Edgar Filing: BANKRATE INC

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 September 30, 2001

Commission File No. 0-25681

[LOGO BANKRATE, INC.]

(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 33408
North Palm Beach, Florida (Zip Code)
(Address of principal executive offices)

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 October 31,
2001, was as follows: 13,996,950 shares of Common Stock, $.01 par value.

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

PART I. FINANCIAL INFORMATION PAGE NO.

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

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

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

Condensed Consolidated Statements of Cash Flows for the nine months ended
September 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............................................................................... 13

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)

September 30, December 31,
2001 2000
---- ----

Assets

Current Assets:
Cash and cash equivalents $ 8,459,259 $ 8,890,649
Accounts receivable, net of allowance for doubtful accounts of $140,000
and $300,000 at September 30, 2001 and December 31, 2000, respectively 1,578,248 1,218,867
Other current assets 252,730 572,185
------------ ------------
Total current assets 10,290,237 10,681,701

Furniture, fixtures and equipment, net 1,216,547 1,730,455
Intangible assets, net 76,433 88,425
Other assets 143,938 133,809
------------ ------------

Total assets $ 11,727,155 $ 12,634,390
============ ============

Liabilities and Stockholders' Equity

Current Liabilities:
Accounts payable $ 651,491 $ 772,181
Other accrued expenses 1,487,460 2,016,236
Accrued interest 217,500 -
Deferred revenue 413,805 463,224
Current portion of obligations under capital leases 71,841 214,651
Other current liabilities 199,827 158,672
------------ ------------
Total current liabilities 3,041,924 3,624,964

10% convertible subordinated note payable 4,350,000 4,350,000
Accrued stock compensation expense - 2,452,424
Accrued interest 701,613 592,863
Other liabilities 6,382 40,815
------------ ------------

Total liabilities 8,099,919 11,061,066
------------ ------------

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 63,893,591 60,586,991
Accumulated deficit (60,406,324) (59,153,636)
------------ ------------
Total stockholders' equity 3,627,236 1,573,324
------------ ------------

Total liabilities and stockholders' equity $ 11,727,155 $ 12,634,390
============ ============

See accompanying notes to condensed consolidated financial statements.

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

Three Months Ended Nine Months Ended
September 30, September 30,
Revenue: 2001 2000 2001 2000
---- ---- ---- ----

Online publishing $ 3,370,657 $ 3,012,405 $ 10,725,010 $ 9,072,950
Print publishing and licensing 817,926 711,639 2,410,639 2,203,029
------------ ------------- ------------- --------------
Total revenue 4,188,583 3,724,044 13,135,649 11,275,979
------------ ------------- ------------- --------------
Cost of revenue:
Online publishing 750,252 1,697,350 2,426,520 6,116,799
Print publishing and licensing 552,370 454,767 1,595,880 1,540,014
------------ ------------- ------------- --------------
Total cost of revenue 1,302,622 2,152,117 4,022,400 7,656,813
------------ ------------- ------------- --------------

Gross margin 2,885,961 1,571,927 9,113,249 3,619,166
------------ ------------- ------------- --------------

Operating expenses:
Sales 680,227 795,531 2,253,226 2,442,210
Marketing 475,552 263,055 2,273,417 3,263,543
Product development 360,211 399,109 1,046,768 1,562,072
General and administrative 1,546,282 2,576,493 4,176,849 7,177,798
Restructuring charge - 843,185 - 2,141,282
Depreciation and amortization 165,454 222,874 547,024 678,150
Goodwill amortization - 73,593 - 220,779
------------ ------------- ------------- --------------
3,227,726 5,173,840 10,297,284 17,485,834
------------ ------------- ------------- --------------
Loss from operations (341,765) (3,601,913) (1,184,035) (13,866,668)
------------ ------------- ------------- --------------
Other income (expense):
Interest income 73,964 164,681 283,442 582,675
Interest expense (111,676) (125,570) (352,095) (373,265)
------------ ------------- ------------- --------------
Other income (expense), net (37,712) 39,111 (68,653) 209,410
------------ ------------- ------------- --------------
Loss before income taxes and
discontinued operations (379,477) (3,562,802) (1,252,688) (13,657,258)
Income taxes from continuing operations - - - -
------------ ------------- ------------- --------------
Loss before discontinued operations (379,477) (3,562,802) (1,252,688) (13,657,258)
------------ ------------- ------------- --------------
Discontinued operations:
Loss from discontinued operations - (248,217) - (3,214,577)
Gain on disposal of discontinued operations - 871,212 - 871,212
------------ ------------- ------------- --------------
- 622,995 - (2,343,365)
------------ ------------- ------------- --------------
Net loss $ (379,477) $ (2,939,807) $ (1,252,688) $ (16,000,623)
============ ============= ============= ==============

