Edgar Filing: BANKRATE INC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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. 0-25681

[Bankrate, Inc. LOGO]

(Exact name of registrant as specified in its charter)

Florida 65-0423422
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

11811 U.S. Highway One, Suite 101
North Palm Beach, Florida 33408
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (561) 630-2400

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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

The number of outstanding shares of the issuer's common stock as of July 31,
2001, is as follows: 13,996,950 shares of Common Stock, $.01 par value.

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Bankrate, Inc. and Subsidiary
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2001
Index

PART I. FINANCIAL INFORMATION PAGE NO.

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets at June 30, 2001 and
December 31, 2000......................................................... 3

Condensed Consolidated Statements of Operations for the three and
six months ended June 30, 2001 and 2000................................... 4

Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000.............................................. 5

Notes to Condensed Consolidated Financial Statements........................ 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 12

Item 3. Quantitative and Qualitative Disclosures About Market Risk.................. 21

PART II. OTHER INFORMATION

Item 1. Legal Proceedings........................................................... 21

Item 2. Changes in Securities and Use of Proceeds................................... 22

Item 3. Defaults Upon Senior Securities............................................. 22

Item 4. Submission of Matters to a Vote of Security Holders......................... 22

Item 5. Other Information........................................................... 22

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

Signatures............................................................................ 23

Item 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Bankrate, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)

June 30, December 31,
2001 2000
------------ ------------

Assets

Cash and cash equivalents $ 8,356,357 $ 8,890,649
Accounts receivable, net of allowance for doubtful accounts
of $300,000 at June 30, 2001 and December 31, 2000, respectively 1,441,515 1,218,867
Other current assets 187,189 572,185
------------ ------------
Total current assets 9,985,061 10,681,701

Furniture, fixtures and equipment, net 1,363,276 1,730,455
Intangible assets, net 83,243 88,425
Other 123,643 133,809
assets ------------ ------------

Total assets $ 11,555,223 $ 12,634,390
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Liabilities and Stockholders' Equity

Liabilities:
Accounts payable $ 600,846 $ 772,181
Other accrued expenses 1,712,321 2,016,236
Deferred revenue 294,116 463,224
Current portion of obligations under capital lease 122,848 214,651
Other current liabilities 191,807 158,672
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Total current liabilities 2,921,938 3,624,964

10% Convertible subordinated note payable 4,350,000 4,350,000
Accrued stock compensation expense 2,763,223 2,452,424
Accrued interest 810,363 592,863
Other liabilities 9,586 40,815
------------ ------------

Total liabilities 10,855,110 11,061,066
------------ ------------

Commitments and contingencies

Stockholders' equity:
Preferred stock, 10,000,000 shares authorized and undesignated - -
Common stock, par value $.01 per share -- 100,000,000 shares authorized; 13,996,950
shares issued and outstanding 139,969 139,969
Additional paid in capital 60,586,991 60,586,991
Accumulated deficit (60,026,847) (59,153,636)
------------ ------------
Total stockholders' equity 700,113 1,573,324
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Total liabilities and stockholders' equity $ 11,555,223 $ 12,634,390
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See accompanying notes to condensed consolidated financial statements.

Bankrate, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
Revenue: 2001 2000 2001 2000
----------- ----------- ----------- ------------

Online publishing $ 3,393,437 $ 3,046,146 $ 7,354,353 $ 6,060,545
Print publishing and licensing 807,954 749,501 1,592,713 1,491,390
----------- ----------- ----------- ------------
Total revenue 4,201,391 3,795,647 8,947,066 7,551,935
----------- ----------- ----------- ------------
Cost of revenue:
Online publishing 727,907 2,012,299 1,676,268 4,419,449
Print publishing and licensing 518,022 550,509 1,043,510 1,085,247
----------- ----------- ----------- ------------
Total cost of revenue 1,245,929 2,562,808 2,719,778 5,504,696
----------- ----------- ----------- ------------

Gross margin 2,955,462 1,232,839 6,227,288 2,047,239
----------- ----------- ----------- ------------

Operating expenses:
Sales 714,466 735,874 1,572,999 1,646,679
Marketing 716,474 1,175,548 1,797,865 3,000,488
Product development 320,450 568,488 686,557 1,162,963
General and administrative expenses 1,242,943 1,763,582 2,630,566 4,601,305
Restructuring charge - 1,298,097 - 1,298,097
Depreciation and amortization 187,105 232,025 381,570 455,276
Goodwill amortization - 73,593 - 147,186
----------- ----------- ----------- ------------
3,181,438 5,847,207 7,069,557 12,311,994
----------- ----------- ----------- ------------
Loss from operations (225,977) (4,614,368) (842,270) (10,264,755)
----------- ----------- ----------- ------------
Other income (expense):
Interest income 95,133 170,389 209,478 417,994
Interest expense (117,699) (124,126) (240,419) (247,695)
----------- ----------- ----------- ------------
Other income (expense), net (22,566) 46,263 (30,941) 170,299
----------- ----------- ----------- ------------
Loss before income taxes and
discontinued operations (248,543) (4,568,105) (873,211) (10,094,456)
Income taxes from continuing operations - - - -
----------- ----------- ----------- ------------
Loss before discontinued operations (248,543) (4,568,105) (873,211) (10,094,456)
Discontinued operations:
Loss from discontinued operations - (1,379,845) - (2,966,360)
----------- ----------- ----------- ------------
Net loss $ (248,543) $(5,947,950) $ (873,211) $(13,060,816)
=========== =========== =========== ============

Basic and diluted net loss per share:
Loss before discontinued operations $ (0.02) $ (0.33) $ (0.06) $ (0.73)
Discontinued operations - (0.10) - (0.21)
----------- ----------- ----------- ------------
Net loss $ (0.02) $ (0.43) $ (0.06) $ (0.94)
=========== =========== =========== ============

Weighted average shares outstanding used in
basic and diluted per-share calculation 13,996,950 13,960,937 13,996,950 13,828,246
=========== =========== =========== ============

See accompanying notes to condensed consolidated financial statements.

Bankrate, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Six Months Ended
June 30,
2001 2000
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Cash flows from operating activities:
Continuing operations-
Net loss $ (873,211) $(13,060,816)
---------- ------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss from discontinued operations - 2,966,360
Depreciation and amortization 381,570 602,462
Provision for doubtful accounts 33,253 151,055
Loss on disposal of fixed assets 3,065 -
Noncash stock compensation 310,800 1,014,600
Changes in operating assets and liabilities:
Increase in accounts receivable (255,901) (260,204)
Decrease in other assets 387,362 906,872
Decrease in accounts payable (171,335) (1,875,761)
Decrease in accrued expenses (300,923) (3,182,696)
Increase in other liabilities 250,635 233,832
Decrease in deferred revenue (169,108) (96,242)
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Total adjustments 469,418 460,278
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Net cash used in continuing operations (403,793) (12,600,538)
Net cash used in discontinued operations - (2,574,084)
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Net cash used in operating activities (403,793) (15,174,622)
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Cash flows from investing activities:
Purchases of equipment (7,467) (681,891)
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Net cash used in investing activities (7,467) (681,891)
---------- ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (123,032) (106,308)
Proceeds from sale of common stock - 997,840
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Net cash (used in) provided by financing activities (123,032) 891,532
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Net decrease in cash and cash equivalents (534,292) (14,964,981)
Cash and cash equivalents, beginning of period 8,890,649 22,491,794
---------- ------------
Cash and cash equivalents, end of period $8,356,357 $ 7,526,813
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Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 22,919 $ 30,195
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See accompanying notes to condensed consolidated financial statements.

