COOLSAVINGS INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2002

OR

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

For the transition period from _____ to _____

Commission file number 000-30199

CoolSavings, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 36-4462895
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

360 N. Michigan Avenue 19th Floor
Chicago, Illinois 60601
----------------------------------------------------------
Address of principal executive offices, including zip code

Registrant's telephone number, including area code: (312) 224-5000

_________________________________________

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]

Number of shares of common stock, $0.001 par value per share, outstanding
as of October 31, 2002: 39,093,660

INDEX

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Balance Sheets
September 30, 2002 (Unaudited) and
December 31, 2001. . . . . . . . . . . . . . . . . . 3

Statements of Operations (Unaudited)
Three and Nine Month Periods Ended
September 30, 2002 and 2001. . . . . . . . . . . . 6

Statement of Changes in Convertible Redeemable
Preferred Stock and Stockholders' Deficit
(Unaudited) Nine Month Period Ended
September 30, 2002 . . . . . . . . . . . . . . . . . 8

Statements of Cash Flows (Unaudited)
Nine Month Periods Ended
September 30, 2002 and 2001. . . . . . . . . . . . . 9

Notes to Financial Statements. . . . . . . . . . . . . 11

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 19

Item 3. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . . . . 29

Item 4. Controls and Procedures. . . . . . . . . . . . . . . . 29

PART II OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 30

Item 2. Changes in Securities and Use of Proceeds. . . . . . . 31

Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 31

Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 31

Item 5. Other Information. . . . . . . . . . . . . . . . . . . 31

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 32

SIGNATURES AND CERTIFICATIONS. . . . . . . . . . . . . . . . . . . 33

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

COOLSAVINGS, INC.
BALANCE SHEETS
(in thousands, except share and per share data)

SEPTEMBER 30,
2002 DECEMBER 31,
(UNAUDITED) 2001
------------- -----------

ASSETS
------

Current Assets:
Cash and cash equivalents. . . . . . . . . $ 2,021 $ 5,144
Restricted certificates of deposit . . . . 231 231
Accounts receivable, net of allowance
of $826 and $881 at September 30,
2002 and December 31, 2001,
respectively . . . . . . . . . . . . . . 4,480 3,610
Prepaid assets . . . . . . . . . . . . . . 404 320
Other assets, including amounts due
from related parties of $6 and $0
at September 30, 2002 and December 31,
2001, respectively . . . . . . . . . . . 57 144
---------- ----------
Total current assets . . . . . . . . 7,193 9,449
---------- ----------

Property and equipment . . . . . . . . . . . 9,172 10,593
Capitalized software costs . . . . . . . . . 1,490 1,490
Capitalized web site costs . . . . . . . . . 3,152 3,152
---------- ----------

13,814 15,235
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . (9,762) (7,151)
---------- ----------

4,052 8,084

Intangible assets, patents and licenses,
net of accumulated amortization of
$352 and $245 at September 30,
2002 and December 31, 2001,
respectively . . . . . . . . . . . . . . . 199 431
---------- ----------

Total assets . . . . . . . . . . . . . . . . $ 11,444 $ 17,964
========== ==========

COOLSAVINGS, INC.
BALANCE SHEETS - Continued

SEPTEMBER 30,
2002 DECEMBER 31,
(UNAUDITED) 2001
------------- -----------

LIABILITIES
-----------
Current Liabilities:
Accounts payable, including amounts
due to related parties of $3 and
$110 at September 30, 2002 and
December 31, 2001, respectively. . . . . $ 1,163 $ 2,902
Accrued marketing expense, including
amount due to related parties of
$68 and $0 at September 30, 2002 and
December 31, 2001, respectively. . . . . 1,172 266
Accrued compensation . . . . . . . . . . . 630 440
Accrued interest, including amounts
due to related parties of $622
and $113 at September 30, 2002 and
December 31, 2001, respectively. . . . . 622 125
Accrued expenses, including amounts
due to related parties of $645
and $405 at September 30, 2002 and
December 31, 2001, respectively. . . . . 1,947 1,845
Lease exit cost liability. . . . . . . . . 1,204 --
Deferred revenue . . . . . . . . . . . . . 630 351
Notes payable due to related party . . . . 8,770 7,249
Current maturities of long-term debt . . . -- 1,879
Senior secured note payable. . . . . . . . 5,479 5,153
---------- ----------
Total current liabilities. . . . . . 21,617 20,210
---------- ----------

Long-Term Liabilities:
Deferred revenue . . . . . . . . . . . . . 243 241
Lease exit cost liability. . . . . . . . . 739 --
Accrued expenses due to related
parties. . . . . . . . . . . . . . . . . 195 478
---------- ----------
Total long-term liabilities. . . . . 1,177 719

Commitments and contingencies (Note 9)

Convertible redeemable cumulative
Series B Preferred Stock, $0.001
par value, 258,000,000 shares
authorized, 68,438,346 and 65,057,936
issued and outstanding at September 30,
2002 and December 31, 2001,
respectively (liquidation preference
of $0.1554 per share at September 30,
2002 and December 31, 2001). . . . . . . . 10,634 10,108
Convertible redeemable Series C
Preferred Stock, $0.001 par value,
13,000,000 shares authorized,
13,000,000 shares issued and
outstanding at September 30, 2002 and
December 31, 2001 (liquidation
preference of $0.1665 per share at
September 30, 2002 and December 31,
2001). . . . . . . . . . . . . . . . . . . 1,950 1,950

COOLSAVINGS, INC.
BALANCE SHEETS - Continued

SEPTEMBER 30,
2002 DECEMBER 31,
(UNAUDITED) 2001
------------- -----------

STOCKHOLDERS' DEFICIT
---------------------

Common stock, $0.001 par value per
share, 379,000,000 shares authorized,
39,093,660 shares issued and outstanding
at September 30, 2002 and December 31,
2001 . . . . . . . . . . . . . . . . . . . 39 39

Additional paid-in capital . . . . . . . . . 73,891 74,517

Accumulated deficit. . . . . . . . . . . . . (97,864) (89,579)
---------- ----------

Total stockholders' deficit. . . . . (23,934) (15,023)
---------- ----------

Total liabilities, convertible
redeemable preferred stock and
stockholders' deficit. . . . . . . $ 11,444 $ 17,964
========== ==========

The accompanying notes are an integral part of the financial statements.

COOLSAVINGS, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

(UNAUDITED)

COOLSAVINGS, INC.
STATEMENT OF CHANGES IN CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT

NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002
(Unaudited)
(in thousands, except share and per share data)

COOLSAVINGS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)

2002 2001
---------- ----------
Cash flows used in operating activities:
Net loss . . . . . . . . . . . . . . . . $ (8,285) $ (26,885)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization. . . . . . 3,507 3,781
Provision for doubtful accounts. . . . . 240 183
Interest payment in kind . . . . . . . . 324 --
Forgiveness of notes receivable
and accrued interest from
related parties. . . . . . . . . . . . -- 3,666
Amortization of debt discount. . . . . . -- 3,083
Write-off related to website project
costs and intangible assets. . . . . . 204 510
(Gain) loss on sale of equipment . . . . (5) 40
Loss on asset impairment . . . . . . . . 1,233 --
Landmark transaction costs . . . . . . . 21 --
Changes in assets and liabilities:
(Increase) in restricted certificates
of deposit . . . . . . . . . . . . . . -- (82)
(Increase) decrease in accounts
receivable . . . . . . . . . . . . . . (1,110) 6,815
Decrease (increase) in prepaid and
other current assets . . . . . . . . . 3 (1,055)
(Decrease) in accounts payable . . . . . (1,739) (1,591)
Increase (decrease) in deferred
revenue. . . . . . . . . . . . . . . . 281 (375)
Increase (decrease) in accrued and
other liabilities. . . . . . . . . . . 1,397 (410)
Increase in lease exit cost
liability. . . . . . . . . . . . . . . 1,943 --
---------- ----------
Net cash flows used in
operating activities . . . . . . . . . . (1,986) (12,320)
---------- ----------

Cash flows used in investing activities:
Purchases of property and equipment. . . (366) (1,722)
Capitalized web site development
costs. . . . . . . . . . . . . . . . . (340) (1,523)
Sale of property and equipment . . . . . 31 9
---------- ----------
Net cash used in investing activities. . . (675) (3,236)
---------- ----------

Cash flows (used in) provided by
financing activities:
Proceeds from short-term debt. . . . . . -- 1,551
Advances on notes payable. . . . . . . . 1,500 14,879
Repayment of debt obligations. . . . . . (1,962) (3,259)
Cash overdraft . . . . . . . . . . . . . -- (1,335)
---------- ----------
Net cash (used in) provided by
financing activities . . . . . . . . . . (462) 11,836
---------- ----------

COOLSAVINGS, INC.
STATEMENTS OF CASH FLOWS - Continued

2002 2001
---------- ----------

Net decrease in cash . . . . . . . . . . . (3,123) (3,720)
Cash and cash equivalents,
beginning of period. . . . . . . . . . . 5,144 7,041
---------- ----------

Cash and cash equivalents,
end of period. . . . . . . . . . . . . . $ 2,021 $ 3,321
========== ==========

Supplemental schedule of cash flow
information:
Cash paid for interest . . . . . . . . . $ 51 $ 313

Noncash investing and financing activity:
Capitalized transactions costs
relating to the Landmark transaction . $ -- $ 1,268
Obligation to issue common stock
for purchase of intellectual
property . . . . . . . . . . . . . . . $ -- $ 18

The accompanying notes are an integral part of the financial statements.

COOLSAVINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(Unaudited)

1. BASIS OF PRESENTATION:

CoolSavings, Inc. (the "Company") is a direct marketing and media
company that provides smarter solutions to connect marketers to their
target consumers using analytics and incentive technology. Under our
established brand, advertisers can deliver, target and track a wide array
of incentives, including printed and electronic coupons, personalized e-
mails, rebates, samples, trial offers, sales notices, and gift certificates
to promote sales of products or services in stores or online.

The Company has sustained significant net losses and negative cash
flows from operations since its inception. The Company's ability to meet
its obligations in the ordinary course of business is dependent upon its
ability to establish profitable operations. If the Company is unsuccessful
in achieving and maintaining cash flow positive operations or securing
additional equity and/or debt financing or complying with the terms of its
financing with Landmark Communications, Inc. and Landmark Ventures VII, LLC
(together "Landmark"), its ability to continue to operate the business will
be jeopardized.

The Company's independent auditors have issued their report on its
financial statements for 2001 with an explanatory paragraph. The
explanatory paragraph describes the uncertainty as to the Company's ability
to continue as a going concern.

These financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all the
disclosures required in the financial statements included in the Company's
most recently filed Annual Report on Form 10-K, as amended. Accordingly,
these financial statements should be read in conjunction with the financial
statements and related notes in such document.

In the opinion of the Company, the accompanying unaudited financial
statements reflect all normal recurring adjustments necessary for a fair
statement of the financial position as of September 30, 2002, and the
results of operations for the three and nine month periods ended and cash
flows for the nine month periods ended September 30, 2002 and 2001. In
addition, these quarterly results of operations are not necessarily
indicative of those expected for the year. Certain prior period amounts
have been reclassified to conform to the current period's presentation.

2. RECENT ACCOUNTING PRONOUNCEMENTS:

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," ("SFAS 143") which addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
is required to be adopted for fiscal years beginning after June 15, 2002.
The Company does not expect the adoption of SFAS 143 to have a material
impact on its financial position or results of operations.

3. BANK LINES OF CREDIT AND OTHER LOANS:

a. Bank Lines of Credit:

The Company has two separate credit facilities under which the
Company had no borrowings and had $1,490 letters of credit outstanding at
September 30, 2002.

Under the credit facility with American National Bank (the "ANB
Facility") the Company has one term loan and one $3,000 revolving credit
line. The term loan and the revolving credit line had an outstanding
balance of $0 at September 30, 2002. On August 21, 2002, the Company was
deemed by American National Bank to be in default under the ANB Facility
due to a banking covenant violation. Under the terms of the ANB Facility,
as a result of the default, American National Bank was released from any
obligation to advance the Company additional funds under the ANB Facility.
Additionally, the Company had $1,490 of letters of credit outstanding under
the credit line at September 30, 2002 to collateralize lease deposits on
its office facilities. The Company had restricted certificates of deposit
relating to the letters of credit in the aggregate amount of $231 at
September 30, 2002. Borrowings are collateralized by substantially all the
assets of the Company.

Effective August 31, 2002, the Company entered into an Amended and
Restated Reimbursement Agreement (the "Reimbursement Agreement") with
Landmark Communications, Inc. On behalf of the Company, Landmark has
applied for and received letters of credit in the aggregate amount of
$1,599 from Wachovia Bank to collateralize lease deposits on the Company's
office facilities (the "Landmark Letters of Credit"). Under the
Reimbursement Agreement, the Company has agreed, among other things, to
reimburse Landmark for all amounts that Landmark is required to pay
Wachovia under the bank agreement related to the Landmark Letters of
Credit, including all fees, penalties, interest and amounts in connection
with draws on the Landmark Letters of Credit. The Company has agreed to
secure such obligations with a lien on all of the Company's assets,
subordinate only to the liens in favor of American National Bank and
Midwest Guaranty Bank. The Company is replacing the letters of credit
outstanding under ANB Facility with the Landmark Letters of Credit. The
Landmark Letters of Credit expire in March and April of 2003. Landmark is
under no obligation to apply to Wachovia for a renewal of such Letters of
Credit and may, in its sole discretion, cancel such Letters of Credit on
ninety (90) days written notice to the Company. If the Landmark Letters of
Credit so expire or are cancelled, the Company will need to enter into an
alternate credit arrangement.

Under the credit facility with Midwest Guaranty Bank (the "Midwest
Facility"), the Company has a $1,000 equipment line of credit. At
September 30, 2002, there was $0 outstanding under this credit line. On
August 21, 2002 the Company was deemed by American National Bank to be in
default under the ANB Facility due to a banking covenant violation. Under
the terms of the Midwest Facility, default under the ANB Facility releases
Midwest Guaranty Bank from any obligation to advance the Company additional
funds under the Midwest Facility. Borrowings are collateralized by the
specific equipment purchased.

b. Landmark Loans:

In 2001, Landmark loaned the Company $5,000 pursuant to a senior
secured note, which loan is due on June 30, 2006 (the "Senior Secured
Loan"). The Senior Secured Loan is governed by the terms of an amended and
restated senior secured loan and security agreement dated July 30, 2001, as
amended (the "Amended and Restated Loan Agreement"). The Senior Secured
Loan is secured by a lien on all of the Company's assets, subordinate only
to the liens in favor of American National Bank and Midwest Guaranty Bank,
and bears interest at 8.0% per annum. The interest is paid quarterly in
arrears in the form of additional notes and warrants (described below). The
Company has the right to prepay the Senior Secured Loan on or after the
third anniversary if certain conditions are met. The Amended and Restated
Loan Agreement also contains financial covenants and negative and
affirmative covenants that, among other things, restrict the Company's
ability to incur additional indebtedness and take other actions without the
consent of Landmark.

At September 30, 2002, the Company was not in compliance with certain
financial covenants of the Senior Secured Loan. The following is a list of
the significant defaults under the Senior Secured Loan and the Amended and
Restated Loan Agreement, and therefore under the Grid Note (described
below), as the Senior Secured Loan and Grid Note have cross-default
provisions and are cross-collateralized:

.. The Company's failure to achieve a prescribed amount of billings
during the first, second and third quarters of 2002; and

.. The Company's failure to maintain a minimum level of working capital
and a ratio of cash, cash equivalents and certain receivables over
current liabilities; and

.. The Company's failure to maintain a minimum ratio of total
indebtedness over tangible net worth.

These failures constitute events of default. Consequently, the
Senior Secured Loan and all accrued interest thereon are immediately due
and payable at the option of Landmark. Accordingly, the Company has
classified the Senior Secured Loan as currently payable as of September 30,
2002, which, including principal and the paid-in-kind interest which has
been compounded on the principal balance, totals $5,479.

In connection with the Senior Secured Loan, the Company issued to
Landmark warrants to purchase the Company's common stock (the "Landmark
Warrants"). The Landmark Warrants have a term of eight years (expiring
July 30, 2009) and may be exercised in whole or in part immediately. The
warrants contain a net exercise feature and were exercisable for 10.0
million shares of the Company's common stock at an exercise price of $0.50
per share on November 12, 2001 (increasing to $0.75 per share on July 30,
2005, if not previously exercised). The Company will issue to Landmark
additional warrants to purchase two shares of common stock for each dollar
of interest accrued and paid-in-kind on a quarterly basis (January 31,
April 30, July 31 and October 31) on the Senior Secured Loan. As of
July 31, 2002, the Landmark Warrants were exercisable for 10,591,266 shares
of the Company's common stock.