Basic and diluted net loss per share:
Loss before discontinued operations $ (0.03) $ (0.25) $ (0.09) $ (0.99)
Discontinued operations - 0.04 - (0.17)
------------ ------------- ------------- --------------
Net loss $ (0.03) $ (0.21) $ (0.09) $ (1.16)
============ ============= ============= ==============

Weighted average shares outstanding used in
basic and diluted per-share calculation 13,996,950 13,987,077 13,996,950 13,831,099
============ ============= ============= ==============

See accompanying notes to condensed consolidated financial statements.

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

Nine Months Ended
September 30,
2001 2000
---- ----

Cash flows from operating activities:
Continuing operations-
Net loss $ (1,252,688) $ (13,657,258)
------------ -------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss from discontinued operations - 3,214,577
Gain on disposal of discontinued operations - (871,212)
Goodwill impairment charge - 475,913
Depreciation and amortization 547,024 898,930
Allowance for doubtful accounts 42,302 235,599
Noncash stock compensation 854,174 1,145,088
Changes in operating assets and liabilities:
Increase in accounts receivable (401,683) (354,682)
Decrease in other assets 301,524 1,226,115
Decrease in accounts payable (120,690) (1,615,023)
Decrease in accrued expenses (523,629) (3,228,119)
Increase in other liabilities 367,405 350,059
Decrease in deferred revenue (49,419) (83,794)
------------ -------------
Total adjustments 1,017,008 1,393,451
------------ -------------
Net cash used in continuing operations (235,680) (12,263,807)
Net cash used in discontinued operations - (5,394,547)
------------ -------------
Net cash used in operating activities (235,680) (17,658,354)
------------ -------------
Cash flows from investing activities:
Purchases of equipment (18,467) (488,814)
Proceeds from sale of business - 4,391,800
------------ -------------
Net cash (used in) provided by (18,467) 3,902,986
------------ -------------
Cash flows from financing activities:
Principal payments on capital lease obligations (177,243) (161,663)
Proceeds from exercise of stock options 31,802
Proceeds from issuance of common stock, net - 997,840
------------ -------------
Net cash (used in) provided by financing activities (177,243) 867,979
------------ -------------
Net decrease in cash and cash equivalents (431,390) (12,887,389)
Cash and cash equivalents, beginning of period 8,890,649 22,491,794
------------ -------------
Cash and cash equivalents, end of period $ 8,459,259 $ 9,604,405
============ =============

Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 25,845 $ 47,015
============ =============

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
that 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
and had an accumulated deficit of approximately $60 million as of September 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, since early 2000, the
Company has substantially reduced marketing expenditures and sold or shut down
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
reduced 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 2003.
However, there are no assurances that such actions will ensure cash sufficiency
through 2003 or that reducing marketing or other 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 any 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 nine months ended September 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 September 30, 2001, and the results of its operations
and its cash flows for the three and nine months ended September 30, 2001 and
2000, respectively. The results for the three and nine months ended September
30, 2001 are unaudited and are not necessarily indicative of the expected
results for the full year or any future period.

The unuaudited 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 September 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 that 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 in which barter revenue is recognized. If the
advertising impressions are received from the customer prior to the Company
delivering its advertising impressions, a liability is recorded. If the Company
delivers its advertising impressions to the customer's Web site prior to
receiving the advertising impressions, a prepaid expense is recorded. At
September 30, 2001, the Company had no prepaid expense or liability associated
with barter transactions. At December 31, 2000, the Company recorded prepaid
expenses of approximately $200,000 for barter advertising to be received. Barter
revenue was approximately $450,000 and $1,915,000, and represented approximately
11% and 15% of total revenue, respectively, for the three and nine months ended
September 30, 2001. Barter revenue was approximately $87,000 and represented
approximately 2% and 1% of total revenue for the three and nine months ended
September 30, 2000, respectively.

