Bankrate 10-Q 2002 Q3 Quarterly report

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, 2002

Commission File No. 0-25681

(Exact name of registrant as specified in its charter)

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

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

33408
(Zip Code)

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

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

The number of outstanding shares of the issuer’s common stock as of October 31, 2002 was as follows: 13,996,950 shares of Common Stock, $.01 par value.

Bankrate, Inc.
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2002
Index

			PAGE NO.
PART I.	FINANCIAL INFORMATION
	Item 1.	Interim Condensed Financial Statements (Unaudited):
		Condensed Balance Sheets at September 30, 2002 and December 31, 2001	3
		Condensed Statements of Operations for the three and nine months ended September 30, 2002 and 2001	4
		Condensed Statements of Cash Flows for the nine months ended September 30, 2002 and 2001	5
		Notes to Condensed Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
	Item 4.	Controls and Procedures	16
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	16
	Item 2.	Changes in Securities and Use of Proceeds	16
	Item 3.	Defaults Upon Senior Securities	16
	Item 4.	Submission of Matters to a Vote of Security Holders	17
	Item 5.	Other Information	17
	Item 6.	Exhibits and Reports on Form 8-K	17

SIGNATURES 17

Introductory Note

         This Report and our other communications and statements may contain “forward-looking statements,” including statements about our beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. These statements are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. For information concerning these factors and related matters, see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Report, and the following sections of our Annual Report on Form 10-K for the year ended December 31, 2001 (the “2001 Form 10-K”): (a) “Risk Factors” in Item 1, “Business,” and (b) “Introduction” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

2

Bankrate, Inc.
Condensed Balance Sheets
(Unaudited)

	September 30, 2002			December 31, 2001
Assets
Cash and cash equivalents	$	8,378,337		$	9,755,032
Accounts receivable, net of allowance for doubtful accounts of $200,000 at     September 30, 2002 and $140,000 at December 31, 2001		2,933,078			1,259,256
Other current assets		381,745			231,134
Total current assets		11,693,160			11,245,422
Furniture, fixtures and equipment, net		999,460			1,076,508
Intangible assets, net		241,147			69,622
Other assets		317,085			134,460
Total assets	$	13,250,852		$	12,526,012	��
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable	$	654,859		$	699,054
Other accrued expenses		2,666,396			1,871,492
Accrued interest		—			217,500
Deferred revenue		278,933			347,869
Current portion of obligations under capital leases		8,550			36,406
Other current liabilities		225,329			207,952
Total current liabilities		3,834,067			3,380,273
10% convertible subordinated note payable		—			4,350,000
Accrued interest		—			810,363
Other liabilities		93,381			3,264
Total liabilities		3,927,448			8,543,900
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		63,931,555			63,931,555
Accumulated deficit		(54,748,120	)		(60,089,412	)
Total stockholders’ equity		9,323,404			3,982,112
Total liabilities and stockholders’ equity	$	13,250,852		$	12,526,012

See accompanying notes to condensed financial statements.

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Bankrate, Inc.
Condensed Statements of Operations
(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2002		2001			2002		2001
Revenue:
Online publishing	$	6,264,936	$	3,370,657		$	16,245,680	$	10,725,010
Print publishing and licensing		978,447		817,926			2,836,670		2,410,639
Total revenue		7,243,383		4,188,583			19,082,350		13,135,649
Cost of revenue:
Online publishing		1,148,031		750,252			2,965,233		2,426,520
Print publishing and licensing		746,788		552,370			2,085,843		1,595,880
Total cost of revenue		1,894,819		1,302,622			5,051,076		4,022,400
Gross margin		5,348,564		2,885,961			14,031,274		9,113,249
Operating expenses:
Sales		1,026,862		680,227			2,822,331		2,253,226
Marketing		839,979		475,552			2,730,266		2,273,417
Product development		365,599		360,211			1,046,441		1,046,768
General and administrative		1,345,637		1,546,282			3,722,542		4,176,849
Depreciation and amortization		174,283		165,454			441,276		547,024
		3,752,360		3,227,726			10,762,856		10,297,284
Income (loss) from operations		1,596,204		(341,765	)		3,268,418		(1,184,035	)
Interest income (expense), net		31,423		(37,712	)		51,082		(68,653	)
Gain on early extinguishment of debt		—		—			2,021,792		—
Income (loss) before income taxes		1,627,627		(379,477	)		5,341,292		(1,252,688	)
Income taxes		—		—			—		—
Net income (loss)	$	1,627,627	$	(379,477	)	$	5,341,292	$	(1,252,688	)
Basic and diluted net income (loss) per share:
Basic	$	0.12	$	(0.03	)	$	0.38	$	(0.09	)
Diluted	$	0.11	$	(0.03	)	$	0.38	$	(0.09	)
Weighted average common shares     outstanding:
Basic		13,996,950		13,996,950			13,996,950		13,996,950
Diluted		14,566,248		13,996,950			14,151,085		13,996,950