Landmark has funded additional amounts to the Company pursuant to a
grid note, as amended (the "Grid Note"). The Grid Note is governed by the
terms of the Amended and Restated Loan Agreement. The Grid Note bears
interest at 8% per annum, is payable on demand, and may evidence up to
$20,000 in advances. During the second half of 2001 and through the first
quarter of 2002, Landmark loaned to the Company under the Grid Note an
aggregate of $18,770, of which $18,000 related to cash advances (in several
separate advances) and $770 related to transaction costs reimbursable to
Landmark. The loan under the Grid Note is subject to cross-default
provisions, is cross-collateralized with the Senior Secured Loan, and
maintains the exact same covenants as the Senior Secured Loan pursuant to
the Amended and Restated Loan Agreement.

On November 12, 2001, pursuant to a securities purchase agreement
between Landmark and the Company dated July 30, 2001, as amended (the
"Securities Purchase Agreement"), Landmark exercised its right to apply
$10,000 of principal and $108 of accrued interest under the Grid Note to
the purchase of the Company's Series B Preferred Stock (See Note 4).
Consequently, the outstanding principal balance under the Grid Note at
September 30, 2002 was $8,770.

4. REDEEMABLE PREFERRED STOCK:

a. Series B Preferred Stock:

On November 12, 2001, under the Securities Purchase Agreement, the
Company issued to Landmark 65,057,936 shares of $0.001 par value Series B
preferred stock (the "Series B Preferred Stock") for $10,108. As a result
of this issuance of Series B Preferred Stock, Landmark has the right to
elect not less than a majority of the Company's board of directors. The
Series B Preferred Stock has certain conversion rights and has an 8% annual
dividend, payable quarterly in additional shares of Series B Preferred
Stock. For the nine months ended September 30, 2002, dividends in the
amount of 4,026,311 shares of Series B Preferred Stock have been accrued
and 3,380,410 have been declared to the holders of Series B Preferred
Stock. As a result of the defaults under the Amended and Restated Loan
Agreement, Landmark may at its option require the Company to redeem all of
the issued and outstanding Series B Preferred Stock at any time.

Under the Securities Purchase Agreement, Landmark also has the right
to purchase additional shares of Series B Preferred Stock at the same price
per share ($0.1554 per share) (the "Landmark Shortfall Rights") upon the
occurrence of certain events ("Shortfall Events") prior to December 31,
2002. Under a side letter entered into by Landmark and the Company on
November 12, 2001, the Company agreed that if the Company needed financing
from Landmark prior to December 31, 2002 such need would, by definition,
give rise to a Shortfall Event, and in lieu of directly purchasing the
shares of Series B Preferred Stock in connection with each such financing,
Landmark could make advances under the Grid Note and later elect at its
option on or before December 31, 2002 to apply all or any part of the
advances and accrued interest under the Grid Note to the exercise of the
applicable Landmark Shortfall Rights.

Landmark's ownership will continue to increase due to the issuance of
additional shares of Series B Preferred Stock for dividends accruing on
issued Series B Preferred Stock. Landmark's ownership also will increase
if it exercises the Landmark Warrants or the accrued Landmark Shortfall
Rights. The number of Landmark Warrants will continue to increase as "in-
kind" payments are made for interest accruing on the Senior Secured Loan.
The number of Landmark Shortfall Rights will continue to increase as
interest accrues on the Grid Note and may continue to increase to the
extent additional Shortfall Events occur.

The sale of Series B Preferred Stock to Landmark together with the
loans advanced by Landmark under the Grid Note and the Senior Secured Loan
resulted in a change in voting control of the Company in 2001.

As of September 30, 2002, the Company has reserved approximately 158
million shares of common stock for the conversion of all the outstanding
shares of Series B Preferred Stock and accrued dividends, the exercise of
all accrued Landmark Shortfall Rights under the Grid Notes, the exercise on
October 24, 2002 of Landmark's Landmark Shortfall Rights in respect of a
Shortfall Event which resulted in the purchase by and issuance to Landmark
of 17,825,212 shares of Series B Preferred Stock and the exercise of all
outstanding Landmark Warrants.

b. Series C Preferred Stock:

As a condition to the consummation of the Landmark purchase of
Series B Preferred Stock on November 12, 2001, the Company issued to three
individuals (two of whom are directors of the Company) 13 million shares of
$0.001 par value Series C preferred stock (the "Series C Preferred Stock").
The Series C Preferred Stock was issued in exchange for certain notes held
by those individuals, the related accrued interest and the accompanying
warrants to purchase 1,050,000 shares of common stock previously issued to
such individuals. As of September 30, 2002, the Company has reserved 13
million shares of common stock for the conversion of all the outstanding
shares of Series C Preferred Stock.

5. IMPAIRMENT OF LONG-LIVED ASSETS:

In August 2002, following the completion of a study of its future
expected space requirements, the Company determined that a significant
portion of its unoccupied leased office space and the assets associated
with that office space were unnecessary for its future operations. In
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Company determined that the estimated undiscounted
cash flows expected to be generated by the assets were less than their net
book value. Therefore, the Company has recorded an operating expense of
$1,233 in the three month period ended September 30, 2002 to write down the
assets to their estimated fair value.

Significant assumptions were required concerning the estimated fair
value of the assets. As provided under SFAS No. 144, the Company primarily
used discounted cash flow analysis, together with other available
information, to estimate the fair values.

6. COSTS ASSOCIATED WITH EXIT ACTIVITIES:

In August 2002, following the completion of a study of its future
expected space requirements, the Company determined that a significant
portion of its unoccupied leased office space and the assets associated
with that office space were unnecessary for its future operations. In
accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities", the Company has recorded an operating expense of
$1,849 in the three month period ended September 30, 2002, representing the
estimated future lease obligations related to the unoccupied office space,
and estimated costs associated with subleasing the space, net of estimated
cash flows from future sublease arrangements.

For the three month period ended September 30, 2002, the lease exit
costs and an offsetting benefit from a previously recorded rent
levelization adjustment were as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
---------------------- ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------

Lease obligation, net
of estimated sub-lease
income. . . . . . . . . . $ 1,414 $ -- $ 1,414 $ --
Adjustment to accrued
rent expense. . . . . . . (132) -- (132) --
Broker commissions and
other miscellaneous
costs . . . . . . . . . . 567 -- 567 --
---------- ---------- ---------- ----------

Lease exit costs . . . . . $ 1,849 $ -- $ 1,849 $ --
========== ========== ========== ==========

At September 30, 2002, the liability associated with the lease exit
costs consisted of the following:

Balance at Subsequent Balance at
December 31, Accruals, September 30,
2001 Net Payments 2002
----------- ----------- ----------- -------------
Lease obligation,
net of estimated
sub-lease income. . $ -- $ 1,414 $ (38) $ 1,376
Broker commissions
and other trans-
action costs. . . . -- 567 -- 567
Less portion of
liability classi-
fied as current . . -- (1,242) 38 (1,204)
---------- ---------- ---------- ----------
Long-term lease
exit liability. . . $ -- $ 739 $ -- $ 739
========== ========== ========== ==========

Any change in this estimate, based on the availability of new or
updated information, will be recorded in the period that it occurs.

7. EARNINGS PER SHARE:

Financial Accounting Standards Board ("FASB") Statement of Accounting
Standards ("SFAS") No. 128 requires companies to provide a reconciliation
of the numerator and denominator of the basic and diluted earnings per
share computations. The calculation below provides net loss, weighted
average common shares outstanding and the resultant net loss per share for
both basic and diluted earnings per share for the three and nine month
periods ended September 30, 2002 and 2001. The calculation of diluted net
loss per share excludes shares of common stock issuable upon the exercise
of employee stock options and investor warrants, and the conversion of the
preferred stock as the effect of such exercises and conversions would be
anti-dilutive.

Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
---------------------- ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Numerator:
Net loss . . . . . . . . $ (4,044) $ (8,280) $ (8,285) $ (26,885)
Cumulative dividend
on Series B
Preferred Stock . . . . (213) -- (626) --
---------- ---------- ---------- ----------
Loss applicable to
common stockholders . . $ (4,257) $ (8,280) $ (8,911) $ (26,885)
========== ========== ========== ==========

Denominator:
Weighted average
shares used in the
calculation of
basic and diluted
loss per share. . . . . 39,093,660 39,093,660 39,093,660 39,093,660
========== ========== ========== ==========

Basic and diluted loss
per share. . . . . . . . $ (0.11) $ (0.21) $ (0.23) $ (0.69)
========== ========== ========== ==========

8. STOCK OPTION COMPENSATION:

During the first three quarters of 2002, the Company granted options
to purchase 4,148,741 shares of common stock pursuant to its 2001 Stock
Option Plan. The options were granted to virtually all the employees of the
Company and several members of the board of directors. The options have a
term of 10 years and vest equally over the next four years. The options
were issued at an exercise price at or above the fair value of the
underlying stock on the date of grant.

9. COMMITMENTS AND CONTINGENCIES:

On October 17, 2002, the Company received a demand for arbitration
from Coupco, Inc. ("Coupco") relating to its dispute over the Company's
obligation to pay royalties under its April 6, 2000 Patent License
Agreement with Coupco (the "Patent License Agreement"). The Company intends
to oppose Coupco's demand and is currently investigating the factual and
legal bases for Coupco's demand; however, a charge was recorded in the
three month period ended September 30, 2002 for the full amount of Coupco's
demand.

On February 12, 2000, Supermarkets Online, an affiliate of Catalina
Marketing, filed a lawsuit against the Company in the United States
District Court for the Central District of California. The complaint
alleges that the Company's systems and methods infringe Supermarkets
Online's United States Patent No. 6,014,634, and seeks unspecified damages
and injunctive relief. The lawsuit is currently stayed (except that fact
discovery is permitted). This stay may be lifted at any time. The Company
has filed with the Patent and Trademark Office a request for a re-
examination of the '634 patent, which request for re-examination was
granted in March 2001. An unfavorable outcome for the Company is considered
neither probable nor remote by management at this time, and an estimate of
possible loss or range of possible losses cannot be made.

On May 8, 2002, the United States Court of Appeals for the Federal
Circuit affirmed-in-part, reversed-in-part, and vacated-in-part the non-
infringement ruling of the U.S. District Court for the Northern District of
Illinois in a lawsuit filed against the Company by Catalina Marketing
International, Inc. The complaint alleges that the Company's systems and
methods infringe Catalina's United States Patent No. 4,674,041, and seeks
to enjoin the Company from further infringing its patent. As a result of
the ruling, this litigation is not concluded. The case has been remanded to
the Northern District for further proceedings to determine whether the
Company has any liability for infringement of the '041 Patent. The Company
intends to defend the action vigorously. An unfavorable outcome for the
Company is considered neither probable nor remote by management at this
time, and an estimate of possible loss or range of possible losses cannot
be made.

On August 23, 1999, the Company instituted a lawsuit in the Northern
District of Illinois against Brightstreet.com, Inc. ("Brightstreet") for
infringement of its United States Patent No. 5,761,648, seeking unspecified
damages and a permanent injunction against further infringement.
Brightstreet filed counterclaims alleging the invalidity and
unenforceability of said patent and seeking unspecified damages and
injunctive relief. The parties agreed to a settlement of the lawsuit in
open court on October 29, 2001. Subsequently, Brightstreet objected to the
report and recommendation of the court that the written settlement
agreement the Company presented most accurately reflected the agreement
reached by the parties. On July 8, 2002, the United States District Court
for the Northern District of Illinois (the "District Court") fully adopted
the report and recommendation of the Magistrate Judge concurring with the
Company's belief that the litigation had been settled, denied
Brightstreet's objections to the report and recommendation, adopted the
written settlement agreement presented by the Company, and dismissed the
case with prejudice. On August 9, 2002, Brightstreet appealed the ruling
of the District Court to the United States Court of Appeals for the Federal

Circuit. An unfavorable outcome for the Company is considered neither
probable nor remote by management at this time, and an estimate of possible
loss or range of possible losses cannot be made.

The Company is also involved in a number of legal proceedings arising
in the ordinary course of business, none of which is expected to have a
material adverse effect on the Company's financial position or results of
operations.

10. CALL OPTION ON CERTAIN LANDMARK SHARES:

On April 5, 2002, Landmark acquired 10,889,636 shares of the
Company's common stock from Lend Lease International Pty. Limited of
Australia. Contemporaneously with the purchase, the Company entered into a
call option agreement with Landmark, whereby the Company has the right to
call, subject to certain terms and conditions, all 10,889,636 shares of
common stock from Landmark. The call price is $0.08 per share plus seven
percent interest thereon, compounded annually. The option can be exercised
at any time after April 5, 2003 and prior to March 31, 2008. The Company
does not have any right to call any other shares of capital stock in the
Company held by Landmark. The Company accounted for this call option as
permanent equity and a contribution from Landmark under EITF 00-19
"Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock". The Company ascribed a
value of $1.2 million to the option at issuance.

11. SUBSEQUENT EVENT:

As a result of the Company's failure to maintain its current assets
at levels specified in the Amended and Restated Loan Agreement, another
Shortfall Event occurred as of June 30, 2002. On October 24, 2002,
Landmark exercised its Landmark Shortfall Rights under the Securities
Purchase Agreement with respect to such Shortfall Event, and the Company
issued to Landmark 17,825,212 shares of $0.001 par value Series B Preferred
Stock for $2,770 ($0.1554 per share). On a proforma basis, if such Series
B Preferred Stock issued in October 2002 had been issued as of September
30, 2002, shares of the outstanding capital stock of the Company would have
increased from 68,438,346 to 86,263,558. The Series B Preferred Stock has
certain conversion rights and bears an 8% annual dividend, payable
quarterly in additional shares of Series B Preferred Stock. As a result
of the defaults under the Amended and Restated Loan Agreement, Landmark may
at its option require the Company to redeem all of the issued and
outstanding Series B Preferred Stock at any time. Other Shortfall Events
continue to exist at September 30, 2002. As a result of such Shortfall
Events, the Company may issue additional shares of Series B Preferred Stock
in the near term.

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

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

You should read the following discussion of our financial condition
and results of operations with the financial statements and the related
notes included elsewhere in this report. This discussion contains
forward-looking statements based on our current expectations, assumptions,
estimates and projections. We have tried to identify these statements by
using words such as "estimates," "expect," "anticipate," "plan" and similar
expressions, but that is not the exclusive means of identifying such
statements. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those
experienced in or anticipated by these forward-looking statements as a
result of numerous risks, uncertainties and other factors, including
without limitation, the Company's ability to obtain additional debt and/or
equity financing, the uncertainties related to our unproven business model
in a rapidly evolving marketplace, and our ability to protect our patents,
trademarks and proprietary rights. For a discussion of these and other
risks, uncertainties and other factors which could cause actual results to
differ from those expressed in or anticipated by the forward-looking
statements, see "Risk Factors" in CoolSavings' Form 10-K, as amended, for
the year ended December 31, 2001, as filed with the SEC.

An additional risk which could cause actual results to differ from
those expressed or anticipated by the forward-looking statements is the
proliferation of unsolicited email on the Internet. Although we do not send
unsolicited email, the proliferation of unsolicited email, commonly known
as "spam," creates a negative public perception of Internet marketing. The
increasing volume of unsolicited email has led to the development of
filtering and blocking software for individual users of the Internet as
well as companies that permit employees to access the Internet from the
workplace. Such software may filter or block our email messages despite the
fact an individual consumer elected to receive our messages. Unsolicited
email can also cause an Internet user's mailbox to fill to capacity and
prevent our permission-based emails from reaching our registered members.
These reactions to unsolicited email on the Internet may impact Internet
marketing generally and could reduce the demand for our services.

We undertake no obligation to update any of the forward-looking
statements after the date of this report to conform these statements to
actual results or otherwise to reflect new developments or changed
circumstances, unless expressly required by applicable federal securities
laws.

OVERVIEW

We are a direct marketing and media company that provides smarter
solutions to connect marketers to their target consumers using industry-
leading analytics and incentive technology. Our mission is to be the
leading provider of promotional offers to consumers while most effectively
connecting marketers to their best customers. With a database of nearly
22.3 million registered U.S. households as of November 1, 2002, we supply
marketers with a single resource for accessing and engaging a dynamic group
of shoppers. Through our customized, integrated direct marketing and media
products, advertisers can target a wide array of incentives, including
printed and electronic coupons, personalized e-mails, rebates, trial
offers, samples, sales notices and gift certificates, to promote sales of
products or services and drive customers into brick-and-mortar stores or
online web sites. In addition, our proprietary database technology tracks
consumer response, shopping preferences and site behavior at the household
and shopper level to provide our clients with an unprecedented breadth of
sophisticated consumer data from which to make smarter marketing decisions.

