations  was $0 and $29,000  during the three
months  ended June 30, 2002 and 2001,  respectively.  Income  from  discontinued
operations in 2001 was comprised of revenue, expenses and interest income in the
amount  of  $300,000,  $273,000  and  $2,000,  respectively.   The  discontinued
operations were sold in April 2002.

Six Months ended June 30, 2002 Compared to Six Months ended June 30, 2001

Revenue

     Revenue from  continuing  operations was $2,601,000 and $110,000 during the
six months ended June 30, 2002 and 2001,  respectively.  The increase in revenue
of approximately  $2,491,000, or 2,265%, from 2001 to 2002 was attributed to our
securities  broker-dealer   operations.   Commissions  for  buying  and  selling
securities  on our  customer's  behalf  amounted to  $2,201,000,  or 85%, of our
revenue  during  the six  months  ended  June 30,  2002.  Principal  transaction
revenue,  including  proprietary  trading  for  our  own  account,  amounted  to
$125,000,  or 5%, of our  revenue  during  the six months  ended June 30,  2002.
Investment  banking revenue  amounted to $246,000,  or 9%, of our revenue during
the six  months  ended  June  30,  2002.  Investment  banking  revenue  resulted
primarily  from advisory  service fees in  connection  with the closing of three
initial transactions.

     Revenue  from  continuing  operations  during the six months ended June 30,
2001 consisted mostly of  telecommunications  bandwidth trading fees. We did not
transact any of these services during 2002. During the six months ended June 30,
2002, one customer accounted for 37% of our revenue from continuing  operations,
while no  single  customer  accounted  for more  than  10% of our  revenue  from
continuing operations during the six months ended June 30, 2001.

                                       10
<PAGE>

Compensation and Benefits

     Compensation and benefits expense was $2,683,000 and $5,399,000  during the
six  months  ended  June 30,  2002  and  2001,  respectively.  The  decrease  of
approximately  $2,716,000,  or 50%,  from 2001 to 2002 was due to a decrease  in
non-cash stock-based compensation of $2,089,000 and a decrease in headcount from
34 in June 2001 to 26 in June 2002,  partially offset by higher  commissions and
variable compensation.

Brokerage and Clearing Fees

     Brokerage  and  clearing  fees were  $396,000  and $0 during the six months
ended June 30, 2002 and 2001, respectively.  RTX Securities is a fully-disclosed
broker-dealer, which has engaged a third party clearing broker to perform all of
the clearance functions.  The clearing  broker-dealer  processes and settles the
customer  transactions  for RTX Securities  and maintains the detailed  customer
records.   Additionally,   security   trades   are   executed   by   third-party
broker-dealers and electronic  trading systems.  We did not incur these expenses
during the six months  ended June 30,  2001 since RTX  Securities  was formed in
December 2001.

Professional Services

     Professional  services  expense was $270,000  and  $750,000  during the six
months ended June 30, 2002 and 2001, respectively. The decrease of approximately
$480,000,  or 64%,  from  2001 to  2002  was  primarily  attributed  to  outside
consulting  services  incurred in connection with our bandwidth trading business
and  lower  legal  fees.  Legal  costs  during  2001  resulted  in part from the
preparation  of our  registration  statement in connection  with an  uncompleted
secondary equity offering.

Occupancy and Equipment

     Occupancy and equipment  expense was $125,000 and $3,784,000 during the six
months ended June 30, 2002 and 2001, respectively. The decrease of approximately
$3,659,000,  or 97%,  from 2001 to 2002 was the  result of costs  related to the
transporting  telecommunications  bandwidth  through our own network hubs during
2001.  Occupancy and equipment expense incurred in 2001 included  $1,378,000 for
equipment  rental,  $1,168,000  for  co-location  costs,  $443,000 for equipment
expense,  $260,000  for hub disposal  costs,  $190,000  for  development  of our
electronic trading system,  $91,000 for equipment delivery costs and $90,000 for
office  rents.  Occupancy  and  equipment  expense  incurred  in 2002  consisted
primarily of office rents.

Communications and Technology

     Communications  and technology  expense was $88,000 and $184,000 during the
six  months  ended  June 30,  2002  and  2001,  respectively.  The  decrease  of
approximately  $96,000, or 52%, from 2001 to 2002 was due to accounting software
licenses fees in 2001 that were not incurred in 2002.