See accompanying notes to condensed financial statements.

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

	Nine Months Ended September 30,
	2002			2001
Cash flows from operating activities:
Net income (loss)	$	5,341,292		$	(1,252,688	)
Adjustments to reconcile net income (loss) to net cash provided by (used in)        operating activities:
Gain on early extinguishment of debt		(2,021,792	)		—
Depreciation and amortization		441,276			547,024
Provision for doubtful accounts		19,392			42,302
Noncash stock compensation		—			854,174
Changes in operating assets and liabilities:
(Increase) in accounts receivable		(1,693,214	)		(401,683	)
(Increase) decrease in other assets		(489,750	)		301,524
(Decrease) in accounts payable		(44,195	)		(120,690	)
Increase (decrease) in accrued expenses		800,221			(523,629	)
Increase in other liabilities		159,989			367,405
(Decrease) in deferred revenue		(68,936	)		(49,419	)
Net cash provided by (used in) operating activities		2,444,283			(235,680	)
Cash flows from investing activities:
Purchases of equipment		(384,556	)		(18,467	)
Net cash used in investing activities		(384,556	)		(18,467	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(36,422	)		(177,243	)
Repayment of 10% convertible subordinated note payable		(3,400,000	)		—
Net cash used in financing activities		(3,436,422	)		(177,243	)
Net decrease in cash and cash equivalents		(1,376,695	)		(431,390	)
Cash and equivalents, beginning of period		9,755,032			8,890,649
Cash and equivalents, end of period	$	8,378,337		$	8,459,259
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	44,928		$	25,845

See accompanying notes to condensed financial statements.

5

BANKRATE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)

NOTE 1 – ORGANIZATION AND ACCOUNTING POLICIES

The Company

         Bankrate, Inc. (the “Company”) owns and operates an Internet-based consumer banking marketplace. The Company’s flagship Web 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 through national and state publications. The Company is organized under the laws of the state of Florida.

         The Company has incurred net losses in each of its last six fiscal years and had an accumulated deficit of approximately $55 million as of September 30, 2002. 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 has also reduced employment levels of continuing operations and consolidated its physical locations. In February 2002, the Company completed the early repayment of its $4,350,000 convertible subordinated note payable, including accrued interest, for $3,400,000 (see Note 5). Based on these actions and the Company’s current strategic initiatives, the Company believes its existing capital resources will be sufficient to satisfy its cash requirements into 2004. However, there are no assurances that such actions will ensure cash sufficiency through 2004 or that reducing marketing or other expenses will not 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, the Company is vigorously defending the legal proceedings discussed in Note 3 below. Management could be required to spend significant amounts of time and resources defending these proceedings, which may impact the operations of the Company.

Basis of Presentation

         The unaudited interim condensed financial statements for the three and nine months ended September 30, 2002 and 2001 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 financial statements reflect all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the financial position of the Company at September 30, 2002, and the results of its operations for the three and nine months ended September 30, 2002 and 2001, and its cash flows for the nine months ended September 30, 2002 and 2001. The results for the three and nine months ended September 30, 2002 are unaudited and are not necessarily indicative of the expected results for the full year or any future period.

         The unaudited condensed financial statements included herein should be read in conjunction with the financial statements and related footnotes included in the Company’s 2001 Form 10-K.