BANKRATE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - ORGANIZATION AND ACCOUNTING POLICIES

The Company

Bankrate, Inc. (the "Company") is an Internet consumer finance marketplace
which owns and operates a portfolio of Internet-based personal finance channels
including banking, investing, taxes and small business finance. The Company's
flagship Web site, Bankrate.com, is an aggregator of information on over 100
financial products including mortgages, credit cards, new and used automobile
loans, money market accounts, certificates of deposit, checking and ATM fees,
home equity loans and online banking fees. Additionally, the Company provides
financial applications and information to a network of distribution partners and
also through national and state publications. The Company's former wholly owned
subsidiary, Professional Direct Agency, Inc. ("Pivot"), was operated as a
virtual insurance agency and fulfillment/call center specializing in direct
insurance sales over the Internet and through other direct media (see Note 4).
The Company is organized under the laws of the state of Florida.

On September 20, 2000, the Company changed its name from ilife.com, Inc. to
Bankrate, Inc.

The Company has incurred net losses in each of its last five fiscal years.
The Company had an accumulated deficit of approximately $60 million as of June
30, 2001. The Company anticipates that it will continue to incur operating
losses for the foreseeable future.

The Company is working to manage its cash by actively controlling expenses
and pursuing additional sources of revenue. For instance, the Company
substantially reduced marketing expenditures beginning in January 2000 compared
to the second half of 1999, and has followed through with plans to sell or
curtail development of certain under-performing, non-core business units. The
Company sold CPNet.com in May 2000, sold Pivot in July 2000 (see Note 4), shut
down and sold certain assets of Consejero.com in August 2000, and shut down
Greenmagazine.com in December 2000. These transactions yielded cash to the
Company of approximately $4,392,000 and have resulted in lower operating
expenses. The Company has also reduced employment levels of continuing
operations and consolidated its physical locations. Based on these actions and
the Company's current plan, the Company believes its existing capital resources
will be sufficient to satisfy its cash requirements into 2002. However, there
are no assurances that such actions will ensure cash sufficiency through 2002 or
that reducing marketing expenses would not potentially curtail revenue growth.

The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including a merger or sale of the
Company, or an acquisition; or raising new debt and/or equity capital. There
can be no assurance that the Company will be able to raise such funds or realize
its strategic alternatives on favorable terms or at all.

Further, due to the legal matters discussed in Note 3, which the Company
intends to vigorously defend, management could be required to spend significant
amounts of time and resources defending these matters, which may impact the
operations of the Company.

Basis of Presentation

The unaudited interim condensed consolidated financial statements for the
three and six months ended June 30, 2001 and 2000 included herein have been
prepared in accordance with the instructions for Form 10-Q under the Securities
Exchange Act of 1934, as amended, and Article 10 of Regulation S-X under the
Securities Act of 1933, as amended. Certain information and footnote disclosures
normally included in financial statements prepared in conformity with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements.

In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments, consisting only of
normal, recurring adjustments, necessary to present fairly the financial
position of the Company at June 30, 2001, and the results of its operations and
its cash flows for the three and six months ended June 30, 2001 and 2000,
respectively. The results for the three and six months ended June 30, 2001 are
unaudited and are not necessarily indicative of the expected results for the
full year or any future period.

The unaudited condensed consolidated financial statements included herein
should be read in conjunction with the financial statements and related
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, filed with the Securities and Exchange Commission.

Consolidation

Through the quarter ended June 30, 2000, the condensed consolidated
financial statements included the accounts of the Company and its former wholly
owned subsidiary, Pivot. As more fully discussed in Note 4, Pivot was sold
during the quarter ended September 30, 2000. Pivot's net assets and results of
operations have been classified as discontinued operations in the accompanying
condensed consolidated financial statements.

Barter Revenue

Online publishing revenue includes barter revenue, which represents the
exchange by the Company of advertising space on the Company's web site for
reciprocal advertising space on other web sites. Barter revenues and expenses
are recorded at the fair market value of the advertisements delivered or
received, whichever is more determinable in the circumstances. In January 2000,
the Company adopted Emerging Issues Task Force ("EITF") 99-17, "Accounting for
Advertising Barter Transactions." In accordance with EITF 99-17, barter
transactions have been valued based on similar cash transactions which have
occurred within six months prior to the date of the barter transaction. Revenue
from barter transactions is recognized as income when advertisements are
delivered on the Company's Web site. Barter expense is recognized when the
Company's advertisements are run on the other companies' Web sites, which is
typically in the same period barter revenue is recognized. If the advertising
impressions are received from the customer prior to the Company delivering the
advertising impressions, a liability is recorded. If the Company delivers
advertising impressions to the other companies' Web sites prior to receiving the
advertising impressions, a prepaid expense is recorded. At December 31, 2000,
the Company recorded prepaid expenses of approximately $200,000 for barter
advertising to be received. Barter revenue was approximately $592,000 and
$1,465,000, and represented approximately 14% and 16% of total revenue,
respectively, for the three and six months ended June 30, 2001. No barter
revenue was recorded in the six months ended June 30, 2000.

Net Loss Per Share

The Company computes net loss per share in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and Staff Accounting Bulletin No. 98 ("SAB 98"). Under SFAS 128 and
SAB 98, basic and diluted net loss per share is computed by dividing the net
loss available to common stock for the period by the weighted average number of
common shares outstanding for the period.

The calculation of diluted net loss per share excludes common stock
equivalents, consisting of outstanding stock options and a convertible
subordinated promissory note payable, as the effect of their conversion to
common stock would be antidilutive. Common stock equivalents that could
potentially dilute basic earnings per share in the future (but were not included
in diluted earnings per share because their effect on periods presented was
antidilutive) were 1,989,015 and 2,003,471, and 1,997,825 and 1,892,166, for the
three and six months ended June 30, 2001 and 2000, respectively. The
antidilutive shares do not include the shares issuable on assumed conversion of
the convertible subordinated note payable.

Recent Accounting Pronouncements

In September 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement was amended in September 2000 by Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
Statement No. 138 is effective for the Company beginning January 2001. The new
Statement requires all derivatives to be recorded on the balance sheet at fair
value and establishes accounting treatment for three types of hedges: hedges of
changes in the fair value of assets, liabilities or firm commitments: hedges of
the variable cash flows of forecasted transactions; and hedges of foreign
currency exposures of net investments in foreign operations. The Company has not
invested in derivative instruments nor has it participated in hedging activities
as of June 30, 2001.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. SFAS 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually. SFAS 141 is effective immediately, except with regard to business
combinations initiated prior to July 1, 2001 and SFAS 142 is effective January
1, 2002.

Furthermore, any goodwill and intangible assets determined to have
indefinite useful lives that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized until the adoption of SFAS 142. SFAS 141 will require
upon adoption of SFAS 142 that goodwill acquired in a prior purchase business
combination be evaluated and any necessary reclassifications be made in order to
conform to the new criteria in SFAS 141 for recognition apart from goodwill. Any
impairment loss will be measured as of the date of the adoption and recognized
as a cumulative effect of a change in accounting principles in the first interim
period. We do not expect the adoption of these standards to have a material
effect on the Company's consolidated financial statements.