Our web site, coolsavings.com, offers consumers convenient and
personalized incentives for goods and services from a broad range of
advertisers, including brick-and-mortar retailers, online retailers,
consumer packaged goods manufacturers, and travel and financial service
providers.

CRITICAL ACCOUNTING POLICIES

We have prepared the financial information in this report in
accordance with generally accepted accounting principles of the United
States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Management
bases its estimates and judgements on historical experience and various
other factors that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgements about the
carrying value of assets and liabilities that are not readily apparent from
other sources. Our critical accounting policies include revenue
recognition, estimating sales credits and the allowance for doubtful
accounts, capitalization of web site development costs, the valuation of
long-lived assets including estimates and judgements related to the
impairment of such long-lived assets, lease exit costs and intangible
assets. For a discussion of some of these critical accounting policies, see
"Summary of Significant Accounting Policies" in CoolSavings' Form 10-K, as
amended, for the year ended December 31, 2001, filed with the SEC.

RECENT DEVELOPMENTS

In August 2002, following the completion of a study of our expected
future space requirements, we determined that a significant portion of our
unoccupied leased office space and the assets associated with that office
space were unnecessary for our future operations. In accordance with SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
we determined that the estimated undiscounted cash flows expected to be
generated by the assets were less than their net book value. Therefore, we
recorded an operating expense of $1.2 million in the three month period
ended September 30, 2002 to write down the assets to their estimated fair
value.

In August 2002, following the completion of a study of our expected
future space requirements, we determined that a significant portion of our
unoccupied leased office space and the assets associated with that office
space were unnecessary for our future operations. In accordance with SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities", we have recorded an operating expense of $1.8 million in the
three month period ended September 30, 2002, representing the estimated
future lease obligations related to the unoccupied office space, and
estimated costs associated with subleasing the space, net of estimated cash
flows from future sublease arrangements.

On October 17, 2002, we received a demand for arbitration from
Coupco, Inc. ("Coupco") relating to a dispute over our obligation to pay
royalties under our April 6, 2000 Patent License Agreement with Coupco (the
"Patent License Agreement"). We intend to oppose Coupco's demand and are
currently investigating the factual and legal bases for Coupco's demand;
however, we have recorded a charge in the three month period ended
September 30, 2002 for the full amount of their demand.

As a result of our failure to maintain current assets at levels
specified in the Amended and Restated Loan Agreement, a Shortfall Event
occurred as of June 30, 2002. On October 24, 2002, Landmark exercised its
Landmark Shortfall Rights under the Securities Purchase Agreement, with
respect to such Shortfall Event, and we issued to Landmark 17,825,212
shares of Series B Preferred Stock for $2.8 million ($0.1554 per share).
The Series B Preferred Stock has certain conversion rights and has an 8%
annual dividend, payable quarterly in additional shares of Series B
Preferred Stock. Please see our Annual Report on Form 10-K, as amended, for
a full description of the rights of the Series B Preferred Stock. As a
result of the defaults under the Amended and Restated Loan Agreement,
Landmark may at its option require us to redeem all of the issued and
outstanding Series B Preferred Stock at any time.

REVENUE

DIRECT MARKETING AND MEDIA SERVICES REVENUE

We generate substantially all of our revenues by providing direct
marketing services to our advertisers.

We charge our advertisers on a variety of bases, the most common of
which include:

. the number of e-mails delivered to members, commonly sold on a
cost per thousand, or CPM, basis;

. the number of times members click on an incentive linking the
member to the advertiser's web site (known as a click-through
response); and

. the number of purchases made or qualified leads generated.

Our pricing depends upon a variety of factors, including, without
limitation, the degree of targeting, the duration of the advertising
contract and the number of offers delivered. The degree of targeting refers
to the number of identified household or member attributes, such as gender,
age, or product or service preferences, used to select the audience for an
offer. Generally, the rates we charge our advertisers increase as the
degree of targeting and customization increases. Revenues subject to time-
based contracts are recognized ratably over the duration of the contract.
For contracts based on certain performance or delivery criteria, revenues
are recognized in the month performance is delivered to the customer. Most
of our advertising contracts have stated terms of less than one year and
may include earlier termination provisions. In the three month period
ending September 30, 2002, our largest advertiser accounted for 5.7% of our
revenues and our top five advertisers together accounted for approximately
19.0% of our revenues.

Our revenues for each period depend on a number of factors, including
the number of advertisers sending promotional offers to our members, the
size of our membership base and the responsiveness of our members to each
promotion. We believe that our revenues will be subject to seasonal
fluctuations in accordance with general patterns of retail advertising
spending, which is typically highest during the last half of the third
quarter and first half of the fourth quarter. In addition, expenditures by
advertisers tend to be cyclical, reflecting overall general economic
conditions and consumer buying patterns.

LICENSING REVENUE

We license portions of our intellectual property, including our
issued patents, to third parties. Approximately 1% of our revenue was
generated from royalty and license fees and other miscellaneous sources
during the three month period ended September 30, 2002.

EXPENSES

COST OF REVENUES

Our cost of revenues consists primarily of internet connection
charges, web site equipment depreciation, salaries and related benefits of
operations personnel and other directly related operations costs.

SALES AND MARKETING

Sales and marketing expenses include salaries, sales commissions,
employee benefits, travel and related expenses of our direct sales force,
advertising and promotional expenses, marketing, and sales support
functions. Marketing costs associated with increasing our member base and
other marketing expenses related to our products and services are expensed
in the period incurred.

PRODUCT DEVELOPMENT

Product development costs include expenses for the development of new
or improved technologies designed to enhance the performance of our
service, including employee salaries, employee benefits, amortization of
capitalized web-site development costs, and related expenses for our
technology department, as well as costs for contracted services and
equipment.

GENERAL AND ADMINISTRATIVE

General and administrative expenses include salaries, employee
benefits and expenses for our executive, finance, legal and human resources
personnel. In addition, general and administrative expenses include fees
for professional services and occupancy costs.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001

NET REVENUES

Net revenues increased 66% to $7.1 million in the three month period
ended September 30, 2002 from $4.3 million in the three month period ended
September 30, 2001. The revenue increase was attributable to an increase in
the number of new member registrations and an increase in the number of
revenue producing actions initiated by our members.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues decreased to $0.9 million in the three month period
ended September 30, 2002, from $1.3 million in the three month period ended
September 30, 2001. Gross profit increased as a percentage of net revenues
to 88% in the three month period ended September 30, 2002, from 69% in the
three month period ended September 30, 2001. The increase in gross profit
is partially attributable to the costs eliminated when we discontinued our
member incentive and loyalty program, CoolSavings Rewards, in 2001.
Additionally, the increase reflects the realization of the personnel and
personnel related cost reductions that occurred during fiscal year 2001.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses increased to $3.9
million, or 54% of net revenues in the three month period ended
September 30, 2002, from $2.9 million, or 69% of net revenues, in the three
month period ended September 30, 2001. The $1.0 million increase in sales
and marketing expenses was primarily due to higher online advertising
expense, partially offset by the realization of personnel and personnel
related cost reductions that occurred during fiscal year 2001.

PRODUCT DEVELOPMENT. Product development expenses decreased to $0.9
million, or 13% of net revenues, in the three month period ended
September 30, 2002, from $1.1 million, or 25% of net revenues, in the three
month period ended September 30, 2001. The $0.2 million decrease in
product development expenses was primarily due to the realization of the
personnel and personnel related cost reductions that occurred during fiscal
year 2001.

GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased to $2.1 million, or 30% of net revenues, in the three month
period ended September 30, 2002, from $3.9 million, or 91% of net revenues,
in the three month period ended September 30, 2001. The $1.8 million
decrease in general and administrative expenses was primarily due to a $1.0
million severance charge incurred in 2001 relating to the termination of a
former executive, $0.7 million incurred in 2001 related to Landmark
transaction costs, lower bad debt expense, and other general expense
reductions. Partially offsetting these decreases was a $1.2 million
increase due to higher accounts payable settlement gains realized in 2001.