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Barter Revenue

         Online publishing revenue includes barter revenue, which represents the non-cash 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 run 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 December 31, 2001 and September 30, 2002 the Company recorded prepaid expenses of approximately $8,000 and $23,000, respectively, for barter advertising to be received. Barter revenue was approximately $641,000 and $2,403,000, representing approximately 9% and 13% of total revenue, respectively, for the three and nine months ended September 30, 2002, and was approximately $450,000 and $1,915,000 representing approximately 11% and 15% of total revenue, respectively, for the three and nine months ended September 30, 2001.

Net Income (Loss) Per Share

         Basic and diluted net income (loss) per share are computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution, under the treasury stock method, that could occur if options or other contracts to issue common stock were exercised or converted into common stock.

         The weighted average number of common shares outstanding used in computing diluted net income per share for the three and nine months ended September 30, 2002 includes the shares resulting from the dilutive effect of outstanding stock options. For the three and nine months ended September 30, 2001, 566,379 and 710,729 shares attributable to the exercise of outstanding stock options were excluded from the calculation of diluted loss per share because the effect was antidilutive.

Recent Accounting Pronouncements

         In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 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 No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. SFAS No. 141 became effective immediately, except with regard to business combinations initiated prior to July 1, 2001, and SFAS No. 142 became effective January 1, 2002.

         Furthermore, any goodwill and intangible assets determined to have indefinite useful lives 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 continued to be amortized until the adoption of SFAS No. 142. SFAS No. 141 requires, upon adoption of SFAS No.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 No. 141 for recognition apart from goodwill. Any impairment loss is 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’s adoption of SFAS No. 142 on January 1, 2002 did not result in any impairment adjustment.

         In June 2001, the FASB 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

7

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 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 Accounting Principles Board Opinion 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, when adopted on January 1, 2002, did not have a material impact on the Company’s financial statements.

         In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Among other things, SFAS 145 rescinds SFAS No. 4, “Reporting Gains and Losses From Extinguishment of Debt,” which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are effective for fiscal years beginning after May 15, 2002, with early application encouraged. The Company adopted SFAS No. 145 on January 1, 2002 and complied with its provisions when recording the gain on the early repayment of its $4,350,000 10% convertible subordinated note payable. See Note 5 below.

         In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which requires, among other things, recording a liability for costs associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. SFAS No. 146 also provides that commitment to an exit plan or a plan of disposal expresses only management’s future actions and, therefore, does not meet the requirement for recognizing a liability and the related expense. The provisions of SFAS No. 146 are effective prospectively for exit and disposal activities initiated after December 31, 2002, with early application encouraged and, when adopted on January 1, 2003, it is not expected to have a material impact on the Company’s financial statements.

NOTE 2 – SEGMENT INFORMATION

         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 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).

         The Company had one online customer which accounted for approximately 10% and 13%, respectively, of total revenue for the three and nine months ended September 30, 2002. Sales to no other customer exceed 10% of total revenue for the periods presented. No revenues were generated outside of the United States.

         Summarized segment information as of September 30, 2002 and 2001, and for the three and nine months ended September 30, 2002 and 2001, is presented below.

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	Online Publishing		Print Publishing and Licensing			Other		Total
Three Months Ended September 30, 2002
Revenue	$	6,264,936	$	978,447		$	—	$	7,243,383
Cost of revenue		1,148,031		746,788			—		1,894,819
Gross margin		5,116,905		231,659			—		5,348,564
Sales		1,026,862		—			—		1,026,862
Marketing		839,979		—			—		839,979
Product development		255,919		109,680			—		365,599
General and administrative expenses		1,163,866		181,771			—		1,345,637
Depreciation and amortization		121,998		52,285			—		174,283
Interest income, net		—		—			31,423		31,423
Segment profit (loss)	$	1,708,280	$	(112,076	)	$	31,423	$	1,627,627
Total assets	$	4,194,116	$	678,399		$	8,378,337	$	13,250,852

	Online Publishing			Print 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		680,227			—			—			680,227
Marketing		475,552			—			—			475,552
Product development		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
Interest (expense), net		—			—			(37,712	)		(37,712	)
Segment loss	$	(147,671	)	$	(194,094	)	$	(37,712	)	$	(379,477	)
Total assets	$	2,623,822		$	644,074		$	8,459,259		$	11,727,155