Depreciation and Amortization

     Depreciation and amortization  expense was $199,000 and $855,000 during the
six  months  ended  June 30,  2002  and  2001,  respectively.  The  decrease  of
approximately $656,000, or 77%, from 2001 to 2002 was due mostly to depreciation
expense  recorded in 2001 for certain  software  assets that were disposed of in
late 2001.

Other Operating Expenses

     Other operating  expense was $538,000 and $2,300,000  during the six months
ended  June 30,  2002 and 2001,  respectively.  The  decrease  of  approximately
$1,762,000,  or 77% from 2001 to 2002 was primarily  attributed to lower outside
services, travel and entertainment costs, marketing expenses and property taxes.

Interest Income

     Interest  income was $28,000 and $272,000  during the six months ended June
30, 2002 and 2001, respectively. The decrease of approximately $244,000, or 90%,
from 2001 to 2002 was due to a lower average

                                       11
<PAGE>

balance of interest  earning assets,  which was  significantly  lower during the
three months ended June 30, 2002 as compared to the similar period in 2001.

Interest Expense

     Interest  expense was $728,000 and $12,000 during the six months ended June
30, 2002 and 2001,  respectively.  The 2002  amount  consisted  of $492,000  and
$236,000 for interest  expense and  amortization  of discounts and debt issuance
costs related to the convertible  notes payable issued during the fourth quarter
2001, respectively.

Other Expense

     Other expense was $0 and $744,000 during the six months ended June 30, 2002
and 2001, respectively. The 2001 amount represented the write-down of a minority
equity investment.

Income from Discontinued Operations

     Income from discontinued operations was $33,000 and $329,000 during the six
months  ended June 30, 2002 and 2001,  respectively.  Income  from  discontinued
operations  in 2002 was  comprised  of  revenue  and  expenses  in the amount of
$730,000 and $697,000, respectively. Income from discontinued operations in 2001
was  comprised  of  revenue,  expenses  and  interest  income  in the  amount of
$600,000,  $273,000 and $2,000,  respectively.  The discontinued operations were
sold in April 2002.

Liquidity and Capital Resources

     As of June 30, 2002,  our  principal  source of liquidity  was our cash and
cash  equivalents  and  marketable  securities,   amounting  to  $3,101,000  and
$232,000, respectively.

     Cash used in our operating  activities during the six months ended June 30,
2002 and 2001 was  $1,311,000  and  $9,433,000,  respectively.  Cash used in our
operations  in 2002  was  primarily  attributable  to a net  loss  adjusted  for
non-cash charges related to stock-based compensation,  amortization of discounts
on convertible notes payable,  amortization of debt issuance costs, depreciation
and  amortization,  loss on  securities  and  changes  in  operating  assets and
liabilities.

     Cash provided by our investing  activities during the six months ended June
30, 2002 was $76,000, while cash provided by our investing activities during the
six months ended June 30, 2001 was $11,506,000.  Investment  activities  include
the  purchase of  short-term  investments  of  $1,926,000  in 2002,  purchase of
equipment  and fixtures of $3,000 and  $589,000 in 2002 and 2001,  respectively,
proceeds from the sale of short-term  investments of $1,705,000 and  $12,095,000
in 2002 and  2001,  respectively,  and  proceeds  from the sale of  discontinued
operations of $300,000 in 2002.

     Cash used in our financing  activities during the six months ended June 30,
2002 and 2001 was $23,000 and $0, respectively.  Financing activities consist of
additional  debt  issuance  costs  paid  in  2002  related  to our  issuance  of
convertible notes payable during the fourth quarter of 2001.

     We  believe  that  our  existing  cash  balances  and  investments  will be
sufficient  to meet our  liquidity and capital  spending  requirements  at least
through the end of the first quarter 2003.  However,  we have been  unprofitable
since  inception,  have  incurred net losses in each year and, to date,  we have
generated only limited revenues. Furthermore, our funding of working capital and
current and future operating losses may require additional  capital  investment.
We cannot be certain that additional debt or equity  financing will be available
when required or, if available,  that we can secure it on terms  satisfactory to
us.

Risk Factors

     Investing in our securities  involves a high degree of risk. In addition to
the other information  contained in this quarterly report,  including reports we
incorporate  by  reference,  you should  consider the following  factors  before
investing in our securities.

                                       12
<PAGE>

It is difficult to evaluate our business and prospects because we have a limited
operating history in a new and rapidly changing industry.