Reclassification

Certain amounts reported in prior periods have been reclassified to conform
with the current presentation.

NOTE 2 - SEGMENT INFORMATION

The Company changed the reporting of its business segments as of July 1,
2000, and restated its prior periods to conform with this revised segment
reporting. The Company formerly reported operating in three business divisions
consisting of six reportable segments. The three business divisions consisted of
online publishing, print publishing and licensing and insurance sales. The
online publishing division is primarily engaged in the sale of advertising,
sponsorships and hyperlinks in connection with the Company's Internet site
Bankrate.com, and its former separate sites theWhiz.com, IntelligentTaxes.com,
GreenMagazine.com, Consejero.com and CPNet.com. Bankrate.com, theWhiz.com,
Consejero.com and Greenmagazine.com constituted segments within this division.
CPNet.com was sold on May 17, 2000 and Consejero.com was shut down on August 31,
2000, while theWhiz.com and IntelligentTaxes.com were incorporated into channels
of Bankrate.com. GreenMagazine.com was shut down in December 2000. The former
insurance division, which was sold on July 14, 2000, constituted a segment and
operated through Pivot, a virtual insurance agency and fulfillment/call center
specializing in direct insurance sales on the Internet and through other direct
media.

The Company currently operates in two reportable business segments: online
publishing, and print publishing and licensing. The online publishing division
is primarily engaged in the sale of advertising, sponsorships, and hyperlinks in
connection with the Company's Internet site, Bankrate.com. The print publishing
and licensing division and segment is primarily engaged in the sale of
advertising in the Consumer Mortgage Guide rate tables, newsletter
subscriptions, and licensing of research information. The Company evaluates the
performance of its operating segments based on segment profit (loss).

Although no one customer accounted for greater than 10% of total revenues
for the three and six months ended June 30, 2001 and 2000, the five largest
customers accounted for approximately 19% and 24%, and 21% and 25%,
respectively, of total revenue for those periods. No revenues were generated
outside of the United States.

Summarized segment information as of June 30, 2001 and 2000, and for the
three and six months ended June 30, 2001 and 2000, is presented below.

Print
Online Publishing
Publishing and Licensing Other Total
----------- ------------- ----------- ------------

Three Months Ended June 30, 2001
Revenue $ 3,393,437 $ 807,954 $ - $ 4,201,391
Cost of revenue 727,907 518,022 - 1,245,929
Gross margin 2,665,530 289,932 - 2,955,462
Sales 714,466 - - 714,466
Marketing 716,474 - - 716,474
Product development 224,315 96,135 - 320,450
General and administrative expenses 1,003,917 239,026 - 1,242,943
Depreciation and amortization 130,974 56,132 - 187,106
Other income (expense), net - - (22,566) (22,566)
Segment profit (loss) (124,616) (101,361) (22,566) (248,543)
Total assets $ 2,564,570 $ 634,296 $ 8,356,357 $ 11,555,223

Print
Online Publishing
Publishing and Licensing Other Total
----------- ------------- ----------- ------------

Three Months Ended June 30, 2000
Revenue $ 3,046,146 $ 749,501 $ - $ 3,795,647
Cost of revenue 2,012,299 550,509 - 2,562,808
Gross margin 1,033,847 198,992 - 1,232,839
Sales 735,874 - - 735,874
Marketing 1,175,548 - - 1,175,548
Product development 397,942 170,546 - 568,488
General and administrative expenses 1,415,339 348,243 - 1,763,582
Restructuring charge - - 1,298,097 1,298,097
Depreciation and amortization 162,417 69,608 - 232,025
Goodwill amortization 73,593 - - 73,593
Other income (expense), net - - 46,263 46,263
Segment profit (loss) (2,870,960) (445,311) (1,251,834) (4,568,105)
Discontined operations - - (1,379,845) (1,379,845)
Net loss (2,870,960) (445,311) (2,631,679) (5,947,950)
Total assets $ 6,585,060 $ 2,437,927 $ 7,526,813 $ 16,549,800

Print
Online Publishing
Publishing and Licensing Other Total
----------- ------------- ----------- ------------

Six Months Ended June 30, 2001
Revenue $ 7,354,353 $ 1,592,713 $ - $ 8,947,066
Cost of revenue 1,676,268 1,043,510 - 2,719,778
Gross margin 5,678,085 549,203 - 6,227,288
Sales 1,572,999 - - 1,572,999
Marketing 1,797,865 - - 1,797,865
Product development 480,590 205,967 - 686,557
General and administrative expenses 2,162,285 468,281 - 2,630,566
Depreciation and amortization 267,099 114,471 - 381,570
Other income (expense), net - - (30,941) (30,941)
Segment profit (loss) (602,753) (239,516) (30,941) (873,211)
Total assets $ 2,564,570 $ 634,296 $ 8,356,357 $ 11,555,223

Print
Online Publishing
Publishing and Licensing Other Total
----------- ------------- ----------- ------------

Six Months Ended June 30, 2000
Revenue $ 6,060,545 $ 1,491,390 $ - $ 7,551,935
Cost of revenue 4,419,449 1,085,247 - 5,504,696
Gross margin 1,641,096 406,143 - 2,047,239
Sales 1,646,679 - - 1,646,679
Marketing 3,000,488 - - 3,000,488
Product development 814,074 348,889 - 1,162,963
General and administrative expenses 3,692,619 908,686 - 4,601,305
Restructuring charge - - 1,298,097 1,298,097
Depreciation and amortization 318,693 136,583 - 455,276
Goodwill amortization 147,186 - - 147,186
Other income (expense), net - - 170,299 170,299
Segment profit (loss) (7,922,738) (1,043,920) (1,127,798) (10,094,456)
Discontined operations - - (2,966,260) (2,966,260)
Net loss (7,922,738) (1,043,920) (4,094,158) (13,060,816)
Total assets $ 6,585,060 $ 2,437,927 $ 7,526,813 $ 16,549,800

NOTE 3 - COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In September 1999, the Company entered into a lease agreement for a new
office facility to be constructed in northern Palm Beach County, Florida. The
Company provided to the developer a $300,000 letter of credit as a security
deposit. The lease provides an initial lease term of ten years commencing from
the date of occupancy and includes two five-year renewal options. The annual
base rent during the initial term ranges from $660,000 in the first two years to
$760,000. The lease contemplated that occupancy would commence on September 15,
2000. In connection with the lease agreement, the Company also entered into an
agreement with the developer to purchase an adjoining tract of land for
$609,000. The Company paid a deposit of $60,000 to close the transaction no
later than June 30, 2000, which is being held in escrow. Subsequent to a
dispute with the developer with respect to the lease agreement and the agreement
to purchase the adjacent tract, on August 3, 2000, the developer made demand on
the bank that issued the letter of credit and the bank paid the developer the
full $300,000 under the letter of credit. On August 14, 2000, the developer
filed claims against the Company alleging breach of contract under the lease
agreement and the agreement to purchase the adjacent tract, and seeks damages in
excess of $500,000 plus attorneys' fees and costs. The Company has filed
counterclaims and intends to vigorously defend against both of these matters.
While acknowledging the uncertainties of litigation, the Company believes that
these matters will be resolved without a material adverse impact on the
Company's financial position or results of operations.

