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                                   FORM 10-K
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  (Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2000
                                      OR
[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                         Commission File No. 000-30199

                             coolsavings.com inc.
            (Exact name of registrant as specified in its charter)

State of Michigan                                                     38-3216102
State of Incorporation                                  I.R.S. Employer I.D. No.

                      360 N. Michigan Avenue, 19th Floor
                            Chicago, Illinois 60601
                                (312) 224-5000
         (Address of principal executive offices and telephone number)

          Securities Registered Pursuant to Section 12(b) of the Act:
                                     None

          Securities Registered Pursuant to Section 12(g) of the Act:
                        Common Stock, Without Par Value

     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
                                      ---     ---

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     As of March 1, 2001, the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately $31,275,000
based on the closing sales price of $0.80 on such date using beneficial
ownership of stock rules adopted pursuant to Section 13 of the Securities
Exchange Act of 1934 to exclude voting stock owned by directors and officers of
the Registrant, some of whom may not be held to be affiliates upon judicial
determination. As of March 1, 2001, there were 39,093,660 shares of the
Registrant's common stock issued and outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the Registrant's definitive Proxy Statement to be filed in
connection with its 2001 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Report.

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References and Forward-Looking Statements

  References made in this annual report to "CoolSavings," the "Company" or the
"Registrant" refer to coolsavings.com inc.

  This annual report contains forward-looking statements based on our current
expectations, estimates and projections about our industry, management's beliefs
and certain assumptions made by us. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," "may," "will" and
variations of these words or similar expressions are intended to identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. Such statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, our actual results could differ materially and adversely
from those anticipated in any forward-looking statements as a result of numerous
factors, many of which are described in the "Factors That May Affect Future
Results" section in Item 1 below. You should carefully consider those risks, in
addition to the other information in this annual report and in our other filings
with the SEC, before deciding to invest in our company or to maintain or
increase your investment. We undertake no obligation to revise or update
publicly any forward-looking statements for any reason.

  We own service mark registrations for the mark COOLSAVINGS, as well as several
other service marks, including, among others, COOLDINING, COOLMALLS, COOLTRAVEL,
COOLSAMPLES, SAVINGSCENTER, SQUEALS OF THE DAY and COOLCATALOGS, our stylized
piggy-bank logo in the United States. We also own common law rights in these and
other marks. In addition, we have applied for United States federal
registrations of several service marks, including our SAVE. THEN SHOP.,
COOLPOINTS and COOLSAVINGS COUPON MANAGER. We have also obtained a trademark
registration in Australia for COOLSAVINGS and have registration applications
pending in the United Kingdom, Australia and Canada.

                                    PART I

ITEM 1.  BUSINESS

Overview

  CoolSavings is a comprehensive e-marketing solution that provides targeted
advertising and promotional incentives to help offline and online companies
identify, acquire and retain active shoppers. With a database of more than 13
million registered consumers as of March 1, 2001, we supply marketers with a
single resource for accessing and engaging a dynamic group of shoppers. Through
our customized, integrated e-marketing products, advertisers can target a wide
array of incentives -- including printed and electronic coupons, personalized e-
mails, rebates, samples, sales notices, gift certificates and contests -- to
promote sales of products or services and drive customers into brick-and-mortar
stores or online sites. In addition, our proprietary database technology tracks
consumer response,

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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, travel and financial service providers and restaurants.
Advertisers can target a wide array of promotional incentives such as printed
and electronic coupons, rebates, samples, sales notices, gift certificates,
sweepstakes, contests, and advertisements opportunities through the
coolsavings.com web site, personalized e-mail, wireless devices and a variety of
high-profile promotional programs.

  With our members' permission, we collect detailed personal information from
each individual, including demographics, shopping preferences and category
interests. And we track each member's site activity and redemption of incentives
through sophisticated data mining technology. This combined information, which
is compiled in a central database, provides us with an unparalleled ability to
help advertisers identify their most likely prospects and target the right offer
to the right person at the right time.

  To sustain our position as a leading provider of e-marketing services to
advertisers, we continue to attract and enroll highly qualified shoppers through
efficient online marketing and public relations campaigns.  We have high brand
recognition, which helps fuel both the growth of our member and client base. A
recent study done by Comscore shows that our members spend 128% more online than
the general Internet population.  It is this active database, coupled with our
advanced predictive modeling and targeting capabilities, which continue to
produce results for our advertisers.