     In December 2001 we acquired a securities  broker-dealer firm and created a
wholly-owned  subsidiary,  RTX  Securities  Corporation,   that  began  actively
engaging in providing  securities  brokerage and investment  banking services in
January 2002. 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.  We cannot  assure you 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.

     Our ability to attain a positive cash flow and become profitable depends on
our ability to generate and maintain greater revenues while incurring reasonable
expenses.  This, in turn, depends, among other things, on the development of our
securities brokerage and investment banking business, as well as our ability to:

     o   establish, maintain and increase our client base;

     o   manage  the  quality  of  services   delivered  by  us  supporting  our
         securities brokerage and investment banking business;

     o   compete effectively with existing and potential competitors;

     o   further develop our business model;

     o   manage expanding operations; and

     o   attract and retain qualified personnel.

     If we do  achieve  a  positive  cash flow and  profitability,  we cannot be
certain  that we will be able to  sustain or  increase  them on a  quarterly  or
annual basis in the future.  Our inability to achieve or maintain  profitability
or positive cash flow could result in disappointing  financial  results,  impede
implementation  of our growth  strategy or cause the market  price of our common
stock to  decrease.  Accordingly,  we cannot  assure you that we will be able to
generate   the  cash  flow  and  profits   necessary  to  sustain  our  business
expectations,  which makes our ability to  implement  successfully  our business
plan uncertain.

     Because we are a developing company,  the factors upon which we are able to
base our  estimates  as to the gross  revenues  and the number of  participating
clients  that will be  required  for us to attain a  positive  cash flow and any
additional financing that may be needed for this purpose, are unpredictable.  In
addition,  the emerging  commodities part of our business is in an industry that
is new and rapidly changing.  For these and other reasons,  we cannot assure you
that we will not require  higher  gross  revenues,  and an  increased  number of
clients,  securities  brokerage and investment  banking  transactions,  emerging
commodity  transactions  and/or  more  time  in  order  for us to  complete  the
development  of our  business  that we  believe  we need to be able to cover our
operating  expenses,  or obtain the funds necessary to finance this development.
It is more  likely  than not  that our  estimates  will  prove to be  inaccurate
because  actual  events  more  often than not differ  from  anticipated  events.
Furthermore,  in the event that  financing  is needed in  addition to the amount
that is required for this development,  we cannot assure you that such financing
will be available on acceptable  terms, if at all.  Accordingly,  we can neither
assure nor represent to you that our business will ever generate a positive cash
flow or be profitable.

We have a history of operating  losses and negative  cash flow and we anticipate
losses and negative cash flow to continue for the foreseeable future.  Unless we
are  able to  generate  profits  and  positive  cash  flow we may not be able to
continue operations.

     We have incurred net losses since our inception and financed our operations
primarily through sales of equity and debt securities. We incurred net losses of
$30,072,000,  $44,729,000  and $9,299,000 for the years ended December 31, 2001,
2000  and  1999,  respectively,  and  negative  cash  flow  from  operations  of
$11,762,000, $17,161,000 and $3,070,000 in 2001, 2000 and 1999, respectively. We
have incurred net losses and negative  cash flows from  operations of $2,365,000
and  $1,311,000  for the six months ended March 31, 2002. At June 30, 2002,  our
accumulated deficit since inception was $90,232,000.  We expect operating losses
and negative  cash flow to continue  for the  foreseeable  future.  We may never
achieve a  positive  cash flow and

                                       13
<PAGE>

profitability  and  even if we do,  we may not  sustain  or  increase  them on a
quarterly or annual basis in the future. If we are unable to achieve and sustain
a  positive  cash  flow and  profitability,  we may be unable  to  continue  our
operations.

The markets for securities  brokerage and investment banking services are highly
competitive.  If we are not able to compete  successfully  against  current  and
future  competitors,  our business and results of  operations  will be adversely
affected.

     The  markets  for  securities   brokerage,   investment  banking  and  data
aggregation  for emerging  commodities  are highly  competitive.  Our ability to
compete  with other  companies  will depend  largely upon our ability to capture
market share by obtaining  sufficient customers for our securities brokerage and
investment banking services and participants for the RateXchange Trading System.

     Increased pressure created by any current or future competitors,  or by our
competitors collectively, could materially and adversely affect our business and
results of operations.  Increased  competition may result in reduced revenue 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 also could materially and adversely
affect our business and results of operations. We cannot assure you 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 have registered one of our subsidiaries as a securities broker-dealer and, as
such,  are subject to substantial  regulations.  If we fail to comply with these
regulations, our business will be adversely affected.