On March 28, 2000, a purported class-action lawsuit was filed against the
Company and others in the United States District Court for the Southern District
of New York. The suit alleges that the Company violated federal securities laws
by, among other things, misrepresenting and/or omitting material information
concerning the Company's financial results for the quarter ended March 31, 1999,
and other financial information, in the Company's registration statement filed
with the Securities and Exchange Commission in connection with the Company's
initial public offering. The action, which seeks an unspecified amount of money
damages, was filed purportedly on behalf of all stockholders who purchased
shares of the Company's common stock during the period from May 13, 1999,
through March 27, 2000. The Company filed a motion to dismiss this complaint
and, on March 28, 2001, the suit was dismissed with prejudice. On April 25,
2001, plaintiffs appealed the decision to dismiss the suit to the United States
Court of Appeals for the Second Circuit. The Company intends to vigorously
defend against the lawsuit. In the opinion of management, the ultimate
disposition of this matter will not have a material adverse effect on the
Company's financial position, results of operations or liquidity. Damages, if
any, would be substantially covered by insurance.

In July 2000, the Company sold its former wholly owned subsidiary, Pivot,
for $4,350,000 in cash. In connection with the sale, the Company agreed to
indemnify the buyer for liability of up to $1,000,000 in connection with a
litigation matter between Pivot and its co-founders and former owner. In March
2001, the case was dismissed based on a technical deficiency.

Other Commitments

On February 25, 2000, the Company announced that William P. Anderson
resigned as its President and Chief Executive Officer and as a director. Under
the terms of his Executive Employment Agreement entered into on March 10, 1999,
Mr. Anderson received cash compensation totaling approximately $150,000 and
continued to vest in his stock options through November 15, 2000, which resulted
in a noncash charge of approximately $860,000. Both the cash charge ($150,000)
and the noncash charge ($860,000) were recorded in the quarter ended March 31,
2000.

On April 5, 2000, Jeffrey M. Cunningham was elected to the Company's Board
of Directors as non-executive chairman. In accordance with the terms of a Stock
Purchase Plan and Subscription Agreement (the "Purchase Agreement") entered into
on that date, Mr. Cunningham purchased 431,499 shares of the Company's common
stock for $997,840 in cash (or $2.313 per share). The purchase price of the
shares was equal to the closing price per share of the Company's common stock on
April 5, 2000, as reported by the Nasdaq National Market. In addition, on April
5, 2000, Mr. Cunningham was granted stock options under the 1999 Equity
Compensation Plan to

purchase 141,905 shares of common stock at $4.50 per share and 125,622 shares at
$3.75 per share. One-half of the options vested and become exercisable on March
31, 2001, and the balance vest and become exercisable in equal monthly
increments commencing on April 30, 2001 and concluding on March 31, 2002. Mr.
Cunningham resigned from the Board on June 19, 2001. The Company recognized
compensation expense of approximately $54,000 and $108,000 for the three and six
months ended June 30, 2001, respectively. No further compensation expense
related to these options will be recognized after June 30, 2001.

On April 27, 2000, Elisabeth DeMarse was elected to the Company's Board of
Directors as well as elected President and Chief Executive Officer of the
Company. Ms. DeMarse entered into an employment agreement with the Company on
that date. Pursuant to the terms of her employment agreement, Ms. DeMarse is
entitled to receive an annual base salary of $300,000 and a bonus of $100,000
payable in quarterly installments. The Company has agreed to provide other
benefits, including $500,000 in term life insurance and participation in the
Company's benefit plans available to other executive officers. Under the terms
of the employment agreement, Ms. DeMarse agrees to assign to the Company all of
her copyrights, trade secrets and patent rights that relate to the business of
the Company. Additionally, during the term of her employment and for a period
of one year thereafter, Ms. DeMarse agrees not to compete with the Company and
not to recruit any of the Company's employees, unless the Company terminates her
without cause or she resigns for good reason (as defined in the agreement). Upon
Ms. DeMarse's termination of employment for certain reasons (i.e., without
cause, disability, resignation for good reason, or a change of control), the
Company agrees to pay her severance equal to 12 months' base salary, as well as
reimburse her for health, dental and life insurance coverage premiums for one
year after such termination. The agreement terminates on April 27, 2002, unless
otherwise extended by the parties. Ms. DeMarse was also granted options to
purchase 541,936 shares of the Company's common stock under the 1999 Equity
Compensation Plan at $2.688 per share, the fair market value on the date of
grant. The options vest over a 24 month period. Twenty five percent of the
shares vested six months from the date of grant. The remaining shares vest in
equal monthly installments over the following 18 months through the second
anniversary of the date of grant.

NOTE 4 - DIVESTITURES

Professional Direct Agency, Inc. ("Pivot")

On July 14, 2000, the Company sold Pivot for $4,350,000 in cash. The
Company retained the $4,350,000 five-year convertible subordinated note to the
holder. The note bears interest at 10% and is due in one payment on August 20,
2004. Interest is due beginning on August 20, 2002 and thereafter every six
months until conversion or payment in full. The note is convertible at any time
by the holder into 625,000 shares of our common stock and has other rights and
privileges not disclosed herein. Pivot's results of operations have been
classified as discontinued operations in the accompanying condensed consolidated
statements of operations. The Company recorded a gain on the sale of $871,212
in the quarter ended September 30, 2000.

NOTE 5 - STOCK OPTION EXCHANGE PROGRAM

On July 3, 2001, the Company implemented a stock option exchange program
whereby employees were offered the opportunity to cancel stock options
previously granted to them in exchange for new options to purchase an equal
number of shares. The new options will be granted at least six months and one
day after the date of cancellation but no later than February 8, 2002. The
exercise price of the new options will be the closing market price of the
Company's common stock on the date of grant. The exchange program was designed
to comply with FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation" and is not expected to result in any additional
compensation charges or variable plan accounting. Options to purchase 1,180,002
shares were exchanged under this program. As a result of this program, the
Company will record a noncash compensation charge of approximately $465,000 in
the quarter ending September 30, 2001.

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

The Company has included in this filing certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, statements regarding our expectations, beliefs,
intentions or future strategies that are signified by words such as "expects",
"anticipates", "intends", "believes", "may", "could", "should", "would" or
similar language. All forward-looking statements included in this document are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements.
Actual results could differ materially from those projected in the forward-
looking statements. Any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Important factors that
could cause actual results to differ materially from those in forward-looking
statements include but are not limited to the following - we have a history of
losses and could run out of cash; our success depends on Internet advertising
revenue, interest rate activity and mortgage refinancing, establishing and
maintaining distribution agreements and increasing brand awareness of our Web
site; we use barter transactions which do not generate cash revenue; our markets
are highly competitive; our Web site may encounter technical problems and
service interruptions; we rely on the protection of our intellectual property;
we may face liability for information on our Web site; future government
regulation of the Internet is uncertain and subject to change; our ownership is
heavily concentrated in our management; our success depends on retaining
management and key employees; our rapid growth may strain our operations; our
new managers must work together effectively as a team; our Articles of
Incorporation and By Laws, as well as Florida law, may prevent or delay a future
takeover; we may encounter difficulties with future acquisitions; our results of
operation may fluctuate significantly; and our stock price may be volatile in
the future. Additional information concerning these and other risk factors are
set forth in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 and in this Quarterly Report on Form 10-Q.