	Online Publishing		Print Publishing and Licensing			Other		Total
Nine Months Ended September 30, 2002
Revenue	$	16,245,680	$	2,836,670		$	—	$	19,082,350
Cost of revenue		2,965,233		2,085,843			—		5,051,076
Gross margin		13,280,447		750,827			—		14,031,274
Sales		2,822,331		—			—		2,822,331
Marketing		2,730,266		—			—		2,730,266
Product development		732,509		313,932			—		1,046,441
General and administrative expenses		3,169,171		553,371			—		3,722,542
Depreciation and amortization		308,893		132,383			—		441,276
Interest income, net		—		—			51,082		51,082
Gain on early extinguish of debt		—		—			2,021,792		2,021,792
Segment profit (loss)	$	3,517,277	$	(248,859	)	$	2,072,874	$	5,341,292
Total assets	$	4,194,116	$	678,399		$	8,378,337	$	13,250,852

	Online Publishing			Print 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		2,253,226			—			—			2,253,226
Marketing		2,273,417			—			—			2,273,417
Product development		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
Interest (expense), net		—			—			(68,653	)		(68,653	)
Segment loss	$	(754,127	)	$	(429,908	)	$	(68,653	)	$	(1,252,689	)
Total assets	$	2,623,822		$	644,074		$	8,459,259		$	11,727,155

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NOTE 3 – COMMITMENTS AND CONTINGENCIES

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, selling securities pursuant to a defective registration statement, and 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 appeal has been argued but a final decision has yet to be made. The Company intends to continue 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, Professional Direct Agency, Inc. (“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. At September 30, 2002, the outcome of this matter was uncertain. The Company cannot estimate at this time the amount of loss, if any, that could result from an adverse resolution of this litigation.

NOTE 4 – STOCK OPTIONS

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. Options to purchase 1,180,002 shares were surrendered under this program. The new options were granted on February 4, 2002, six months and one day after the date of cancellation. The exercise price of the new options was $0.85 per share, 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 (“FIN”) No. 44 and did not result in any additional compensation charges or variable plan accounting. As a result of this program, the Company recorded a non-cash compensation charge of approximately $481,000 for the unrecognized compensation expense associated with certain options surrendered under the option exchange program, and reclassified approximately $2,452,000 from accrued stock compensation expense to additional paid in capital, in the quarter ended September 30, 2001.

Stock Option Grant

         On October 29, 2002, the Board of Directors approved grants under the 1997 Equity Compensation Plan (the “Plan”) for outside directors of the Company. Under these grants, 125,000 options were granted on October 29, 2002 to purchase common stock at $2.39 per share, the fair market value at the date of grant. The options become 100% vested on December 31, 2002 and expire 10 years from the date of grant.

NOTE 5 – LONG-TERM DEBT

         On February 6, 2002, the Company entered into a Termination Agreement and General Release (the “Agreement”) with Reassure America Life Insurance Company (“REALIC”), successor by merger to The Midland Life Insurance Company, holder of the $4,350,000 10% convertible subordinated note payable. Pursuant to the terms of the Agreement, REALIC agreed to full repayment of the note, including accrued interest, on February 22, 2002 for $3,400,000 in cash. The Company recorded a gain on early extinguishment of debt of approximately $2,022,000 in the quarter ended March 31, 2002.

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Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

         The following discussion may contain “forward-looking statements,” including statements about our beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. These statements are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. For information concerning these factors and related matters, see the following sections of our Annual Report on Form 10-K for the year ended December 31, 2001 (the “2001 Form 10-K”): (a) “Risk Factors” in Item 1, “Business,” and (b) “Introduction” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in addition to the other information set forth herein.

Overview

         We own and operate an Internet - based consumer banking marketplace. Our flagship Web 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, we provide financial applications and information to a network of distribution partners and also through national and state publications.

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

Recent Developments

         On July 3, 2001, we 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. Options to purchase 1,180,002 shares were surrendered under this program. The new options were granted on February 4, 2002, six months and one day after the date of cancellation. The exercise price of the new options was $0.85 per share, the closing market price of our common stock on the date of grant. The exchange program was designed to comply with FIN No. 44 and did not result in any additional compensation charges or variable plan accounting. As a result of this program, we recorded a non-cash compensation charge of approximately $481,000 for the unrecognized compensation expense associated with certain options surrendered under the option exchange program, and reclassified approximately $2,452,000 from accrued stock compensation expense to additional paid in capital, in the quarter ended September 30, 2001.