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

Our business may suffer if we lose the services of our executive officers, or if
we cannot recruit and retain additional skilled personnel.

     We  depend  on  the  continued  services  and  performance  of D.  Jonathan
Merriman,  our Chairman and Chief Executive  Officer for our future success.  We
currently have an employment agreement with Mr. Merriman,  which ends on October
8, 2003 but can be terminated by either party on 60 day's notice.  The agreement
contains  provisions  that obligate us to make certain  payments to Mr. Merriman
and substantially  reduce vesting periods of options granted to him if we should
terminate him without cause or certain  events  resulting in a change of control
of our board were to occur.  Pursuant to an  amendment to the  agreement,  which
became  effective as of  September  28, 2001,  Mr.  Merriman  reduced his annual
salary from $300,000 to $1.00.  Upon the  consummation of the sale of the assets
of our futures  trading  subsidiary and the  consummation  of our recent private
financing, Mr. Merriman's annual salary has increased to $150,000.

     In addition to Mr. Merriman,  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

                                       14
<PAGE>

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.  Our business could be harmed if any key
officer or employee  were unable or  unwilling to continue in his or her current
position.  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. If we are unable to retain
our key  employees  or  attract,  integrate  or retain  other  highly  qualified
employees in the future,  such failure may have a material adverse effect on our
business and results of operations.

     We have a number of revenue producers employed by our securities  brokerage
and investment  banking  subsidiary.  We do not have  employment  contracts with
these  employees.  The loss of one or more of these  employees  could  adversely
affect our business and results of operations.

We may be unable to  effectively  manage  rapid  growth that we may  experience,
which  could  place a  continuous  strain  on our  resources  and,  accordingly,
adversely affect our business.

     We plan to expand our  operations.  Our growth,  if it occurs,  will impose
significant demands on our management, financial, technical and other resources.
We must adapt to changing  business  conditions and improve  existing systems or
implement  new systems for our  financial  and  management  controls,  reporting
systems and procedures and expand,  train and manage a growing  employee base in
order to manage our future growth.  Furthermore,  we may acquire technologies or
products or enter into  strategic  alliances,  in order to achieve rapid growth.
For us to succeed,  we must make our existing  technology,  business and systems
work  effectively  with those of any strategic  partners  without undue expense,
management  distraction or other disruptions to our business. We may be required
to maintain and expand our relationships with various software vendors, Internet
and other online  service  providers  and other third  parties  necessary to our
business in order for us to succeed.  We may be unable to implement our business
plan if we fail to manage any of the above growth challenges  successfully.  Our
financial  results may suffer and we could be materially and adversely  affected
if that occurs.

We may not be able to protect  and  enforce  our  intellectual  property  rights
relating to our RateXchange  Trading  System,  which could result in the loss of
these rights, loss of business or increased costs.

     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 materially  adversely affect our business and results of
operations.

     Third  parties may claim that our business  activities  infringe upon their
proprietary  rights. From time to time in the ordinary course of business we may
be subject to claims of  infringement  of third  parties'  trademarks  and other
intellectual  property  rights.  Such  claims  could  subject us to  significant
liability and result in  invalidation of our  proprietary  rights.  These claims
could also be time-consuming and expensive to defend,  even if we ultimately are
not found liable.  In addition,  these claims could divert our management's time
and attention from the operation of our business.

Our  RateXchange  Trading System  business is dependent on the  development  and
maintenance of the Internet infrastructure.

                                       15
<PAGE>

     Our  RateXchange  Trading  System  success will depend,  in part,  upon the
development and maintenance of the Internet infrastructure as a reliable network
backbone  with the  necessary  speed,  data  capacity and  security,  and timely
development  of enabling  products,  such as  high-speed  modems,  for providing
reliable  Internet  access and services.  We cannot assure you that the Internet
infrastructure  will continue to effectively support the demands placed on it as
the  Internet  continues  to  experience  increased  numbers  of users,  greater
frequency  of use or  increased  bandwidth  requirements  of users.  Even if the
necessary  infrastructure  or technologies are developed,  we may have to expend
considerable resources to adapt our offerings accordingly.  Furthermore,  in the
past,  the Internet has  experienced a variety of outages and other delays.  Any
future  outages or delays  could  affect our  ability to use the  Internet  as a
successful  trading  medium  for  our  broker-dealer  and  emerging  commodities
businesses. Our business, results of operations and financial condition could be
materially and adversely affected if any of these events occur.