Overview

The Company is an Internet consumer finance marketplace that owns and
operates a portfolio of Internet-based personal finance channels including
banking, investing, taxes and small business finance. The Company's flagship
site, Bankrate.com, is the Web's leading aggregator of information on over 100
financial products including mortgages, credit cards, new and used automobile
loans, money market accounts, certificates of deposit, checking and ATM fees,
home equity loans and online banking fees. Additionally, the Company provides
financial applications and information to a network of distribution partners and
also through national and state publications. We regularly survey approximately
4,500 financial institutions in 50 states in order to provide the most current
objective, unbiased rates on banking products such as mortgages, new and used
auto loans, credit cards and more. Hundreds of print and online partner
publications depend on Bankrate.com as the source for financial rates and
information.

On September 20, 2000, the Company changed its name from ilife.com, Inc. to
Bankrate, Inc.

Since our online debut in 1996, Bankrate.com has won numerous awards and
accolades for its rate collection and distribution, and original editorial
content. In the first half of 2000 alone, such prestigious organizations as
Forbes, Fortune, Yahoo! Internet Life, Money and SmartMoney granted Bankrate
"Best of the Web" status.

Over two decades ago, we began as a print publisher of the newsletter "Bank
Rate Monitor." Our rate tables provide at no cost to the consumer, a detailed
list of lenders by market and include relevant details to help consumers compare
loan products.

We continue to enhance our offerings in order to provide Bankrate.com users
with the most complete experience. Features such as financial calculators, e-
mail newsletters, and message boards allow users to interact with our site as
well as with other consumers. Our new Rate Trend Index is a weekly poll of
industry insiders designed to help consumers forecast interest rate trends.

We've also broadened our offerings to include channels on investing, taxes,
small business and financial advice. Each channel offers a unique look at its
particular topic. Bankrate.com users can download state and federal forms from
the Tax channel, get business tips from the Small Business channel and ask a
financial expert money questions on the Advice channel.

We believe that the recognition of our research as a leading source of
independent, objective information on banking and credit products is essential
to our success. As a result, we have sought to maximize distribution of our
research to gain brand recognition as a research authority. We are seeking to
build greater brand awareness of our Web site and to reach a greater number of
online users.

The Company has incurred net losses in each of its last five fiscal years.
We had an accumulated deficit of approximately $60 million as of June 30, 2001.
We anticipate that we will continue to incur operating losses for the
foreseeable future.

The Company is working to manage its cash by actively controlling expenses
and pursuing additional sources of revenue. For instance, the Company
substantially reduced marketing expenditures beginning in January 2000 compared
to the second half of 1999, and has followed through with plans to sell or
curtail development of certain under-performing, non-core business units. The
Company sold CPNet.com in May 2000, sold Pivot in July 2000, shut down and sold
certain assets of Consejero.com in August 2000, and shut down Greenmagazine.com
in December 2000. These transactions yielded cash to the Company of
approximately $4,392,000 and have resulted in lower operating expenses. The
Company has also reduced employment levels of continuing operations and
consolidated its physical locations. Based on these actions and the Company's
current plan, the Company believes its existing capital resources will be
sufficient to satisfy its cash requirements into 2002. However, there are no
assurances that such actions will ensure cash sufficiency through 2002 or that
reducing marketing expenses would not potentially curtail revenue growth.

Further, due to the legal matters discussed in Note 3 to the condensed
consolidated financial statements included herein and in Item 3., Legal
Proceedings, which the Company intends to vigorously defend, management could be
required to spend significant amounts of time and resources defending these
matters, which may impact the operations of the Company.

Recent Developments

On August 20, 1999, the Company acquired Pivot pursuant to a Stock Purchase
Agreement, dated August 20, 1999, by and between the Company, the shareholders
of Pivot and The Midland Life Insurance Company ("Midland"), a note and warrant
holder of Pivot, for approximately $4,744,000 including acquisition costs.
Pursuant to the Stock Purchase Agreement, the Company acquired a 100% interest
in Pivot and as a result of the acquisition, Pivot became a wholly owned
subsidiary of the Company. The transaction was accounted for using the purchase
method of accounting. The net assets acquired were estimated to be at fair
market value. The excess of the purchase price over the fair value of the net
assets acquired (approximately $4,609,000) was recorded as goodwill and was
being amortized over three years, the expected benefit period.

The total consideration paid in connection with the acquisition of Pivot
consisted of $290,000 in cash paid to the Pivot shareholders and a $4,350,000
five-year convertible subordinated note to Midland. The note bears interest at
10% and is due in one payment on August 20, 2004. Interest is due beginning on
August 20, 2002 and thereafter every six months until conversion or payment in
full. The note is convertible at any time by Midland into 625,000 shares of our
common stock. The Company has the right to require conversion beginning any time
after the earlier of (1) August 20, 2000 or (2) the date that the Company files
a registration statement under the Securities Act of 1933, as amended,
registering the conversion shares for sale; provided that, within the 55-day
period immediately

prior to the date the Company notifies Midland of the required conversion, the
closing price of our common stock has been at least $10.00 per share for at
least twenty consecutive trading days.

On July 14, 2000, the Company sold Pivot for $4,350,000 in cash. The
Company retained the convertible subordinated note to the holder. Pivot's
results of operations have been classified as discontinued operations in the
accompanying condensed consolidated statements of operations for all periods
presented. The Company recorded a gain on the sale of $871,212 in the quarter
ended September 30, 2000.

On August 27, 1999, the Company acquired certain assets and assumed certain
liabilities of Green Magazine, Inc. ("Green") pursuant to an Asset Purchase
Agreement, dated August 27, 1999, by and among the Company, Green, Kenneth A.
Kurson, John F. Packel and James Michaels, for approximately $831,000 including
acquisition costs. Pursuant to the Asset Purchase Agreement, the Company
acquired the rights to all agreements, contracts, commitments, licenses,
copyrights, trademarks and the subscriber/customer list of Green. Kenneth A.
Kurson and John F. Packel were also employed by the Company. The total
consideration paid was approximately $784,000 consisting of $200,000 in cash and
100,000 unregistered shares of the Company's common stock valued at
approximately $584,000. The transaction was accounted for using the purchase
method of accounting. The net assets acquired were estimated to be at fair
market value. The excess of the purchase price over the fair value of the net
assets acquired (approximately $883,000) was recorded as goodwill and was being
amortized over three years, the expected benefit period.

During the quarter ended September 30, 2000, a decision was made to stop
publishing the print version of Green Magazine. Additionally, due to lower than
expected traffic levels visiting GreenMagazine.com and continued negative
operational cash flows, a revised operating plan was developed and
GreenMagazine.com was incorporated into a channel of Bankrate.com. After
evaluating the recoverability of the intangible asset, the Company recorded an
impairment charge of approximately $476,000 to write the goodwill down to
estimated fair value. In December 2000, GreenMagazine was shut down and the
remaining goodwill of approximately $73,000 was written off.