         On February 6, 2002, we entered into a Termination Agreement and General Release (the “Agreement”) with Reassure America Life Insurance Company (“REALIC”), successor by merger to The Midland Life Insurance Company, holder of the $4,350,000 10% convertible subordinated note payable. Pursuant to the terms of the Agreement, REALIC agreed to full repayment of the note, including accrued interest, on February 22, 2002 for $3,400,000 in cash. We recorded a gain on early extinguishment of debt of approximately $2,022,000 in the quarter ended March 31, 2002.

         On October 29, 2002, the Board of Directors approved grants under the 1997 Equity Compensation Plan (the “Plan”) for outside directors of the Company. Under these grants, 125,000 options were granted on October 29, 2002 to purchase common stock at $2.39 per share, the fair market value at the date of grant. The options become 100% vested on December 31, 2002 and expire 10 years from the date of grant.

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Overview of Revenue and Expenses and Critical Accounting Policies, Estimates and Practices

         The following is our analysis of the results of operations for the periods covered by our interim condensed financial statements, including a discussion of the accounting policies and practices (revenue recognition) that we believe are critical to an understanding of our results of operations and to making the estimates and judgments underlying our financial statements. This analysis should be read in conjunction with our interim condensed financial statements, including the related notes. See “Results of Operations and Critical Accounting Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2001 Form 10-K for additional information concerning the revenue and expense components of our online and print publishing operations.

Results of Operations

Three and Nine Months Ended September 30, 2002 Compared to Three and Nine Months Ended September 30, 2001

Revenue

Online Publishing Revenue

         Online publishing revenue reflects the sale of graphic advertisements to advertisers on a cost per thousand impressions, or CPM, basis, and on a “per action” basis when a visitor to our Web site transacts with one of our advertisers after viewing an advertisement. We are also involved in revenue sharing arrangements with our online partners where the consumer uses co-branded sites principally hosted by us. Revenue is effectively allocated to each partner based on the percentage of advertisement views at each site and the allocated revenue is shared according to distribution agreements. We also sell hyperlinks to various third-party Internet sites that generate a fixed monthly fee. Online publishing revenue also includes barter revenue, which represents the non-cash exchange of advertising space on our Web site for reciprocal advertising space or traffic on other Web sites. Barter revenues and expenses are recorded at the fair market value of the advertisements delivered or received, whichever is more determinable in the circumstances. Barter revenue was approximately $641,000 and $450,000, and represented approximately 9% and 11% of total revenue, respectively, for the three months ended September 30, 2002 and 2001. For the nine months ended September 30, 2002 and 2001, barter revenue was approximately $2,403,000 and $1,915,000, and represented approximately 13% and 15% of total revenue, respectively.

         Excluding barter revenue, online publishing revenue of $5,624,000 for the three months ended September 30, 2002 was $2,703,000, or 93%, higher than the $2,921,000 reported for the same period in 2001. This increase was due to a $1,628,000, or 104%, increase in graphic advertisement sales as approximately 127 million, or 141%, more graphic ad impressions were sold during the three months ended September 30, 2002 compared to the same period in 2001. Additionally, hyperlink sales were $1,082,000, or 85%, higher in 2002 compared to 2001, as the number of hyperlink advertisers reached a high of 503 during the quarter ended September 30, 2002, up 54% from the same quarter in 2001.

         Excluding barter revenue, online publishing revenue of $13,843,000 for the nine months ended September 30, 2002 was $5,033,000, or 57%, higher than the $8,810,000 reported for the same period in 2001. This increase was due primarily to hyperlink sales, which were $3,002,000, or 91%, higher in 2002 compared to 2001, due to the increase in the number of hyperlink advertisers in 2002 compared to 2001. Graphic advertisement sales were also up $1,946,000, or 37%, over the comparable period in 2001 as approximately 201 million, or 77%, more advertisements were sold in the first nine months of 2002 compared to the same period in 2001. Consumer demand for our information was heightened thus far in 2002 due to the declining interest rate environment. Our advertisers increased their spending in efforts to capitalize on this demand.