  Our member base grew from approximately 1.9 million registered consumers as of
December 31, 1998 to over 13 million as of March 1, 2001, representing nearly
11.8 million households.  We were incorporated as Interactive Coupon Marketing
Group, Inc. in Michigan in December 1994. In November 1998, we changed our
corporate name to coolsavings.com inc.

Industry Background

  The Growth of the Internet as an Advertising and Direct Marketing Medium

  The Internet has emerged as a unique global communications medium, enabling
millions of people to interact and conduct business electronically. The rapid
expansion of the Internet combined with its business efficiencies have led to
significant growth in electronic commerce and attracted a broad group of buyers
and sellers. As a result of such growth and expansion, the Internet now provides
advertisers with significant opportunities to identify, communicate with, and
attract customers. The Internet has emerged as an attractive new medium for
advertisers due to unique features that are unavailable in traditional media.
The interactive nature of the Internet combined with its global reach and
rapidly growing audience enables advertisers to target specific types of users,
receive direct feedback on their advertisements and capture valuable data on
user preferences. Advertising and marketing organizations

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are now able to benefit from online opportunities by providing expertise in e-
commerce marketing services.

  The growth of Internet use has prompted e-commerce and traditional brick and
mortar companies to devote larger portions of their marketing budgets to
advertising and direct marketing on the Internet. During the early stages of the
development of online advertising, most businesses used the Internet to build
general brand awareness and for customer acquisition. Consequently, the rapidly
growing market for Internet marketing was dominated by banner advertising and
unsolicited e-mails sent to lists of consumers. While these advertisements may
have been targeted to a limited extent by the content on the web page or by
demographic information, they generally have not permitted the advertiser to re-
contact the consumer unless the consumer makes a purchase or voluntarily
provides personal information.

  The Emergence of E-Marketing Services

  Advertisers use direct marketing in order to generate a specific response or
action from a targeted group of consumers. Historically, advertisers have used
direct mail, telemarketing and direct response television, or infomercials, in
their direct marketing campaigns. These campaigns have been able to provide
consumers with access to coupons, rebates, sweepstakes and loyalty programs.
These types of promotions have been recognized in offline marketing as a means
to develop and foster long-term customer relationships.

  Effective and efficient means of marketing have become more important as
advertisers seek to lower the costs of customer acquisition and retention. As
pressures from competitors raise these acquisition and retention costs,
businesses seek sophisticated and cost-effective direct marketing methods to
increase the loyalty and lifetime value of a customer through repeat visits and
purchases. At the same time, advertisers are sensitive to the growing concerns
of consumers and the government regarding the privacy of personal data and the
intrusion of unwanted advertising messages. Online and offline advertisers are
increasingly using the Internet for direct marketing to exploit its unique
interactivity and cost advantages relative to traditional methods.

  The compelling advantages of the Internet as a direct marketing medium have
led to the development of e-marketing services that are designed to enable
businesses to acquire and retain customers and build customer loyalty.  Online
advertising and direct marketing has the potential to increase user response
rates and decrease costs per transaction by targeting campaigns to particular
users based on their demographic profile, interests and online behavior. In
addition, the Internet permits advertisers to receive immediate responses,
effectively test campaigns and direct consumers to a precise point-of-sale. E-
marketing services are now able to take advantage of Internet technology to:

  .  deliver personalized promotions to those consumers most likely to respond;

  .  deliver targeted advertising and promotional incentives at a household or
     individual level that motivate immediate consumer response;

  .  allow businesses to take advantage of consumer-specific data, such as
     registration and transaction information to make smarter marketing
     decisions;

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  .  enable tracking of campaign performance and shopper behavior allowing an
     advertiser to learn and adjust campaigns in near real time; and

  .  enable data mining to target consumers based on demographic data and
     shopping preference information learned from past activity.

  Traditional offline businesses such as national retailers and consumer
packaged goods manufacturers are increasingly seeking to use e-marketing
services as a key component of their marketing strategies to drive offline sales
and build customer relationships. In addition, through e-marketing services,
offline businesses that also sell online can potentially integrate their offline
and online marketing campaigns and provide their customers the choice of
shopping in stores or online.