On April 5, 2000, Jeffrey M. Cunningham was appointed to the Company's
Board of Directors as non-executive chairman. In accordance with the terms of a
Stock Purchase Plan and Subscription Agreement (the "Purchase Agreement")
entered into on that date, Mr. Cunningham purchased 431,499 shares of the
Company's common stock for $997,840 in cash (or $2.313 per share). The purchase
price of the shares is equal to the closing price per share of the Company's
common stock on April 5, 2000, as reported by the Nasdaq National Market. In
addition, on April 5, 2000, Mr. Cunningham was granted stock options under the
1999 Equity Compensation Plan to purchase 141,905 shares of common stock at
$4.50 per share and 125,622 shares at $3.75 per share. One-half of the options
vest and become exercisable on March 31, 2001, and the balance vest and become
exercisable in equal monthly increments commencing on April 30, 2001 and
concluding on March 31, 2002. Mr. Cunningham resigned from the Board on June
19, 2001. The Company recognized compensation expense of approximately $54,000
and $108,000 for the three and six months ended June 30, 2001, respectively. No
further compensation expense related to these options will be recognized after
June 30, 2001.

agrees not to compete with the Company and not to recruit any of the Company's
employees, unless the Company terminates her without cause or she resigns for
good reason (as defined in the agreement). Upon Ms. DeMarse's termination of
employment for certain reasons (i.e., without cause, disability, resignation for
good reason, or a change of control), the Company agrees to pay her severance
equal to 12 months' base salary, as well as reimburse her for health, dental and
life insurance coverage premiums for one year after such termination. The
agreement terminates on April 27, 2002, unless otherwise extended by the
parties. Ms. DeMarse was also granted options to purchase 541,936 shares of the
Company's common stock under the 1999 Equity Compensation Plan at $2.688 per
share, the fair market value on the date of grant. The options vest over a 24
month period. Twenty five percent of the shares vested six months from the date
of grant. The remaining shares vest in equal monthly installments over the
following 18 months through the second anniversary of the date of grant.

On May 17, 2000, the Company sold the assets of The College Press Network
(CPNet.com) to Colleges.com, Inc. for 190,000 shares of Colleges.com, Inc.
common stock of which 125,041 shares were delivered at the time of closing and
64,959 contingent shares. The Company originally recorded such shares at the net
book value of the CPNet.com assets which, at the time of the sale, was
approximately $71,000. During the quarter ended December 31, 2000, the Company
charged this amount to restructuring and impairment charges after determining
impairment based on the fact that Colleges.com is an early-stage company subject
to significant risk due to its limited operating history and volatile industry-
based economic conditions as well as continued deterioration of its financial
performance.

In June 2000, the Company recorded a restructuring charge of $1,298,000, or
$0.09 per share, as a result of implementing certain strategic reorganization
initiatives. Approximately $364,000 of this charge pertains to severance, legal
and other employee related costs incurred in connection with a reduction of
approximately 10% of the workforce in ongoing operations and the elimination of
positions in under-performing, non-core business units, all of which was paid in
2000. The remaining $934,000 of this charge relates to the write-off of certain
assets, primarily software, licenses and other installation costs, of an
abandoned systems installation.

In the quarter ended September 30, 2000, the Company recorded restructuring
and impairment charges of approximately $843,000, or $0.06 per share, as a
result of further strategic reorganization initiatives. Approximately $88,000 of
this charge pertained to severance, legal and other employee related costs
incurred in connection with a further reduction of the workforce, all of which
was paid in 2000. Approximately $279,000 relates to the shut down and sale of
assets of Consejero.com and other non-core assets. The remaining $476,000
results from the write down of the GreenMagazine.com goodwill discussed above.

On August 31, 2000, the Company shut down the operations of Consejero.com
and sold certain of its assets including fixed assets, software licenses and
other intangible assets, to Consejero Holdings, LLC for $41,800 in cash
resulting in a loss of approximately $86,000. Additionally, the Company
recorded approximately $193,000 in charges for severance and other related shut
down costs, all of which were paid in 2000.

On September 20, 2000, the Company changed its name from ilife.com, Inc. to
Bankrate, Inc. and changed its Nasdaq National Market stock symbol from ILIF to
RATE.

On January 29, 2001, the Company announced that its common stock was
removed from the Nasdaq National Market and immediately became eligible for
trading on the OTC Bulletin Board under the symbol "RATE". Nasdaq's decision to
delist the Company's common stock from the Nasdaq National Market was based on
the Company's net tangible assets, as defined by Nasdaq, falling below the
required $4,000,000 minimum amount.

1,180,002 shares were exchanged under this program. As a result of this program,
the Company will record a noncash compensation charge of approximately $465,000
in the quarter ending September 30, 2001.

Overview of Revenue and Expenses

The following are descriptions of the revenue and expense components of our
online and print publishing operations:

Online publishing revenue

The Company sells graphical advertisements on its Web site (including co-
branded sites) consisting of banner, badge, billboard and poster
advertisements. Such advertising is sold to advertisers according to the cost
per thousand impressions, or CPM, the advertiser receives. The amount of
advertising we sell is a function of (1) the number of advertisements we have
per Web page, (2) the number of visitors viewing our Web pages, and (3) the
capacity of our sales force. Advertising sales are invoiced monthly based on the
number of advertisement impressions or the number of times the advertisement is
viewed by users of the Company's Web site. Revenue is recognized monthly based
on the percentage of actual impressions to the total number of impressions
contracted. Revenue for impressions invoiced but not delivered is deferred and
recognized when impressions are delivered. Additionally, the Company generates
revenue on a "per action" basis (i.e., a purchase or completion of an
application) when a visitor to our Web site transacts with one of our
advertisers after viewing an advertisement. Revenue is recognized monthly based
on the number of actions reported by the advertiser. The Company is also
involved in revenue sharing arrangements with its online partners where the
consumer uses co-branded sites principally hosted by the Company. Revenue is
effectively allocated to each partner based on the percentage of advertisement
views at each site. The allocated revenues are shared according to distribution
agreements. Revenue is recorded gross and partnership payments are recorded in
cost of revenue. The Company also sells hyperlinks to various third-party
Internet sites that generate a fixed monthly fee, which is recognized in the
month earned.

Online publishing revenue also includes barter revenue which represents the
exchange by the Company of advertising space on the Company's Web site for
reciprocal advertising space or traffic on other Web sites. Barter revenues and
expenses are recorded at the fair market value of the advertisements delivered
or received, whichever is more determinable in the circumstances. In January
2000, the Company adopted Emerging Issues Task Force ("EITF") 99-17, "Accounting
for Advertising Barter Transactions". In accordance with EITF 99-17, barter
transactions have been valued based on similar cash transactions which have
occurred within six months prior to the date of the barter transaction. Revenue
from barter transactions is recognized as income when advertisements are
delivered on the Company's Web site. Barter expense is recognized when the
Company's advertisements are run on the other companies' Web sites, which is
typically in the same period barter revenue is recognized. If the advertising
impressions are received from the customer prior to the Company delivering the
advertising impressions, a liability is recorded. If the Company delivers
advertising impressions to the other companies' Web sites prior to receiving the
advertising impressions, a prepaid expense is recorded. At December 31, 2000,
the Company recorded prepaid expenses of approximately $200,000 for barter
advertising to be received. Barter revenue was approximately $592,000 and
$1,465,000, and represented approximately 14% and 16% of total revenue,
respectively, for the three and six months ended June 30, 2001. No barter
revenue was recorded in the quarter ended June 30, 2000.

Print publishing and licensing revenue

Print publishing and licensing revenue represents advertising revenue from
the sale of advertising in Consumer Mortgage Guide rate tables, newsletter
subscriptions, and licensing of research information. We charge a commission for
placement of Consumer Mortgage Guide in a print publication. Advertising revenue
and commission income is recognized when Consumer Mortgage Guide runs in the
publication. Revenue from our newsletters is recognized ratably over the period
of the subscription, which is generally up to one year. Revenue from the sale of
research information is recognized ratably over the contract period.