LEASE EXIT COSTS. In August 2002, following the completion of a
study of our future space requirements, we determined that a significant
portion of our unoccupied leased office space and the assets associated
with that office space were unnecessary for our future operations. In
accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities", we recorded an operating expense of $1.8 million in
the three month period ended September 30, 2002, representing the estimated
future lease obligations related to the unoccupied office space, and
estimated costs associated with subleasing the space, net of estimated cash
flows from future sublease arrangements. Any change in this estimate,
based on new or updated information, will be recorded in the period that it
occurs.

LOSS ON ASSET IMPAIRMENT. In August 2002, following the completion
of a study of our future space requirements, we determined that a
significant portion of our unoccupied leased office space and the assets
associated with that office space were unnecessary for our future
operations. In accordance with SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", we determined that the estimated
undiscounted cash flows expected to be generated by the assets were less
than their net book value. Therefore, we recorded an operating expense of
$1.2 million in the three month period ended September 30, 2002 to write
down the assets to their estimated fair value.

Significant assumptions were required concerning the estimated fair
value of the assets. As provided under SFAS No. 144, we primarily used
discounted cash flow analysis, together with other available information,
to estimate fair values.

INTEREST INCOME (EXPENSE), NET. During the three month period ended
September 30, 2002, we incurred net interest expense of $288, as compared
to net interest expense of $267 (exclusive of the amortization of debt
discount) for the three month period ended September 30, 2001. During the
three month period ended September 30, 2002, net interest expense increased
due to interest on the Landmark Senior Secured Loan and the Landmark Grid
Note, partially offset by lower interest expense on the credit facility
with American National Bank (the "ANB Facility"), and the credit facility
with Midwest Guaranty Bank (the "Midwest Facility").

AMORTIZATION OF DEBT DISCOUNT. During the three month period ended
September 30, 2001, we were in default of the debt covenants under the
Amended and Restated Loan Agreement with Landmark. Therefore the debt
discount resulting from the issuance of a $5.0 million Senior Secured Loan
to Landmark of $3.1 million was immediately amortized to interest expense
to reflect the debt at its callable value.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2001

NET REVENUES

Net revenues increased 13% to $18.0 million in the nine month period
ended September 30, 2002 from $15.9 million in the nine month period ended
September 30, 2001. The revenue increase was attributable to an increase
in the number of new member registrations and an increase in the number of
revenue producing actions initiated by our members.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues decreased to $2.8 million in the nine month period
ended September 30, 2002, from $4.8 million in the nine month period ended
September 30, 2001. Gross profit increased as a percentage of net revenues
to 85% in the nine month period ended September 30, 2002, from 70% in the
nine month period ended September 30, 2001. The increase in gross profit is
partially attributable to the costs eliminated when we discontinued our
member incentive and loyalty program, CoolSavings Rewards, in 2001. The
increase in gross profit also reflects the realization of the personnel and
personnel related cost reductions that occurred during fiscal year 2001.
Additionally, the costs of gift certificates decreased due to lower revenue
involving gift certificate incentives.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses decreased to $10.0
million, or 55% of net revenues in the nine month period ended
September 30, 2002, from $14.1 million, or 89% of net revenues, in the nine
month period ended September 30, 2001. The $4.1 million decrease in sales
and marketing expenses was primarily due to the realization of the
personnel and personnel related cost reductions that occurred during fiscal
year 2001. The decrease is also attributable to lower expenses associated
with a decrease in barter revenue.

PRODUCT DEVELOPMENT. Product development expenses decreased to $2.9
million, or 16% of net revenues, in the nine month period ended
September 30, 2002, from $4.9 million, or 31% of net revenues, in the nine
month period ended September 30, 2001. The $2.0 million decrease in
product development expenses was primarily due to the realization of the
personnel and personnel related cost reductions that occurred during fiscal
year 2001.

GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased to $6.7 million, or 37% of net revenues, in the nine month period
ended September 30, 2002, from $15.4 million, or 97% of net revenues, for
the nine month period ended September 30, 2001. The $8.7 million decrease
in general and administrative expenses was primarily due to a one time $3.9
million charge in 2001 relating to the forgiveness of certain loans and
interest owed by related parties, the realization of the personnel and
personnel related cost reductions that occurred during fiscal year 2001,
reduced bad debt expense, a $1.0 million severance charge incurred in 2001
relating to the termination of a former executive, and $0.7 million
incurred in 2001 relating to Landmark transaction costs. Partially
offsetting these decreases was a $1.0 million increase due to higher
accounts payable settlement gains realized in 2001.

LEASE EXIT COSTS. In August 2002, following the completion of a
study of our expected future space requirements, we determined that a
significant portion of our unoccupied leased office space and the assets
associated with that office space were unnecessary for our future
operations. In accordance with SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", we recorded an operating
expense of $1.8 million in the nine month period ended September 30, 2002,
representing the estimated future lease obligations related to the
unoccupied office space, and estimated costs associated with subleasing the

space and net of estimated cash flows from future sublease arrangements.
Any change in this estimate, based on the availability of new or updated
information, will be recorded in the period that it occurs.

LOSS ON ASSET IMPAIRMENT. In August 2002, following the completion
of a study of our expected future space requirements, we determined that a
significant portion of our unoccupied leased office space and the assets
associated with that office space were unnecessary for our future
operations. In accordance with SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", we determined that the estimated
undiscounted cash flows expected to be generated by the assets were less
than their net book value. Therefore, we recorded an operating expense of
$1.2 million in the nine month period ended September 30, 2002 to write
down the assets to their estimated fair value.

Significant assumptions were required concerning the estimated fair
value of the assets. As provided under SFAS No. 144, we primarily used
discounted cash flow analysis, together with other available information,
to estimate fair market values.

INTEREST INCOME (EXPENSE), NET. During the nine month period ended
September 30, 2002, we incurred net interest expense of $847, as compared
to net interest expense of $279 (exclusive of the amortization of debt
discount) for the nine month period ended September 30, 2001. During the
nine month period ended September 30, 2002, interest expense increased due
to interest on the Landmark Senior Secured Loan and the Landmark Grid Note.

AMORTIZATION OF DEBT DISCOUNT. During the nine month period ended
September 30, 2001, we were in default of the debt covenants under the
Amended and Restated Loan Agreement with Landmark. Therefore the debt
discount resulting from the issuance of a $5.0 million Senior Secured Loan
to Landmark of $3.1 million was immediately amortized to interest expense
to reflect the debt at its callable value.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception we have financed our operations primarily through
the sale of our stock and the issuance of notes payable. In March 2001, we
received proceeds from the sale of our convertible subordinated promissory
notes and warrants in the amount of $2.1 million. In June and July 2001,
we received proceeds of $5.0 million in loans from Landmark. In addition,
Landmark funded to us an additional $10.0 million through October 31, 2001
to us under the Grid Note, which amount plus accumulated interest was
applied to Landmark's purchase of 65,057,936 shares of Series B Preferred
Stock on November 12, 2001. As of November 12, 2001, as a result of the
sale of Series B Preferred Stock to Landmark together with the loans by
Landmark under the Grid Note and the Senior Secured Loan, Landmark has
voting control of us. In addition, we are in default under the covenants
of the Securities Purchase Agreement and the Amended and Restated Loan
Agreement, thereby giving Landmark the right to demand repayment of the
outstanding Senior Secured Loan and the Grid Note borrowings. As a result
of these defaults, Landmark may at its option also require us to redeem all
of the issued and outstanding Series B Preferred Stock at any time. We
have received cash proceeds of $8.0 million in additional borrowings from
Landmark under the Grid Note since November 12, 2001. Of the $8.0 million,
$1.5 million was received in 2002. At September 30, 2002, we had
approximately $2.0 million in cash and cash equivalents. Although Landmark
has funded our recent cash needs, Landmark has reserved its rights with
respect to all of our breaches and defaults under our agreements with
Landmark, and Landmark is under no obligation to advance us any additional
funds.

Net cash used in operating activities was $2.0 million in the nine
month period ended September 30, 2002. Net cash used in operating
activities resulted primarily from ongoing losses in the business and an
increase in accounts receivable, partially offset by an increase in
liabilities.

Net cash used in investing activities was $0.7 million in the nine
month period ended September 30, 2002. Net cash used in investing
activities resulted from purchases of property and equipment and amounts
used in developing our web site.