Net Loss Per Share

The Company computes net loss per share in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" 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. Stock options outstanding 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) totaled 4,156 at September 30, 2001. The Company intends to grant
options covering 1,180,002 shares of common stock after February 4, 2002 in
connection with its stock option exchange program. See Note 5.

Recent Accounting Pronouncements

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
September 30, 2001.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". 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. The Company does not expect the adoption of these standards to have a
material effect on its consolidated financial statements.

In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for legal obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002 and is not
expected to have a material impact on the Company's consolidated financial
statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Long-Lived Assets," which supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," and the accounting and reporting provisions of APB No. 30, "Reporting the
Results of Operation - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business. While SFAS No. 144
retains many of the fundamental provisions of SFAS No. 121, it establishes a
single accounting model for long-lived assets to be disposed of by sale, and
resolves certain implementation issues not previously addressed by SFAS No. 121.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001
and is not expected to have a material impact on the Company's consolidated
financial statements.

Reclassification

Certain amounts reported in prior periods have been reclassified to conform
to 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 to 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 nine months ended September 30, 2001 and 2000, the five
largest customers accounted for approximately 19% and 20%, and 22% and 26%,
respectively, of total revenue for those periods. No revenues were generated
outside of the United States.

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

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

Three Months Ended September 30, 2001
Revenue $ 3,370,657 $ 817,926 $ - $ 4,188,583
Cost of revenue 750,252 552,370 - 1,302,622
Gross margin 2,620,405 265,556 - 2,885,961
Sales expenses 680,227 - - 680,227
Marketing expenses 475,552 - - 475,552
Product development expenses 252,148 108,063 - 360,211
General and administrative expenses 1,244,332 301,950 - 1,546,282
Depreciation and amortization 115,818 49,636 - 165,454
Other income (expense), net - - (37,712) (37,712)
Segment profit (loss) (147,671) (194,094) (37,712) (379,477)
Total assets $ 2,623,822 $ 644,074 $ 8,459,259 $ 11,727,155

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

Three Months Ended September 30, 2000
Revenue $ 3,012,405 $ 711,639 $ - $ 3,724,044
Cost of revenue 1,697,350 454,767 - 2,152,117
Gross margin 1,315,055 256,872 - 1,571,927
Sales expenses 795,531 - - 795,531
Marketing expenses 263,055 - - 263,055
Product development expenses 279,376 119,733 - 399,109
General and administrative expenses 2,084,143 492,350 - 2,576,493
Restructuring charge - - 843,185 843,185
Depreciation and amortization 156,012 66,862 - 222,874
Goodwill amortization 73,593 - - 73,593
Other income (expense), net - - 39,111 39,111
Segment profit (loss) (2,336,655) (422,073) (804,074) (3,562,802)
Discontinued operations - - 622,995 622,995
Net loss (2,336,655) (422,073) (181,079) (2,939,807)
Total assets $ 3,306,590 $ 988,191 $ 9,604,405 $ 13,899,186

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

Nine Months Ended September 30, 2001
Revenue $ 10,725,010 $ 2,410,639 $ - $ 13,135,649
Cost of revenue 2,426,520 1,595,880 - 4,022,400
Gross margin 8,298,490 814,759 - 9,113,249
Sales expenses 2,253,226 - - 2,253,226
Marketing expenses 2,273,417 - - 2,273,417
Product development expenses 732,738 314,030 - 1,046,768
General and administrative expenses 3,410,319 766,530 - 4,176,849
Depreciation and amortization 382,917 164,107 - 547,024
Other income (expense), net - - (68,653) (68,653)
Segment profit (loss) (754,127) (429,908) (68,653) (1,252,688)
Total assets $ 2,623,822 $ 644,074 $ 8,459,259 $ 11,727,155