  Current Limitations of Internet-Based Direct Marketing and Advertising

  While the Internet offers advertisers a number of advantages over traditional
media, there remain significant challenges to realizing the full potential of
online advertising. To date, advertisers have primarily employed banner
advertisements on heavily trafficked and broadbased portals and other web
content sites, most of which do not have close and trusted relationships with
their users. These portals and content sites often have the ability to reach
wide audiences but are generally unable to offer advertisers an effective means
to identify their target audience largely because they lack precise demographic,
psychographic and navigational data. In addition, advertisers have expanded
their efforts to reach consumers using online direct marketing. These campaigns
have focused primarily on the mass mailing of unsolicited e-mail messages
referred to as "spam." Spam campaigns have met with considerable negative
consumer reaction and low response rates primarily because the offerings are
unsolicited and are often not relevant to consumers' lives. As a result of the
limitations in both online advertising and direct marketing, advertisers
continue to seek more effective approaches to deliver highly targeted
advertisements in a more personalized and content-rich editorial environment
from which they receive real-time feedback.

  Market Opportunity for a Comprehensive E-Marketing Solution

  In the past, advertisers wishing to employ e-marketing services have had to
rely on more than one service provider in order to deliver a range of specific
promotional or advertising services. In addition, many e-marketing services have
been focused only on online promotional activities and have not provided an
integrated online and offline solution.

  We believe there is a substantial market opportunity for a comprehensive e-
marketing solution that provides the following:

  .  a single source of both online and offline promotional services for
     advertisers that extends over the different stages of a customer
     relationship, from first-time purchase to repeat usage;

  .  access to a large audience of consumers who are actively seeking savings
     and who are willing to share demographic data that can be used to better
     target and personalize their shopping experiences;

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  .  one-stop shopping for consumers with access to a wide range of both online
     and offline promotional offers from high-quality advertisers;

  .  an established and consistent brand that consumers find credible; and

  .  the ability to track consumer demographics and shopping preferences on an
     individual and household level and to leverage that information across a
     large consumer base to make promotions increasingly targeted and cost-
     effective.

The CoolSavings Solution


  Our web site, coolsavings.com, offers convenient and personalized incentives
for goods and services from a broad range of advertisers, including national
brick-and-mortar chains, consumer packaged goods manufacturers, large consumer
service providers, online retailers, and neighborhood businesses. We offer a
wide array of promotional services for advertisers including printed and
electronic coupons, personalized e-mails, rebates, samples, sales notices, gift
certificates, contests and banner advertisements.

  Benefits to CoolSavings Advertisers

  The benefits to advertisers of using CoolSavings include:

  .  Single source e-marketing solution. We offer advertisers a single source
  for a full range of promotions that can be redeemed online or in stores and
  targeted to any stage in the customer relationship. These tools include
  printable coupons and gift certificates for brick-and-mortar stores,
  electronic certificates for online purchases, targeted e-mails, mail-in
  rebates, lead generation for trial subscriptions and samples, notices of
  ongoing sales where no certificate is necessary, promotional contests and
  banner advertisements. Advertisers can also use combinations of incentives for
  customized promotions.

  .  Access to a large audience of qualified, receptive shoppers. Advertisers
  are able to reach our large audience of consumers, who visit our web site
  looking for shopping values and are willing to provide demographic data about
  themselves and others in their households.

  .  Cost-effective performance. We believe we provide advertisers with a cost-
  effective solution for customer acquisition and retention. Unlike most other
  direct marketing providers, we can immediately learn from each campaign,
  regardless of the promotions used, to make future campaigns more effective, to
  re-target responding members with more focused offers and to convert new
  customers into loyal customers. Our advertisers are able to target information
  about ongoing sales promotions and events to the appropriate customers at the
  appropriate times.

  .  Insight into shopping behavior. Most advertisers have only limited means of
  tracking their customers' preferences and behavior. With our member's
  permission, we acquire information from the initial member registration, as
  well as from each time a member uses our web site or e-mail to respond to
  offers. As a result, we have much richer data to analyze for insight into the
  interests and preferences of an advertiser's customers. Advertisers can use
  our consolidated database to find predictive correlations that can lead to
  more effective targeting regardless of the types of promotions used. This
  information can

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be used by our advertisers to acquire new customers with appropriate incentives,
refine follow-on promotions and identify co-promotion opportunities.

  .  Ability to coordinate online and offline promotions. For advertisers that
     have both an online and offline presence, we can identify prospective
     customers and then track their activities whether shopping online or, with
     the cooperation of the advertiser, in stores. We enable these businesses to
     provide incentives, such as coupons and gift certificates, redeemable in
     their offline stores. If the advertiser returns the redeemed coupons to us,
     we can track the redemption of in-store coupons by scanning their unique
     bar codes and adding the shopping preference information to our database.
     For advertisers with only an online presence, we enable them to provide
     offline incentives, such as coupons and gift certificates, redeemable in
     the stores of their promotional partners. We also help offline companies
     without a web presence identify and reward customers with online incentives
     that their customers can bring into a store or use on another web site.