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

     Our  success,   in  particular  our  ability  to  successfully   facilitate
securities  brokerage  transactions 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. Any
of the foregoing  problems  could  materially  adversely  affect our business or
future results of operations.

We may incur  liability for information  retrieved from or transmitted  over the
Internet because our business involves the transmission of information.

     We may be subject to claims relating to information  that is posted or made
available  on  our  web  site,  including  claims  for  defamation,   obscenity,
negligence,  or copyright or trademark  infringement.  We also may be subject to
claims based on the nature,  publication or distribution of our content or based
on errors or false or  misleading  information  provided on our web site.  These
types of claims  have  been  brought,  sometimes  successfully,  against  online
services in the past.  We could also be sued for the content that is  accessible
from  our web site  through  links to other  Internet  sites.  Although  we have
commercial  general liability  insurance with $1 million coverage per occurrence
and $2 million in the aggregate,  an umbrella policy with $5 million of coverage
and errors and omissions and directors and officers coverage,  awards may exceed
these  amounts.  Our insurance may not provide for coverage for certain of these
types of claims and,  therefore,  may not adequately protect us against them. In
addition,  we could incur  significant costs in investigating and defending such
claims,  even if we ultimately  are not found liable.  Our business,  results of
operations and financial condition could be materially and adversely affected if
any of these events occur.

Computer viruses may cause our systems to incur delays or interruptions  and may
increase our expenses or liabilities.

     Computer  viruses  may cause our systems to incur  delays or other  service
interruptions,  which may cause us to incur  additional  operating  expenses  to
correct problems we may experience. In addition, the inadvertent transmission of
computer  viruses could expose us to a material  risk of loss or litigation  and
possible  liability.  Moreover,  if a  computer  virus  affecting  our system is
publicly  disclosed,  our reputation could be materially damaged and our visitor
traffic may decrease.

Your ability to sell your shares may be  restricted  because  there is a limited
trading market for our common stock.

     Although  our  common  stock is  currently  traded  on the  American  Stock
Exchange, a trading market in our stock has been sporadic.  Accordingly, you may
not be able to sell your shares when you want or at the price you want.

Our common stock price may be volatile,  which could adversely  affect the value
of your shares.

                                       16
<PAGE>
     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   variations in quarterly operating results;

     o   our announcements of significant contracts, milestones, acquisitions;

     o   our relationships with other companies;

     o   our ability to obtain needed capital commitments;

     o   additions or departures of key personnel;

     o   sales of common stock or termination of stock transfer restrictions;

     o   general  economic  conditions,  including  conditions in the securities
         brokerage and investment banking and telecommunications markets;

     o   changes in financial estimates by securities analysts; and

     o   fluctuations in stock market price and volume.

     The last four factors are beyond our control.  Any one of the factors noted
herein could have an adverse effect on the value of our common stock.

     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 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.

     In the past,  following  periods of  volatility  in the  market  price of a
company's  securities,   securities  class  action  litigation  often  has  been
instituted  against that  company.  Such  litigation  is  expensive  and diverts
management's  attention and resources.  We cannot assure you that we will not be
subject to such litigation.

Your  ability to sell your  shares  could be  significantly  adversely  affected
because our common stock could be delisted  from  trading on the American  Stock
Exchange.

     Although  our common  stock is listed for  trading  on the  American  Stock
Exchange,  it could be  delisted  because  we may be unable to  satisfy  certain
American Stock Exchange listing guidelines  including earnings per share, market
price and  stockholders'  equity criteria.  We cannot assure you that we will be
able to satisfy these guidelines on a continuing basis. Accordingly, although we
have received no communication  from the American Stock Exchange with respect to
this matter,  we cannot  represent to you that our common stock will continue to
be listed.  If the listing is not retained  and our common  stock is  thereafter
quoted only on the OTC Electronic  Bulletin Board, a  significantly  less liquid
market than the American  Stock  Exchange,  a stockholder  may find it even more
difficult to dispose of, or to obtain  accurate  quotations  as to the price of,
the common stock.  In addition,  depending on several factors  including,  among
others,  the future market price of our common  stock,  these  securities  could
become subject to the so-called "penny stock" rules that impose additional sales
practice and market making requirements on broker-dealers who sell and/or make a
market in such securities. These factors could affect the ability or willingness
of  broker-dealers  to sell  and/or  make a market in our  common  stock and the
ability of  purchasers of our common stock to sell their shares in the secondary
market. A delisting could also negatively affect our ability to raise additional
capital in the future.