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

Nine Months Ended September 30, 2000
Revenue $ 9,072,950 $ 2,203,029 $ - $ 11,275,979
Cost of revenue 6,116,799 1,540,014 - 7,656,813
Gross margin 2,956,151 663,015 - 3,619,166
Sales expenses 2,442,210 - - 2,442,210
Marketing expenses 3,263,543 - - 3,263,543
Product development expenses 1,093,450 468,622 - 1,562,072
General and administrative expenses 5,775,446 1,402,352 - 7,177,798
Restructuring charge - - 2,141,282 2,141,282
Depreciation and amortization 474,705 203,445 - 678,150
Goodwill amortization 220,779 - - 220,779
Other income (expense), net - - 209,410 209,410
Segment profit (loss) (10,313,982) (1,411,404) (1,931,872) (13,657,258)
Discontinued operations - - (2,343,365) (2,343,365)
Net loss (10,313,982) (1,411,404) (4,275,237) (16,000,623)
Total assets $ 3,306,590 $ 988,191 $ 9,604,405 $ 13,899,186

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 without prejudice based on a technical deficiency.
In August 2001, the plaintiff re-filed the complaint. The outcome of this matter
is uncertain at this time.

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 non-cash charge of approximately $860,000. Both the cash charge ($150,000)
and the non-cash charge ($860,000) were recorded during the nine months ended
September 30, 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 became
exercisable on March 31, 2001, and

the balance vest and become exercisable in equal monthly installments 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 $108,000 for the nine months ended September 30, 2001. 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 previously granted options to
purchase 541,936 shares of the Company's common stock under the Company's 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
options vested six months from the date of grant. The remaining options vest in
equal monthly installments over the following 18 months through the second
anniversary of the date of grant. Ms. DeMarse surrendered all of these options
in connection with the Company's stock option exchange program (see Note 5).

NOTE 4 - DIVESTITURE

Pivot

On July 14, 2000, the Company sold Pivot for $4,350,000 in cash. The
Company remains liable on the $4,350,000 five-year convertible subordinated note
issued in connection with the Pivot acquisition. 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
the Company's common stock and has other rights and privileges. 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 in
which employees were offered the opportunity to surrender stock options
previously granted to them in exchange for new options to purchase an equal
number of shares. The new options are to be granted no sooner than 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 surrendered under this program. As a result of this program, the
Company recorded a non-cash compensation charge of approximately $481,000 in the
quarter ended September 30, 2001. Additionally, approximately $3,307,000 was
reclassified from accrued stock compensation expense to additional paid in
capital during the quarter.

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 use Bankrate.com as the source for financial rates and information.

Management believes that the recognition of the Company's research as a
leading source of independent, objective information on banking and credit
products is essential to its success. As a result, the Company has sought to
maximize distribution of its research to gain brand recognition as a research
authority, to build greater brand awareness of the Bankrate.com Web site and to
reach a greater number of online users.

The Company is working to manage its cash by actively controlling expenses
and pursuing additional sources of revenue. For instance, since early 2000, the
Company has substantially reduced marketing expenditures and sold or shut down
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
reduced 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 2003.
However, there are no assurances that such actions will ensure cash sufficiency
through 2002 or that reducing marketing or other 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 any funds or realize its
strategic alternatives on favorable terms or at all.

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 the
Company's 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 the Company's 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 remains liable on the convertible subordinated note issued in connection
with the Pivot acquisition. 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.

through November 15, 2000, which resulted in a non-cash charge of approximately
$860,000. Both the cash charge ($150,000) and the non-cash charge ($860,000)
were recorded in the quarter ended March 31, 2000.

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 installments 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 $108,000 for
the nine months ended September 30, 2001. No further compensation expense
related to these options will be recognized after June 30, 2001.

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 pertained 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 related 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 related to the shut-down and sale of
assets of Consejero.com and other non-core assets. The remaining $476,000
resulted 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.