         A majority of our advertising customers purchase advertising under short-term contracts. Customers have the ability to stop, and have on occasion stopped, advertising on relatively short notice. Online publishing revenue would be adversely impacted if we experienced contract terminations, or if we were not able to renew contracts with existing customers or obtain new customers. The market for Internet advertising is intensely competitive and has, in the past, experienced significant downturns in demand that could impact advertising rates. Future revenue could be adversely affected if we were forced to reduce our advertising rates or if we were to experience lower CPM’s.

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         Historically, our first calendar quarter has been our highest in terms of page views, and we have typically experienced a slowdown in traffic during our third and fourth quarters. Through September 30, 2002, certain traffic initiatives and expanded commitments from our distribution partners as well as the activity in mortgage lending has caused increases in traffic inconsistent with our historical trends. Based on those historical trends, we believe we will experience a decline in traffic and online publishing revenue during the fourth quarter of 2002 in relation to the third quarter of 2002.

Print Publishing and Licensing Revenue

         Print publishing and licensing revenue represents advertising revenue from the sale of advertising in our Consumer Mortgage Guide rate tables, newsletter subscriptions, and licensing of research information. We also earn fees from distributing editorial rate tables that are published in newspapers and magazines across the United States, from paid subscriptions to three newsletters and from providing rate surveys to institutions and government agencies. In addition, we license research data under agreements that permit the use of rate information we develop to advertise the licensee’s products in print, radio, television and Web site promotions.

         Print publishing and licensing revenue for the quarter ended September 30, 2002 increased $161,000, or 20%, over the comparable period in 2001 due primarily to a $178,000, or 31%, increase in Consumer Mortgage Guide revenue. This increase was a result of declining interest rates beginning in the fourth quarter of 2001 and into the second half of 2002 that sustained the refinancing markets, causing more advertisers to publish their rates.

         Print publishing and licensing revenue for the nine months ended September 30, 2002 increased $426,000, or 18%, over the comparable period in 2001 due primarily to a $500,000, or 30%, increase in Consumer Mortgage Guide revenue for the reasons discussed above.

Cost of Revenue

Online Publishing Costs

         Online publishing costs represent expenses associated with the creation of online publishing revenue. These costs include contractual revenue-sharing obligations resulting from our distribution arrangements (distribution payments), editorial costs, research costs, and allocated overhead. Online publishing costs for the three months ended September 30, 2002 were $398,000, or 53%, higher than the comparable period in 2001 due primarily to an increase of approximately $258,000, or 156%, in revenue-sharing payments to our distribution partners due to higher associated revenue, and approximately $71,000 of higher costs associated with hyperlink sales. Online publishing costs as a percentage of online publishing revenue excluding barter dropped from 26% for the three months ended September 30, 2001 to 20% for the comparable period in 2002, as costs have declined relative to the increases in revenue and lower revenue subject to revenue sharing arrangements.

         Online publishing costs for the nine months ended September 30, 2002 were $539,000, or 22%, higher than the comparable period in 2001 due primarily to an increase of approximately $139,000, or 115%, in revenue-sharing payments to our distribution partners due to higher associated revenue, and approximately $227,000 of higher costs associated with hyperlink sales. Online publishing costs as a percentage of online publishing revenue excluding barter dropped from 28% for the nine months ended September 30, 2001 to 21% for the comparable period in 2002 as costs have declined relative to the increases in revenue and due to lower revenue subject to revenue sharing arrangements.

Print Publishing and Licensing Costs

         Print publishing and licensing costs represent expenses associated with print publishing and licensing revenue. These costs include contractual revenue sharing obligations with newspapers related to the Consumer Mortgage Guide, compensation and benefits, printing and allocated overhead. These costs vary proportionately with the related revenues and increased $195,000, or 35%, for the three months ended September 30, 2002, and increased $490,000, or 31%, for the nine months ended September 30, 2002, compared to the same periods in 2001. Revenue sharing payments accounted for the majority of these variances. Print publishing and licensingcosts were 76% and 68% of print publishing and licensing revenue for the three months ended September 30, 2002 and 2001, respectively, and were 74% and 66% of print publishing and licensing revenue for the nine months ended September 30, 2002 and 2001, respectively. These increases were a result of lower licensing and print publications revenue due to fewer

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Internet-based licensees and subscribers’ ability to access data online, as well as certain Consumer Mortgage Guide business development costs.