Net cash used in financing activities was $0.5 million in the nine
month period ended September 30, 2002. Net cash used in financing
activities is attributable to the $2.0 million in repayment of debt
obligations which was partially offset by $1.5 million of proceeds from
borrowings under our Grid Note. We invest all proceeds from financing
activities in cash equivalents with maturities not exceeding 90 days. We
intend to continue investing our excess cash in various short-term
securities.

We have two separate credit facilities under which we had no
borrowings and had $1.5 million in letters of credit outstanding at
September 30, 2002.

Under the ANB Facility, we have one term loan and one $3.0 million
revolving credit line. The term loan and the revolving credit line had an
outstanding balance of $0 at September 30, 2002. On August 21, 2002, we
were deemed by American National Bank to be in default under the ANB
Facility due to a banking covenant violation. Under the terms of the ANB
Facility, as a result of the default, American National Bank was released
from any obligation to advance us additional funds under the ANB Facility.
Additionally, we had $1.5 million of letters of credit outstanding under
the credit line at September 30, 2002 to collateralize lease deposits on
our office facilities. We had restricted certificates of deposit relating
to the letters of credit in the aggregate amount of $0.2 million at
September 30, 2002. Borrowings are collateralized by substantially all of
our assets.

Effective August 31, 2002, we entered into a Reimbursement Agreement
with Landmark Communications, Inc. On our behalf, Landmark has applied for
and received letters of credit in the aggregate amount of $1.6 million from
Wachovia Bank to collateralize lease deposits on our office facilities.
Under the Reimbursement Agreement we have agreed, among other things, to
reimburse Landmark for all amounts that Landmark is required to pay
Wachovia under the bank agreement related to the Landmark Letters of
Credit, including all fees, penalties, interest and amounts in connection
with draws on the Letters of Credit. We have agreed to secure such
obligations with a lien on all of our assets, subordinate only to the liens
in favor of American National Bank and Midwest Guaranty Bank. We are
required to immediately reimburse Landmark for all amounts Landmark is
required to pay Wachovia under the Reimbursement Agreement. If we fail to
pay to Landmark any amount when due, interest shall accrue and compound on
all such amounts at the rate of 7% per annum until such time as Landmark
demands payment. Upon Landmark's demand for payment, interest shall accrue
and compound on all such amounts at the rate of 10% per annum from the date
of the demand, increasing monthly at a rate of 1%. We are replacing the
letters of credit currently outstanding under the ANB Facility with the
Landmark Letters of Credit. The Landmark Letters of Credit expire in March
and April of 2003. Landmark is under no obligation to apply to Wachovia for
a renewal of such Letters of Credit and may, at its sole discretion, cancel
such Letters of Credit on ninety (90) days written notice to us. If the
Landmark Letters of Credit so expire or are cancelled, we will need to
enter into an alternate credit arrangement.

Under the Midwest Guaranty Facility, we have a $1.0 million equipment
line of credit. At September 30, 2002, there was $0 outstanding under this
line. On August 21, 2002, we were deemed by American National Bank to be in
default under the ANB Facility due to a banking covenant violation. Under
the terms of the Midwest Facility, default under the ANB Facility releases
Midwest Guaranty Bank from any obligation to advance us additional funds
under the Midwest Facility. Borrowings are collateralized by the specific
equipment purchased.

In 2001, Landmark loaned us $5.0 million pursuant to a senior secured
note, which loan is due on June 30, 2006 (the "Senior Secured Loan"). The
Senior Secured Loan is governed by the terms of an amended and restated
senior secured loan and security agreement dated July 30, 2001, as amended
(the "Amended and Restated Loan Agreement"). The Senior Secured Loan is
secured by a lien on all of our assets, subordinate only to the liens in
favor of American National Bank and Midwest Guaranty Bank, and bears
interest at 8.0% per annum. The interest is paid quarterly in arrears in
the form of additional notes and warrants (described below). We have the
right to prepay the Senior Secured Loan on or after the third anniversary
if certain conditions are met. The Amended and Restated Loan Agreement
also contains financial covenants and negative and affirmative covenants
that, among other things, restrict our ability to incur additional
indebtedness and take other actions without the consent of Landmark.

At September 30, 2002, we were not in compliance with certain
financial covenants of the Senior Secured Loan. Our failure to comply
constitutes an event of default. Consequently, the Senior Secured Loan is
immediately due and payable at the option of Landmark, including accrued
interest. Accordingly, we have classified the Senior Secured Loan as
currently payable as of September 30, 2002, which, including principal and
the paid-in-kind interest which has been compounded on the principal
balance, totals $5.5 million.

In connection with the Senior Secured Loan, on November 12, 2001, we
issued to Landmark warrants to purchase our common stock (the "Landmark
Warrants"). The Landmark Warrants have a term of eight years (expiring
July 30, 2009) and may be exercised in whole or in part immediately. The
warrants contain a net exercise feature and were originally exercisable for
10.0 million shares of our common stock at an exercise price of $0.50 per
share (increasing to $0.75 per share on July 30, 2005 if not previously
exercised). We will issue to Landmark additional warrants to purchase two
shares of common stock for each dollar of interest accrued and paid-in-kind
on a quarterly basis (January 31, April 30, July 31 and October 31) on the
Senior Secured Loan. As of July 31, 2002, the Landmark Warrants were
exercisable for 10,591,266 shares of our common stock.

Landmark has also funded additional amounts to us pursuant to a grid
note, as amended (the "Grid Note"). The Grid Note is also governed by the
terms of the Amended and Restated Loan Agreement. The Grid Note bears
interest at 8% per annum, is payable on demand, and may evidence up to
$20.0 million in advances. During the second half of 2001 and through the
first quarter of 2002, Landmark loaned us under the Grid Note an aggregate
of $18.8 million, of which $18 million related to cash advances (in several
separate advances) and $0.8 million related to transaction costs
reimbursable to Landmark. The Grid Note is cross-collateralized with the
Senior Secured Loan and maintains the exact same covenants as the Senior
Secured Loan pursuant to the Amended and Restated Loan Agreement.

On November 12, 2001, pursuant to the securities purchase agreement
between Landmark and us dated July 30, 2001, as amended (the "Securities
Purchase Agreement"), Landmark exercised their right to apply $10 million
of principal and $0.1 million of accrued interest under the Grid Note to
the purchase of our Series B Preferred Stock. Consequently, the
outstanding principal balance under the Grid Note at September 30, 2002 is
$8.8 million.

Under the Securities Purchase Agreement, Landmark also has the right
to purchase additional shares of Series B Preferred Stock at the price of
$0.1554 per share (the "Landmark Shortfall Rights") upon the occurrence of
certain events ("Shortfall Events") prior to December 31, 2002. As a
result of our failure to maintain our current assets at levels specified in
the Amended and Restated Loan Agreement, a Shortfall Event occurred as of
June 30, 2002. On October 24, 2002, Landmark exercised its Landmark
Shortfall Rights under the Securities Purchase Agreement with respect to

such Shortfall Event, and we issued to Landmark 17,825,212 shares of
Series B Preferred Stock for $2.8 million ($0.1554 per share). The Series
B Preferred Stock has certain conversion rights and bears an 8% annual
dividend, payable quarterly in additional shares of Series B Preferred
Stock. As a result of the defaults under the Amended and Restated Loan
Agreement, Landmark may at its option require us to redeem all of the
issued and outstanding Series B Preferred Stock at any time. Other
Shortfall Events continue to exist at September 30, 2002. As a result of
such Shortfall Events, the Company may issue additional shares of Series B
Preferred Stock in the near term.

Our operations have generated negative cash flows since inception.
The cost reduction plan implemented in the fourth quarter of fiscal year
2000 included a significant decrease in offline marketing expenditures and
a reduction in salaried personnel and third party technical consultants. In
the second and third quarters of 2001, we experienced reductions in
salaried personnel through attrition. We further reduced salaried personnel
and marketing expenditures in the second and third quarters of 2001. We
believe that this plan has significantly reduced operating expenses and
will continue to have a positive effect on cash flow during the remainder
of 2002.

Our independent auditors have issued their report on our financial
statements for 2001 with an explanatory paragraph. The explanatory
paragraph describes the uncertainty as to our ability to continue as a
going concern. However, with the Landmark funding received and our cost
reduction plan in place we do not currently anticipate needing additional
debt and/or equity financing to fund operations for the remainder of 2002.
We may need additional funding for operations beyond 2002. If we are
unable to obtain the needed additional financing, our ability to operate
our business may be jeopardized.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the Company's Financial Statements.