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 the Company sells is a function of (1) the number of advertisements
per Web page, (2) the number of visitors viewing its Web pages, and (3) the
capacity of the Company's 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 its Web site
transacts with one of its 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.

barter revenue is recognized. If the advertising impressions are received from
the customer prior to the Company delivering its advertising impressions, a
liability is recorded. If the Company delivers its advertising impressions to
the customer's Web site prior to receiving the advertising impressions, a
prepaid expense is recorded. At September 30, 2001, the Company had no prepaid
expense or liability associated with barter transactions. At December 31, 2000,
the Company recorded prepaid expenses of approximately $200,000 for barter
advertising to be received. Barter revenue was approximately $450,000 and
$1,915,000, and represented approximately 11% and 15% of total revenue,
respectively, for the three and nine months ended September 30, 2001. Barter
revenue was approximately $87,000 and represented approximately 2% and 1% of
total revenue for the three and nine months ended September 30, 2000,
respectively.

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. The Company charges 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 its 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 the Company's distribution arrangements
(distribution payments), editorial costs, research costs and allocated overhead.
Distribution payments are made to Web site operators for visitors directed to
the Company's Web site. These costs increase with gains in traffic to the
Company's 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 the Company has added online publications and
co-branded versions of its 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 the Company's products and services to consumers and include
advertising, including banner advertising, marketing and promotion costs, and
barter expense.

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 nine months ended
September 30, 2000 have been classified as discontinued operations in the
condensed consolidated financial statements included herein.

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

Total revenue for the three months ended September 30, 2001 of $4,189,000
increased $465,000, or 12%, over the comparable period in 2000. Online
publishing revenue increased $358,000, or 12%, to $3,371,000 and represented 80%
of total revenue in 2001 compared to 81% in 2000. Excluding barter revenue,
total revenue was $102,000, or 3%, higher than the comparable period in 2000,
while online revenue (excluding barter revenue) was essentially unchanged
compared to the same period in 2000. The slowdown in online revenue was the
result of terminating unprofitable advertising and distribution relationships,
smaller advertising buys from certain existing customers and customers' response
to uncertain economic conditions. Total revenue, excluding barter revenue, for
2001 is projected to be relatively flat compared to 2000.

Print publishing and licensing revenue increased $106,000, or 15%, to
$818,000 during the three months ended September 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 that boosted
the refinance markets and caused more advertisers to publish their rates.

Online publishing costs of $750,000 for the three months ended September
30, 2001 decreased $947,000, or 56%, from the comparable period in 2000. This
decrease was due primarily to costs of approximately $504,000 incurred during
the three months ended September 30, 2000 for theWhiz.com, Consejero.com,
CPNet.com, GreenMagazine.com and ilife.com. CPNet.com was sold in May 2000 and
Consejero.com was sold in August 2000. 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 30% reduction in
full-time equivalent headcount, and a 69% reduction in revenue sharing payments
resulting from the termination of unprofitable distribution relationships.

Excluding barter expense of $450,000 in 2001 and $87,000 in 2000, marketing
expenses of $25,000 for the three months ended September 30, 2001 were $150,000,
or 85%, lower than the same period in 2000. This reduction was a direct result
of strategic initiatives to control costs.

Product development costs of $360,000 for the three months ended September
30, 2001 were $39,000, or 10%, lower than the same period in 2000 due to lower
consulting and contract labor costs, and less spent on non-capitalizable system
hardware and software.

General and administrative expenses of $1,546,000 for the three months
ended September 30, 2001 were $1,030,000, or 40%, lower than the comparable
period in 2000. Human resource costs were approximately $80,000, or 14%, lower
in 2001 due to lower full-time equivalent headcount of 7, or 26%. The remaining
decrease of approximately $950,000 was due primarily to lower consulting and
professional fees, litigation accruals and other expenses in line with the
Company's effort to reduce costs.

Depreciation and amortization of $165,000 for the three months ended
September 30, 2001 was $57,000, or 26%, 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 $74,000 for the three months ended September 30, 2001
was down from $165,000 in the comparable 2000 period due to declining cash
balances and interest rates.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000

Total revenue for the nine months ended September 30, 2001 of $13,136,000
increased $1,860,000, or 16%, over the comparable period in 2000. Online
publishing revenue increased $1,652,000, or 18%, to $10,725,000 and represented
82% of total revenue in 2001 compared to 80% in 2000. Excluding barter revenue,
total revenue of $11,221,000 for the nine months ended September 30, 2001 was
essentially unchanged compared to the amount reported in 2000. Online revenue
excluding barter revenue of $8,810,000 was $176,000, or 2%, less than the amount
reported in 2000. This decrease was the result of terminating unprofitable
advertising and distribution relationships, smaller advertising buys from
certain existing customers and customers' response to uncertain economic
conditions. Total revenue, excluding barter revenue, for 2001 is projected to be
relatively flat compared to 2000.