Anti-takeover   provisions  of  the  Delaware  General   Corporation  Law  could
discourage  a merger or other type of  corporate  reorganization  or a change in
control even if it could be favorable to the interests of our stockholders.

     The Delaware  General  Corporation Law contains  provisions that may enable
our  management  to retain  control and resist our  takeover.  These  provisions
generally  prevent us from  engaging in a broad  range of business  combinations
with an owner of 15% or more of our  outstanding  voting  stock  for a period of
three  years  from  the  date  that  such  person  acquires  his or  her  stock.
Accordingly,  these  provisions could discourage or make more difficult a change
in  control  or a merger or other type of  corporate  reorganization  even if it
could be favorable to the interests of our stockholders.

Because our board can issue common stock without stockholder approval, you could
experience substantial dilution.

                                       17
<PAGE>

     Our board of directors has the authority to issue up to 300,000,000  shares
of common  stock and to issue  options and  warrants  to purchase  shares of our
common stock without  stockholder  approval.  Future  issuance of our additional
shares of common stock could be at values substantially below the price at which
you may purchase our stock and,  therefore,  could represent further substantial
dilution to investors in this offering. In addition, our board could issue large
blocks  of our  common  stock to fend off  unwanted  tender  offers  or  hostile
takeovers without further stockholder approval.

Our  ability to issue  preferred  stock may  adversely  affect  your rights as a
common stockholder and be used as an anti take-over device.

     Our Articles of Incorporation  authorize our board of directors to issue up
to 60,000,000  shares of preferred stock without approval from our stockholders.
If you purchase our common stock, this means that the board of directors has the
right, without your approval as a common stockholder, to fix the relative rights
and  preferences  of the  preferred  stock.  This would  affect your rights as a
common stockholder regarding, among other things, dividends and liquidation.  We
could also use the preferred  stock to deter or delay a change in control of our
company that may be opposed by our management even if the  transaction  might be
favorable to you as a common stockholder.

Our officers and directors exercise significant control over our affairs,  which
could result in their taking actions of which other stockholders do not approve.

     Our  executive  officers  and  directors,  current and past,  and  entities
affiliated with them,  currently  control  approximately  25% of our outstanding
common stock prior to any conversion of any outstanding notes and/or exercise of
options and warrants. These stockholders,  if they act together, will be able to
exercise  substantial  influence  over all  matters  requiring  approval  by our
stockholders,  including the election of directors  and approval of  significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or  preventing a change in control of us and might affect the market
price of our common stock.

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

     We have a significant  number of outstanding  options and warrants.  Shares
issuable  upon the exercise of these  options and  warrants,  at prices  ranging
currently from approximately $0.25 to $14.40 per share, represent  approximately
71% of our total outstanding stock on a fully diluted basis. 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,  such as sales by the
selling  stockholders  pursuant  to  this  prospectus,  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 them at a time when we would also
wish to enter the market to obtain  capital on terms more  favorable  than those
provided by such  options and  warrants.  We lack control over the timing of any
exercise or the number of shares issued or sold if exercises occur.


Members of our Advisory  Board may have  conflicting  interests and may disclose
data and technical knowledge to our competitors.

     Some of our Advisory  Board members are employed by other  entities,  which
may include our  competitors.  Although we require  each of our  Advisory  Board
members to sign a non-disclosure and  non-competition  agreement with respect to
the data and  information  that he or she receives from us, we cannot assure you
that members will abide by them. If a member were to reveal this  information to
outside sources,  accidentally or otherwise,  our operations could be negatively
affected.  Since our  business  depends in large part on our ability to keep our
know-how  confidential,  any  revelation of this  information to a competitor or
other source could have an adverse effect on our operations.