  .  Lower total cost of ownership and improved time to market. Our investments
     in infrastructure, technology and technical personnel allow our advertisers
     to deploy their promotional campaigns without the need to lease, buy or
     continually upgrade the required hardware and software systems, providing
     significant cost savings over an in-house solution. In addition, using both
     our infrastructure and our e-marketing processes and expertise, we enable
     our advertisers to deploy their e-marketing campaigns rapidly and reliably.
     As a result, our advertisers can remain focused on their core businesses
     while still providing compelling offers to consumers.

The CoolSavings Strategy


  Our objective is to be the leading provider of comprehensive e-marketing
services for advertisers. Key elements of our strategy to achieve this objective
are to:

  .  Extend brand awareness and expand member and advertiser base. We believe
     strong brand recognition is a powerful tool to attract new advertisers and
     members. We intend to continue to promote our brand online, with
     advertising campaigns on high-traffic web sites and cooperative campaigns
     with advertisers and affiliate networks. We believe our marketing efforts
     will expand our member base while preserving its current demographic
     characteristics, which will strengthen the services we provide to
     advertisers. As we expand our membership, we expect that our service will
     be attractive to additional advertisers, which will in turn make our site
     more attractive to additional consumers by providing a broader array of
     available incentives.

  .  Enhance member profiles. As we make available additional promotional offers
     and services on our web site and through e-mail, we believe we can tailor
     online promotions to specific members. As our members use our site and
     respond to advertiser promotions, we continually enrich our database and
     develop deeper data for predictive modeling and targeting purposes. We plan
     to continue upgrading our tracking and data mining tools to provide
     additional insight into member interests and shopping preferences.

  .  Broaden promotional service offerings. In order to provide a complete e-
     marketing solution for advertisers, we have expanded the promotional
     services we offer. For offline promotions, we have, in conjunction with
     trading partners, connected coupon discounts and points to credit cards

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     and frequent shopper cards. In addition, we offer our promotional services
     and expertise to advertisers to target within their own customer databases.

  .  Provide business-to-business promotions. We believe that advertisers seek a
     cost-effective and targeted medium to reach small businesses and
     independent professionals. We have developed the groundwork for a business-
     to-business service offering in which small businesses can register with us
     to receive incentives appropriate for their needs and interests. We plan to
     offer our advertisers the ability to deliver targeted business-to-business
     product and service promotions using database information such as type of
     business, size, geography and past purchasing behavior.

  .  Pursue third-party relationships. We intend to pursue relationships to
     further build our brand, expand our reach to consumers and advertisers and
     enhance our services.

Services

  We provide a comprehensive e-marketing solution to our advertisers. We deliver
a broad array of incentives through placement on our web site or by targeted e-
mail, to enable our advertisers to motivate consumers to purchase products and
services. Our advertisers also use our incentive programs to build the loyalty
of their existing customers. Using our tracking, targeting and data mining
capabilities, advertisers can coordinate and enhance their online and offline
promotional campaigns for customer acquisition, retention and loyalty.

  Delivery of Incentives

  We deliver a variety of promotional incentives, including printed and
electronic coupons, newsletters, sweepstakes promotions, personalized e-mail,
rebates, samples, sales notices, gift certificates, loyalty points, contests and
banner advertisements, to targeted segments of our member database on behalf of
our advertisers. We deliver these incentives to targeted segments of our large
audience of consumers through our web site, coolsavings.com, direct e-mails and
wireless Internet connections. These incentives can be redeemed by our members
either online or offline depending on the particular promotion. The cost of our
promotional services generally rises with the degree of targeting or
customization we provide because, in our experience, these efforts generally
result in higher response rates for the advertisers. In addition, we charge some
of our advertisers based upon the performance of the promotional offers that we
deliver for them.

  The coolsavings.com web site, which is branded as a leading destination site
for consumer savings, offers convenient and personalized incentives for a broad
array of products and services. To use our service, consumers register with us,
provide demographic data about themselves, their households and shopping
interests and choose whether to receive our direct e-mails. As members,
consumers can obtain relevant incentives redeemable online or in stores from a
broad range of advertisers, including online retailers, national brick-and-
mortar chains, consumer packaged goods manufacturers, large consumer service
providers and neighborhood businesses. We track our members' page views of and
responses to promotions in our member database. Upon an advertiser's request and
with the advertiser's cooperation, we can also track the redemption of
incentives.