Print publishing and licensing revenue increased $208,000, or 9%, to
$2,411,000 during the nine months ended September 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 that boosted
the refinance markets and caused more advertisers to publish their rates.

Online publishing costs of $2,427,000 for the nine months ended September
30, 2001 decreased $3,690,000, or 60%, from the comparable period in 2000. This
decrease was due primarily to costs of approximately $2,775,000 incurred during
the nine months ended September 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 25% reduction in
full-time equivalent headcount, and a $668,000, or 50%, reduction in revenue
sharing payments resulting from the termination of unprofitable distribution
relationships.

Excluding barter expense of $2,115,000 in 2001 and $87,000 in 2000,
marketing expenses of $159,000 for the nine months ended September 30, 2001 were
$3,017,000, or 95%, lower than the comparable quarter in 2000. This reduction
was a direct result of the Company's strategic initiatives to control costs.

Product development costs of $1,047,000 for the nine months September 30,
2001 were $515,000, or 33%, lower than the same period in 2000 due to lower
consulting and contract labor costs, and less spent on non-capitalizable system
hardware and software.

General and administrative expenses of $4,177,000 for the nine months ended
September 30, 2001 were $3,001,000, or 42%, lower than the comparable period in
2000. Non-cash compensation expense was $854,000 (including $481,000 related to
the Company's stock option exchange program) during the nine months ended
September 30, 2001 compared to $1,145,000 in the comparable period in 2000. In
March 2000, the Company recorded approximately $860,000 of non-cash 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 his
employment agreement. Human resource costs were approximately $658,000, or 30%,
lower in 2001 due to lower full-time equivalent headcount of 10, or 32%. During
the quarter ended September 30, 2000, litigation reserves of approximately
$955,000 were established. The remaining decrease of approximately $1,097,000
was due primarily to lower consulting and professional fees and other expenses
in line with the Company's effort to reduce costs.

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 pertained 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 related to the write-off of certain costs, primarily
software, licenses and other installation costs, of an abandoned systems
installation.

Depreciation and amortization of $547,000 for the nine months ended
September 30, 2001 was $131,000, 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 $221,000 was a result of the Green Magazine.com acquisition in
the third quarter of 1999.

Interest income of $283,000 for the nine months ended September 30, 2001
was down from $583,000 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 September 30, 2001, the
Company had working capital of approximately $7,248,000. Cash used in operating
activities for the nine months ended September 30, 2001 was approximately
$236,000, reflecting the funding of 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 the Company's
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
September 30, 2001 and anticipates that it will continue to incur operating
losses for the foreseeable future.

Recent Accounting Pronouncements

In September 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This Statement was amended in September 2000 by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." SFAS 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
September 30, 2001.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". 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.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for legal obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002 and is not
expected to have a material impact on the Company's consolidated financial
statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Long-Lived Assets," which supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," and the accounting and reporting provisions of APB No. 30, "Reporting the
Results of Operation - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business. While SFAS No. 144
retains many of the fundamental provisions of SFAS No. 121, it establishes a
single accounting model for long-lived assets to be disposed of by sale, and
resolves certain implementation issues not previously addressed by SFAS No. 121.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
is not expected to have a material impact on the Company's consolidated
financial statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

Exchange Rate Sensitivity

The Company's exposure to foreign currency exchange rate fluctuations is
minimal to none as it does not have any revenues denominated in foreign
currencies. Additionally, the Company has not engaged in any derivative or
hedging transactions to date.

Part II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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. In August 2001,
the plaintiff re-filed the complaint. The outcome of this matter is uncertain at
this time.

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 September 30,
2001, approximately $17,366,000 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

None.

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: November 8, 2001 By: /s/ ROBERT J. DEFRANCO
-----------------------------
Robert J. DeFranco
Senior Vice President
Chief Financial Officer