Online publishing costs

Online publishing costs represent expenses directly associated with the
creation of online publishing revenue. These costs include contractual revenue
sharing obligations resulting from our distribution arrangements (distribution
payments), editorial costs, research costs and allocated overhead. Distribution
payments are made to Web site operators for visitors directed to our Web sites.
These costs increase with gains in traffic to our sites. Editorial costs relate
to writers and editors who create original content for our online publications
and associates who build web pages. These costs have increased as we have added
online publications and co-branded versions of our sites under distribution
arrangements. These sites must be maintained on a daily basis. Research costs
include expenses related to gathering data on banking and credit products and
consist of compensation and benefits, facilities costs, telephone costs and
computer systems expenses.

Print publishing and licensing costs

Print publishing and licensing costs represent expenses directly associated
with print publishing revenue. These costs include contractual revenue sharing
obligations with newspapers related to Consumer Mortgage Guide, personnel costs,
printing and allocated overhead.

Sales costs represent direct selling expenses, principally for online
advertising, and include sales commissions, personnel costs and allocated
overhead.

Marketing costs represent expenses associated with expanding brand
awareness of our products and services to consumers and include advertising,
including banner advertising, marketing and promotion costs.

Product development costs represent payroll and related expenses for site
development, network systems and telecommunications infrastructure support,
contract programmers and consultants and other technology costs.

General and administrative expenses represent compensation and benefits for
administration, advertising management, accounting and finance, facilities
expenses, professional fees and non-allocated overhead.

Depreciation and amortization represents the cost of capital asset
acquisitions spread over their expected useful lives. These expenses are spread
over three to seven years and are calculated on a straight-line basis.

Goodwill amortization represents the excess of the purchase price over the
fair market value of net assets acquired spread over the expected benefit
periods which is between three to five years.

Other income (expense) is comprised of interest income on invested cash and
interest expense on capital leases and the 10% convertible subordinated note
payable associated with the Pivot acquisition.

Results of Operations

As discussed in "Recent Developments" above, the Company sold its wholly-
owned online insurance subsidiary, Pivot, on July 14, 2000 for $4,350,000 in
cash. Pivot's results of operations for the three and six months ended June 30,
2000 have been classified as discontinued operations in the condensed
consolidated financial statements included herein.

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Total revenue for the three months ended June 30, 2001 of $4,201,000
increased $406,000, or 11%, over the comparable period in 2000. Online
publishing revenue increased $347,000, or 11%, to $3,393,000 and represented 81%
of total revenue in 2001 compared to 80% in 2000. Excluding barter revenue,
total revenue and online revenue for the three months ended June 30, 2001 was
$186,000, or 5%, and $245,000, or 8%, respectively, lower than the comparable
amounts reported in 2000. This decrease was the result of terminating
unprofitable advertising and distribution relationships, smaller advertising
buys from certain existing customers and our

customers' response to general uncertain economic conditions Our revenue,
excluding barter revenue, for 2001 is projected to be relatively flat compared
to 2000.

Print publishing and licensing revenue increased $58,000, or 8%, to
$808,000 during the three months ended June 30, 2001 compared to the same period
in 2000 due primarily to an increase in Consumer Mortgage Guide revenues. This
increase was a result of declining interest rates which boosted the refinance
markets and caused more advertisers to publish their rates.

Online publishing costs of $728,000 for the three months ended June 30,
2001 decreased $1,284,000, or 64%, from for the comparable period in 2000. This
decrease was due primarily to costs of approximately $1,024,000 incurred during
the three months ended June 30, 2000 for theWhiz.com, Consejero.com, CPNet.com,
GreenMagazine.com, ilife.com, and IntelligentTaxes.com. CPNet.com was sold in
May 2000 and Consejero.com was sold in August 2000. IntelligentTaxes.com,
ilife.com and theWhiz.com were integrated into Bankrate.com beginning in June
2000 and GreenMagazine.com was shut down in December 2000. Additionally, direct
costs were lower due to a 15% reduction in full-time equivalent headcount, and a
69% reduction in revenue sharing payments resulting from the termination of
unprofitable distribution relationships.

Marketing expenses of $716,000 for the three months ended June 30, 2001
were $459,000, or 39%, lower than the comparable quarter in 2000. Excluding
barter expenses of $679,000, marketing expenses of $37,000 were $1,138,000, or
97%, lower than the same period in 2000. This reduction was a direct result of
the Company's strategic initiatives to control costs and curtail certain
expenditures.

Product development costs of $320,000 were $248,000, or 44%, lower than the
second quarter in 2000 due to lower consulting and contract labor costs, and
less spent on system hardware and software.

General and administrative expenses of $1,243,000 for the three months
ended June 30, 2001 were $521,000, or 30%, lower than the comparable period in
2000. Human resource costs were approximately $200,000, or 29%, lower in 2001
due to lower full-time equivalent headcount of 8, or 27%. The remaining
decrease of approximately $321,000 was due primarily to lower consulting and
professional fees and other expenses in line with the Company's effort to reduce
costs and curtail expenses.

Depreciation and amortization of $187,000 for the three months ended June
30, 2001 was $45,000, or 19%, lower compared to the same period in 2000 due to
the sale of assets and non-core business units in connection with the Company's
restructuring plan and strategic initiatives. Goodwill amortization of $74,000
was a result of the Green Magazine.com acquisition in the third quarter of 1999.

Interest income of $95,000 for the three months ended June 30, 2001 was
down from $170,000 in the comparable 2000 period due to declining cash balances
and interest rates.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Total revenue for the six months ended June 30, 2001 of $8,947,000
increased $1,395,000, or 18%, over the comparable period in 2000. Online
publishing revenue increased $1,294,000, or 21%, to $7,354,000 and represented
82% of total revenue in 2001 compared to 80% in 2000. Excluding barter revenue,
total revenue and online revenue for the six months ended June 30, 2001 was
$70,000, or 1%, and $171,000, or 3%, respectively, lower than the comparable
amounts reported in 2000. This decrease was the result of terminating
unprofitable advertising and distribution relationships, smaller advertising
buys from certain existing customers and our customers' response to general
uncertain economic conditions. Our revenue, excluding barter revenue, for 2001
is projected to be relatively flat compared to 2000.

Print publishing and licensing revenue increased $101,000, or 7%, to
$1,593,000 during the six months ended June 30, 2001 compared to the same period
in 2000 due primarily to an increase in Consumer Mortgage Guide revenues. This
increase was a result of declining interest rates which boosted the refinance
markets and caused more advertisers to publish their rates.

Online publishing costs of $1,676,000 for the six months ended June 30,
2001 decreased $2,743,000, or 62%, from for the comparable period in 2000. This
decrease was due primarily to costs of approximately $2,239,000 incurred during
the six months ended June 30, 2000 for theWhiz.com, Consejero.com, CPNet.com,
GreenMagazine.com, ilife.com, and IntelligentTaxes.com. CPNet.com was sold in
May 2000 and Consejero.com was sold in August 2000. IntelligentTaxes.com,
ilife.com and theWhiz.com were integrated into Bankrate.com beginning in June
2000 and GreenMagazine.com was shut down in December 2000. Additionally, direct
costs were lower due to a 15% reduction in full-time equivalent headcount, and a
37% reduction in revenue sharing payments resulting from the termination of
unprofitable distribution relationships.