Other Expenses

Sales

         Sales costs represent direct selling expenses, principally for online advertising, and include compensation and benefits, sales commissions, and allocated overhead. Sales costs for the three and nine months ended September 30, 2002 were up $347,000, or 51%, and $569,000, or 25%, respectively, over the comparable periods in 2001 due to higher sales commissions paid on higher levels of revenue, and expenditures related to market analysis and branding.

Marketing

         Marketing costs represent expenses associated with expanding brand awareness of our products and services to consumers and include print and Internet advertising and marketing and promotion costs. Marketing costs also include barter expense, which represents the non-cash cost of our advertisements that are run on other companies’ Web sites in our barter transactions. Barter expense was $619,000 and $450,000 for the quarters ended September 30, 2002 and 2001, and was $2,388,000 and $2,115,000 for the nine-month periods ended September 30, 2002 and 2001, respectively. Excluding barter expense, marketing expenses for the quarter ended September 30, 2002 were $196,000 higher than the comparable quarter in 2001, and for the nine months ended September 30, 2002 were $184,000, or 116%, higher than the same period in 2001. These increases reflect our efforts to improve search engine results, and sales market research projects.

Product Development

         Product development costs represent compensation and benefits related to site development, network systems and telecommunications infrastructure support, programming and other technology costs. Product development costs for the three and nine months ended September 30, 2002 were essentially flat compared to the same periods in 2001 as infrastructure expenses have stabilized at existing levels of revenue.

General and Administrative

         General and administrative expenses represent compensation and benefits for executive, finance and administrative personnel, professional fees, non-allocated overhead and other general corporate expenses. General and administrative expenses for the three months ended September 30, 2002 were $201,000, or 13%, lower than the comparable amount reported in the same period in 2001 primarily due to non-cash stock compensation expense of approximately $543,000 recorded in 2001 period compared to none in 2002. We recorded a one-time non-cash charge of approximately $481,000 in July 2001 in connection with our stock option exchange program. This favorable variance was partially offset by higher consulting, human resource, and public and investor relations costs to support the growth in revenue and the business in general.

         General and administrative expenses for the nine months ended September 30, 2002 were $454,000, or 11%, lower than the same period in 2001, resulting from non-cash stock compensation expense of approximately $854,000 recorded in 2001 compared to none in 2002. This favorable variance was partially offset by higher consulting, human resource, travel and public and investor relations costs to support the growth in revenue and the business in general.

         As a percentage of total revenue excluding barter, general and administrative expenses were 20% and 22% for the three and nine months ended September 30, 2002 compared to 41% and 37%, respectively, for the same periods in 2001. These overall declines are the result of the stabilization of infrastructure expenses and our initiatives to control costs.

Depreciation and Amortization

         Depreciation and amortization was $9,000, or 5%, higher for the three months ended September 30, 2002 compared to 2001 as certain capital equipment was placed in service during the third quarter of 2002. Depreciation and amortization for the nine months ended September 30, 2002 was $106,000, or 19%, lower than the comparable period in 2001 due to the expiration of lease terms on certain capital lease assets.

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Interest Income (Expense), Net

         Interest income and expense consists of interest income on invested cash and cash equivalents, and interest expense on capital lease obligations and the 10% convertible subordinated note payable. Net interest income for the three and nine months ended September 30, 2002 was $69,000, or 183%, and $120,000, or 174%, respectively, higher than the amounts reported in the same periods in 2001, as interest expense was eliminated due to the expiration of lease terms on certain capital lease assets and the repayment of our subordinated note payable, discussed below.

Gain on Early Extinguishment of Debt

         On February 6, 2002, we entered into a Termination Agreement and General Release (the “Agreement”) with Reassure America Life Insurance Company (“REALIC”), successor by merger to The Midland Life Insurance Company, holder of the $4,350,000 10% convertible subordinated note payable. Pursuant to the terms of the Agreement, REALIC agreed to full repayment of the note, including accrued interest, on February 22, 2002 for $3,400,000 in cash. We recorded a gain on early extinguishment of debt of approximately $2,022,000 in the quarter ended March 31, 2002.