FACTORS AFFECTING OPERATING RESULTS

Our results of operations have varied widely in the past and we
expect that they may continue to vary in the future due to a number of
factors, including those set forth in our Annual Report on Form 10-K, as
amended, for the year ended December 31, 2001, filed with the SEC.

Also, the following risk factor should be considered, as well as
those risks described in our Annual Report on Form 10-K, as amended, for
the year ended December 31, 2001, as filed with the SEC. An additional
risk that could cause actual results to differ from those expressed or
anticipated by the forward-looking statements is the proliferation of
unsolicited email on the Internet. Although we do not send unsolicited
email, the proliferation of unsolicited email, commonly known as "spam,"
creates a negative public perception of Internet marketing. The increasing
volume of unsolicited email has led to the development of filtering and
blocking software for individual users of the Internet as well as companies
that permit employees to access the Internet from the workplace. Such
software may filter or block our email messages despite the fact an
individual consumer elected to receive our messages. Unsolicited email can
also cause an Internet user's mailbox to fill to capacity and prevent our
permission-based emails from reaching our registered members. These
reactions to unsolicited email on the Internet may impact Internet
marketing generally and could reduce the demand for our services.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks associated with fluctuations
in interest rates. Because all of the amounts in our portfolio have
expected maturities of three months or less, we believe that the fair value
of our investment portfolio or related income would not be significantly
impacted by increases or decreases in interest rates due mainly to the
short-term nature of our investment portfolio. If market rates were to
increase immediately by 10% from levels on September 30, 2002, the fair
value of this investment portfolio would increase by an immaterial amount.
A sharp decline in interest rates could reduce future interest earnings of
our investment portfolio. If market rates were to decrease immediately by
10% from levels on September 30, 2002, the resultant decrease in interest
earnings of our investment portfolio would not have a material impact on
our earnings as a whole.

ITEM 4. CONTROLS AND PROCEDURES

(a) We maintain controls and procedures designed to ensure that
information required to be disclosed in the reports that we issue or submit
under the Securities Exchange Act of 1934 are recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Based upon our evaluation
of our disclosure controls and procedures performed within 90 days of the
filing date of this report, our chief executive officer and chief financial
officer have concluded that our disclosure controls and procedures were
adequate.

(b) We have made no significant changes in internal controls or in
other factors that could significantly affect those controls subsequent to
the date of our evaluation of those controls by our chief executive officer
and chief financial officer.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are currently a defendant in two patent infringement lawsuits and
a plaintiff in another patent infringement lawsuit. For a further
discussion of legal proceedings, see Part 1, Item 3 of our Annual Report on
Form 10-K, as amended, for the year ended December 31, 2001 filed with the
SEC and the update below.

On October 17, 2002, we received a demand for arbitration from
Coupco, Inc. ("Coupco") relating to a dispute over our obligation to pay
royalties under our April 6, 2000 Patent License Agreement with Coupco (the
"Patent License Agreement"). We intend to oppose Coupco's demand and are
currently investigating the factual and legal bases for Coupco's demand;
however, we have recorded a charge in the three month period ended
September 30, 2002 for the full amount of their demand.

On February 12, 2000, Supermarkets Online, an affiliate of Catalina
Marketing, filed a lawsuit against us in the United States District Court
for the Central District of California. The complaint alleges that our
systems and methods infringe its United States Patent No. 6,014,634, and
seeks unspecified damages and injunctive relief. The lawsuit is currently
stayed (except that fact discovery is permitted). This stay may be lifted
at any time. We have filed with the Patent and Trademark Office a request
for a re-examination of the '634 patent, which request for re-examination
was granted in March 2001. An unfavorable outcome for us is considered
neither probable nor remote by management at this time, and an estimate of
possible loss or range of possible losses cannot be made.

On May 8, 2002, the United States Court of Appeals for the Federal
Circuit affirmed-in-part, reversed-in-part, and vacated-in-part the non-
infringement ruling of the U.S. District Court for the Northern District of
Illinois in a lawsuit filed against us by Catalina Marketing International,
Inc. The complaint alleges that our systems and methods infringe Catalina's
United States Patent No. 4,674,041, and seeks to enjoin us from further
infringing its patent. As a result of the ruling, this litigation is not
concluded. The case has been remanded to the Northern District for further
proceedings to determine whether we have any liability for infringement of
the '041 Patent. We intend to defend the action vigorously. An unfavorable
outcome for us is considered neither probable nor remote by management at
this time, and an estimate of possible loss or range of possible losses
cannot currently be made.

On August 23, 1999, we instituted a lawsuit in the Northern District
of Illinois against Brightstreet.com, Inc. ("Brightstreet") for
infringement of our United States Patent No. 5,761,648, seeking unspecified
damages and a permanent injunction against further infringement.
Brightstreet filed counterclaims alleging the invalidity and
unenforceability of our patent and seeking unspecified damages and
injunctive relief. The parties agreed to a settlement of the lawsuit in
open court on October 29, 2001. Subsequently, Brightstreet objected to the
report and recommendation of the court that the written settlement
agreement we presented most accurately reflected the agreement reached by
the parties. On July 8, 2002, the United States District Court for the
Northern District of Illinois (the "District Court") fully adopted the
report and recommendation of the Magistrate Judge concurring with our
belief that the litigation had been settled, denied Brightstreet's
objections to the report and recommendation, adopted the written settlement
agreement we presented, and dismissed the case with prejudice. On
August 9, 2002, Brightstreet appealed the ruling of the District Court to
the United States Court of Appeals for the Federal Circuit. An unfavorable
outcome for us is considered neither probable nor remote by management at
this time, and an estimate of possible loss or range of possible losses
cannot currently be made.

We are also involved in a number of legal proceedings arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on our financial position or results of operations.

We may be involved in additional litigation, investigations or other
proceedings in the future. Any litigation, investigation or proceeding,
with or without merit, could be costly and time-consuming and could divert
our management's attention and resources, which in turn could harm our
business and financial results.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

As of September 30, 2002, a dividend in the amount of 1,368,767
shares of Series B Preferred Stock has accrued, but has not been declared
to the holders of our Series B Preferred Stock. In addition, interest has
continued to accrue on the amount outstanding under the Grid Note. As a
result, the number of shares of Series B Preferred Stock that Landmark may
acquire by applying the principal and interest outstanding under the Grid
Note to the purchase price for the stock has increased.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

At September 30, 2002, we were not in compliance with certain
financial covenants of the Senior Secured Loan. The following is a list of
the significant defaults under the Senior Secured Loan and the Amended and
Restated Loan Agreement, and therefore under the Grid Note (described
below), as the Senior Secured Loan and Grid Note have cross-default
provisions and are cross-collateralized:

.. Our failure to achieve a prescribed amount of billings
during the first, second and third quarters of 2002; and

.. Our failure to maintain a minimum level of working capital
and a ratio of cash, cash equivalents and certain receivables over
current liabilities; and

.. Our failure to maintain a minimum ratio of total
indebtedness over tangible net worth.

Consequently, the Senior Secured Loan and all accrued interest
thereon are immediately due and payable at the option of Landmark.
Accordingly, the Company has classified the Senior Secured Loan, including
principal and the paid-in-kind interest which has been compounded on the
principal balance, as currently payable as of September 30, 2002 in the
amount of $5,479,483.

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:

Exhibit 10.1 Amended and Restated Reimbursement Agreement,
dated as of August 31, 2002, by and between
CoolSavings, Inc. and Landmark Communica-
tions, Inc.

Exhibit 99.1 Certifications Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

(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 thereunder duly authorized.

COOLSAVINGS, INC.

Dated: November 14, 2002 /s/ Matthew Moog
----------------------------
Matthew Moog
Chief Executive Officer and
President
(Duly Authorized Officer)

Dated: November 14, 2002 /s/ David B. Arney
----------------------------
David B. Arney
Chief Financial Officer
(Principal Financial Officer)

CERTIFICATIONS
--------------

I, Matthew Moog, President and Chief Executive Officer of CoolSavings, Inc.
certify that:

1. I have reviewed this quarterly report on Form 10-Q of CoolSavings,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: November 14, 2002 /s/ Matthew Moog
-----------------------------------
Matthew Moog
President & Chief Executive Officer

I, David B. Arney, Chief Financial Officer of CoolSavings, Inc. certify
that:

1. I have reviewed this quarterly report on Form 10-Q of CoolSavings,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: November 14, 2002 /s/ David B. Arney
-----------------------------------
David B. Arney
Chief Financial Officer