                                       18
<PAGE>

Forward-Looking Statements

     Some of the statements  contained,  or incorporated  by reference,  in this
quarterly report discuss future expectations,  contain projections of results of
operations or financial condition or state other "forward-looking"  information.
Those statements are subject to known and unknown risks, uncertainties and other
factors  that could  cause the actual  results to differ  materially  from those
contemplated by the statements.  The  "forward-looking"  information is based on
various factors and was derived using numerous  assumptions.  In some cases, you
can identify these so-called  "forward-looking  statements" by words like "may,"
"will," "should," "expects," "plans,"  "anticipates,"  "believes,"  "estimates,"
"predicts,"  "potential"  or "continue" or the negative of those words and other
comparable  words.  You should be aware that those  statements  only reflect our
predictions.  Actual  events or  results  may  differ  substantially.  Important
factors that could cause our actual results to be materially  different from the
forward-looking  statements are disclosed  throughout this report,  particularly
under the heading "Risk Factors".

                                       19
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The   following   discussion   about  market  risk   disclosures   involves
forward-looking  statements.  Actual results could differ  materially from those
projected in the forward-looking  statements.  We may be exposed to market risks
related  to  changes  in equity  prices,  interest  rates and  foreign  currency
exchange rates. We do not use derivative  financial  instruments for speculative
or trading purposes.

Equity Price Risk

     The potential  for changes in the market value of our trading  positions is
referred to as "market  risk." Our  trading  positions  result from  proprietary
trading  activities.  Equity  price risks  result from  exposures  to changes in
prices and  volatilities of individual  equities and equity indices.  We seek to
manage this risk  exposure  through  diversification  and  limiting  the size of
individual positions within the portfolio. We do not establish hedges in related
securities or derivatives.

Interest Rate Risk

     Our  exposure  to market risk  resulting  from  changes in  interest  rates
relates  primarily to our investment  portfolio and long term debt  obligations.
Our  interest  income and cash flows may be  impacted  by changes in the general
level of U.S.  interest rates. We do not hedge this exposure  because we believe
that  we are  not  subject  to any  material  market  risk  exposure  due to the
short-term  nature of our  investments.  We would not  expect an  immediate  10%
increase or decrease in current  interest rates to have a material effect on the
fair market value of our investment portfolio.

     Our long term debt obligations bear interest at a fixed rate.  Accordingly,
an immediate 10% increase or decrease in current  interest  rates would not have
an impact on our  interest  expense or cash flows.  The fair market value of our
long term fixed interest rate debt is subject to interest rate risk.  Generally,
the fair  market  value of fixed  interest  rate debt will  increase as interest
rates fall and decrease as interest rates rise. We would not expect an immediate
10% increase or decrease in current  interest rates to have a material impact on
the fair market value of our long term debt obligations.

Foreign Currency Risk

     We do not have any foreign  currency  denominated  assets or liabilities or
purchase  commitments and have not entered into any foreign currency  contracts.
Accordingly,  we are not exposed to  fluctuations in foreign  currency  exchange
rates.

                                       20
<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     Martin v.  Ratexchange  - On October 3, 2001,  Gregory  Martin and Patricia
Whitney filed a lawsuit  against  Ratexchange  Corporation  in the United States
District Court for the Western District of Washington, C01-1565R alleging breach
of  contract.  In 1998,  Mr.  Martin  was the  President  and CEO of  NetAmerica
International  Corporation (NAMI), a predecessor of Ratexchange Corporation.  In
December of 1998, Mr. Martin was terminated  from his employment  with NAMI. The
claims allege breach of agreements associated with Mr. Martin's employment.  The
complaint asks for damages of approximately  $150,000. Mr. Martin had filed suit
previously in a Washington  State court.  That matter was dismissed  following a
settlement in May of 1999. Mr. Martin revived his claim against Ratexchange. The
revived Federal court complaint was settled in July 2002.  Ratexchange  will pay
Mr. Martin $65,000 in exchange for a release of all claims. We have recorded the
estimated loss exposure in the consolidated balance sheet as of June 30, 2002.

     Additionally,  from  time to time,  we are  involved  in  ordinary  routine
litigation incidental to our business.

ITEM 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

     None

(b)  Reports on Form 8-K

     None


                                       21
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.


                           RATEXCHANGE CORPORATION

July 30, 2002              By: /s/ D. JONATHAN MERRIMAN
                           ----------------------------
                           D. Jonathan Merriman,
                           Chairman of the Board and Chief Executive Officer
                           (Duly Authorized Officer)

July 30, 2002              By: /s/ GREGORY S. CURHAN
                           -------------------------
                           Gregory S. Curhan
                           Executive Vice President and Chief Financial Officer
                           (Principal Financial Officer)



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