Liquidity and Capital Resources

         In the past, we were funded with capital raised from stockholders and from the proceeds of our initial public offering in May 1999. Currently, our principal sources of liquidity are the cash and cash equivalents generated by our operations. As of September 30, 2002, we had working capital of $7,859,000, and our primary commitments were approximately $853,000 in operating and capital lease payments over the next five years, as well as capital expenditures and recurring payables and accruals arising during the course of operating our business, estimated at approximately $3,100,000 through September 30, 2003. We generally establish payment terms with our vendors that extend beyond the amount of time required to collect from our customers. There are no other significant commitments or any off balance sheet arrangements. The early repayment of our $4,350,000 10% convertible subordinated note, including accrued interest, for $3,400,000 in cash will save us approximately $3,125,000 in principal and interest between August 2002 and August 20, 2004, the original maturity date.

         During the nine months ended September 30, 2002, we generated $2,444,000 of net cash from operating activities. Our net income of $5,341,000 was adjusted for non-cash charges of $461,000, the gain on early extinguishment of debt of $2,022,000 and a net negative change in the components of working capital of $1,336,000. Of this negative charge, $1,693,000 resulted from the increase in accounts receivable balances. During the nine months ended September 30, 2001, net cash of $236,000 was used in operating activities, primarily for funding normal business activities.

         Net cash used in investing activities for the nine months ended September 30, 2002 and 2001 consisted of purchases of equipment.

         Net cash used in financing activities for the nine months ended September 30, 2002 represented principal payments on our capital leases and the early repayment of our $4,350,000 10% convertible subordinated note, including accrued interest, for $3,400,000 in cash. Net cash used in financing activities in 2001 consisted of principal payments on our capital leases.

         We have incurred net losses in each of our last six fiscal years and had an accumulated deficit of approximately $55 million as of September 30, 2002. We are working to manage our cash by actively controlling expenses and pursuing additional sources of revenue. For instance, since early 2000, we have substantially reduced marketing expenditures and sold or shut down under-performing, non-core business units. We also reduced employment levels of continuing operations and consolidated our physical locations. Based on these actions and our current strategic initiatives, we believe our existing capital resources will be sufficient to satisfy our cash requirements into 2004. However, there are no assurances that such actions will ensure cash sufficiency through 2004 or that reducing marketing or other expenses will not curtail revenue growth.

         We 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

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acquisition; or raising new debt and/or equity capital. There can be no assurance that we will be able to raise any funds or realize its strategic alternatives on favorable terms or at all.

         Further, we are vigorously defending the legal proceedings discussed in Note 3 to the condensed financial statements included herein, and in Part II, Item 1. Legal Proceedings. Management could be required to spend significant amounts of time and resources defending these proceedings, which may impact the operations of the Company.

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

         The primary objective of our investment strategy is to preserve principal while maximizing the income we receive from investments without significantly increasing risk. To minimize this risk, to date we have maintained our portfolio of cash equivalents in short-term and overnight investments which are not subject to market risk, as the interest paid on such investments fluctuates with the prevailing interest rates. As of September 30, 2002, all of our cash equivalents matured in less than three months.

Exchange Rate Sensitivity

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

Item 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

         Within 90 days prior to the date of this report, management, including our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Controls

         In addition, management, including our Chief Executive Officer and our Chief Financial Officer, reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation.

Part II – OTHER INFORMATION

Item 1.    LEGAL PROCEEDINGS

                  Not applicable.

Item 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

                  None.

Item 3.    DEFAULTS UPON SENIOR SECURITIES

                  None.

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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

99.1     Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2     Certification of Chief Financial Officer 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 thereunto duly authorized.

	Bankrate, Inc.
Dated: November 14, 2002	By:	/s/ ROBERT J. DEFRANCO
		Robert J. DeFranco Senior Vice President Chief Financial Officer

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Certification of CEO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Elisabeth DeMarse, the Chief Executive Officer of Bankrate, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bankrate, 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 officers 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 officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(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 officers 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.

Dated: November 14, 2002	By:	/s/ ELISABETH DEMARSE
		Elisabeth DeMarse Chief Executive Officer

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Certification of CFO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert J. DeFranco, the Chief Financial Officer of Bankrate, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bankrate, 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 officers 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 officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(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 officers 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.

Dated: November 14, 2002	By:	/s/ ROBERT J. DEFRANCO
		Robert J. DeFranco Chief Financial Officer

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