Marketing expenses of $1,798,000 for the six months ended June 30, 2001
were $1,203,000, or 40%, lower than the comparable quarter in 2000. Excluding
barter expenses of $1,665,000, marketing expenses of $133,000 were $2,868,000,
or 96%, lower than the same period in 2000. This reduction was a direct result
of the Company's strategic initiatives to control costs and curtail certain
expenditures.

Product development costs of $687,000 for the six months June 30, 2001 were
$476,000, or 41%, lower than the second quarter in 2000 due to lower consulting
and contract labor costs, and less spent on system hardware and software.

General and administrative expenses of $2,631,000 for the six months ended
June 30, 2001 were $1,971,000, or 43%, lower than the comparable period in 2000.
Noncash compensation expense was $311,000 during the six months ended June 30,
2001 compared to $1,015,000 in the comparable period in 2000. In March 2000,
the Company recorded approximately $860,000 of noncash charges upon the
resignation of the Company's former president and chief executive officer
related to the continued vesting of stock options under the terms of an
employment agreement. Human resource costs were approximately $580,000, or 36%,
lower in 2001 due to lower full-time equivalent headcount of 8, or 27%. The
remaining decrease of approximately $687,000 was due primarily to lower
consulting and professional fees and other expenses in line with the Company's
effort to reduce costs and curtail expenses.

In June 2000, the Company recorded a restructuring charge of $1,298,000, or
$0.09 per share, as a result of implementing certain strategic reorganization
initiatives. Approximately $364,000 of this charge pertains to severance, legal
and other employee related costs incurred in connection with a reduction of
approximately 10% of the workforce in continuing operations and the elimination
of positions in under-performing, non-core business units. The remaining
$934,000 of this charge relates to the write-off of certain costs, primarily
software, licenses and other installation costs, of an abandoned systems
installation.

Depreciation and amortization of $382,000 for the six months ended June 30,
2001 was $74,000, or 16%, lower compared to the same period in 2000 due to the
sale of assets and non-core business units in connection with the Company's
restructuring plan and strategic initiatives. Goodwill amortization of $147,000
was a result of the Green Magazine.com acquisition in the third quarter of 1999.

Interest income of $209,000 for the six months ended June 30, 2001 was down
from $418,000 in the comparable 2000 period due to declining cash balances and
interest rates.

Liquidity and Capital Resources

The Company has funded its operations using capital raised from
stockholders, from the proceeds of its initial public offering of common stock
in May 1999, and from its operating revenue. As of June 30, 2001, the Company
had working capital of approximately $7,063,000. Cash used in operating
activities for the six months ended June 30, 2001 was approximately $404,000,
reflecting the funding current operating losses and working capital needs.

In connection with the acquisition of Pivot in August 1999, the Company
issued a $4,350,000 five-year convertible subordinated note payable to Pivot's
former owner. The note bears interest at 10% and the principal is due in one
payment on August 20, 2004. Interest is due beginning August 20, 2002 and
thereafter every six months

until conversion or payment in full. The note is convertible at any time by the
holder into 625,000 shares of our common stock.

The Company has incurred net losses in each of its last five fiscal years.
The Company had an accumulated deficit of approximately $60 million as of June
30, 2001 and anticipates that it will continue to incur operating losses for the
foreseeable future.

The Company is working to manage its cash by actively controlling expenses
and pursuing additional sources of revenue. For instance, the Company
substantially reduced marketing expenditures beginning in January 2000 compared
to the second half of 1999, and has followed through with plans to sell or
curtail development of certain under-performing, non-core business units. The
Company sold CPNet.com in May 2000, sold Pivot in July 2000, shut down and sold
certain assets of Consejero.com in August 2000, and shut down Greenmagazine.com
in December 2000. These transactions yielded cash to the Company of
approximately $4,392,000 and have resulted in lower operating expenses. The
Company has also reduced employment levels of continuing operations and
consolidated its physical locations. Based on these actions and the Company's
current plan, the Company believes its existing capital resources will be
sufficient to satisfy its cash requirements into 2002. However, there are no
assurances that such actions will ensure cash sufficiency through 2002 or that
reducing marketing expenses would not potentially curtail revenue growth.

Recent Accounting Pronouncements

In September 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement was amended in
September 2000 by Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." Statement No. 138 is effective for
the Company beginning January 2001. The new Statement requires all derivatives
to be recorded on the balance sheet at fair value and establishes accounting
treatment for three types of hedges: hedges of changes in the fair value of
assets, liabilities or firm commitments: hedges of the variable cash flows of
forecasted transactions; and hedges of foreign currency exposures of net
investments in foreign operations. The Company has not invested in derivative
instruments nor has it participated in hedging activities as of June 30, 2001.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001as
well as all purchase method business combinations completed after June 30, 2001.
SFAS 142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually. SFAS 141 is effective immediately, except with regard to business
combinations initiated prior to July 1, 2001 and SFAS 142 is effective January
1, 2002.

of the adoption and recognized as a cumulative effect of a change in accounting
principles in the first interim period. We do not expect the adoption of these
standards to have a material effect on the Company's consolidated financial
statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The primary objective of our investment strategy is to preserve principal
while maximizing the income we receive from investments without significantly
increasing risk. To minimize this risk, to date we have maintained our portfolio
of cash equivalents in short-term and overnight investments which are not
subject to market risk, as the interest paid on such investments fluctuates with
the prevailing interest rates. As of June 30, 2001, all of our cash equivalents
mature in less than three months.

Exchange Rate Sensitivity

Our exposure to foreign currency exchange rate fluctuations is minimal to
none as we do not have any revenues denominated in foreign currencies.
Additionally, we have not engaged in any derivative or hedging transactions to
date.

Part II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

with a litigation matter between Pivot and its co-founders and former owner. In
March 2001, the case was dismissed based on a technical deficiency.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The effective date of the Company's registration statement, filed on Form
S-1 under the Securities Act of 1933, as amended (File No. 333-74291), relating
to the Company's initial public offering of its common stock, was May 13, 1999.
A total of 3,500,000 shares of the Company's common stock were sold to an
underwriting syndicate at $13.00 per share ($12.09 per share after deducting
underwriters' discounts and commissions). The managing underwriters were ING
Baring Furman Selz LLC and Warburg Dillon Read LLC. The initial public offering
resulted in gross proceeds of $45,500,000, $3,185,000 of which was applied to
the underwriting discount and approximately $1,014,000 of which was applied to
related expenses. As a result, the net proceeds of the offering to the Company
were approximately $41,301,000. From the date of receipt through June 30, 2001,
approximately $17,341,000 of the net proceeds was used for marketing,
advertising and promotional expenditures, and the remainder was used for working
capital or invested in short-term interest bearing investments. None of the net
proceeds of the offering were paid directly or indirectly to any director or
officer of the Company (other than payment of salaries and bonuses in the
ordinary course of business) or any of their associates, or to any persons
owning ten percent or more of the Company's common stock, or to any affiliates
of the Company.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of shareholders on June 19, 2001. At
the meeting, the shareholders elected Elisabeth DeMarse (12,386,386 affirmative
votes and 143,195 votes withheld) and Bruns H. Grayson (12,514,436 affirmative
votes and 15,145 votes withheld) to the Company's Board of Directors.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

None.

(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.

Bankrate, Inc.

Dated: August 10, 2001 By: /s/ ROBERT J. DEFRANCO
------------------------------
Robert J. DeFranco
Senior Vice President
Chief Financial Officer