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  The promotional services that we provide our advertisers include:

  .  CoolOffers. Online and offline businesses can deliver incentive offers,
     including printed and electronic coupons, rebates, sales notices and gift
     certificates, to targeted segments of our membership via our web site and
     our targeted e-mail. Targeting is performed by demographic profile and
     shopping preferences. Our members are presented a version of our web site
     tailored to their personal interests, where they can "save, then shop."(TM)
     Specialized sections of our web site are dedicated to specific categories
     such as grocery items, regional mall stores and neighborhood businesses.
     Our members can also use a search feature to find offers by product or
     service category. We provide site exposure, creative development services
     and detailed performance reports to our clients.

  .  Solo Targeted and Shared E-Mail. Our registered users can elect to receive
     periodic e-mails notifying them of offers that may be of personal interest.
     This allows us to send targeted e-mails to these members at the request of
     our advertisers on the basis of these members' demographic profiles and
     shopping preferences. We can deliver e-mails either with a single promotion
     by a specific advertiser or in shared messages which appear either in full-
     graphic HTML format or as plain text with web links, depending on members'
     preferences and the capabilities of their computers. The e-mails are
     targeted either through pre-selected criteria or using customized models we
     develop for particular campaigns. Member permission is at the heart of our
     e-mail program. Therefore, promotional e-mail is only sent to registered
     members who have opted-in to receive them.

  .  FreeStuff. We provide advertisers a method of generating leads by providing
     free samples of their products or services to our members. These offers,
     such as trial magazine subscriptions, free product samples, free travel
     brochures and free Internet services, appear in the "FreeStuff" section of
     our web site and are targeted by demographic profile and shopping
     preferences. To receive free samples, members voluntarily provide the
     advertiser with contact information such as name, e-mail and mailing
     address, as well as other data about their households. Advertisers may also
     request secure credit card information from members, as necessary. We can
     tailor the submission form to advertisers to ask additional questions of
     participating members to further qualify the leads we generate. By offering
     free product trials and other incentives to our members, we can effectively
     introduce an advertiser's product or service to our members.

  .  CoolGames. We provide advertisers with a highly targeted method for
     generating brand awareness combined with games that are also engaging for
     our members. We help advertisers create trivia contests and branded
     sweepstakes specific to their marketing strategies and tailored for their
     targeted profiles. We can also deliver targeted e-mails announcing a
     contest to generate immediate traffic and consumer response. At the
     conclusion of a member's interaction with a contest page, the advertiser's
     brand is reinforced by an automatic e-mail. Our members have an opportunity
     to explore products and special offers presented by our advertisers and to
     enter sweepstakes or contest to win products, cash prizes, coupons and gift
     certificates. At their request, consumers may also receive additional
     offers and information about advertisers' products through our monthly
     electronic newsletter and individual e-mails.

  .  Category Newsletters. We help our advertisers obtain new customers,
     generate sales and achieve

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     increased brand awareness through highly targeted, content-driven monthly
     e-mails which present an advertiser's products and services to members in
     conjunction with topical content which they have specifically requested.

  .  CoolSavings Rewards. Advertisers can utilize CoolSavings Rewards to
     generate initial sales, encourage repeat sales and promote product-specific
     purchases at the SKU level--without discounting their product or service.
     This valuable incentive program increases response rates and builds
     consumer loyalty to an advertiser's brand. Redeemable for a variety of
     merchandise and services, our advertisers can award CoolPoints to members
     for responding to or taking advantage of designated offers.

  Affinity Development

  We offer customer acquisition and reward programs that can be customized for
any product or service. We deliver initial sign-up incentives, such as gift
certificates, tailored to the target consumers, and then administer ongoing
benefits such as loyalty coupons. We also provide co-branded programs that
function together with advertisers' own established promotional vehicles, such
as their web sites, printed circulars, in-package flyers and in-store signs.
These vehicles direct consumers to a special CoolSavings web address. Consumers
entering our web site for the first time through a co-branded address will
experience our entire web site as co-branded each time they return. These
members can also receive customer-only offers targeted specifically to the
customers of the party co-branding with us, either on the co-branded web site or
in promotional e-mails. Our co-branding advertisers can use our infrastructure
to build loyalty with their own customers. We benefit by adding those
advertisers' customers to our database as CoolSavings members.

  Data Mining and Research Services

  By analyzing individual, demographic and correlative information in our
database, we provide advertisers several methods to gain insight into customer
preferences and profiles. We can also apply our data mining infrastructure to
analyze the databases of our advertisers upon their request. We use
sophisticated data mining tools to analyze member data to help our advertisers
execute effective promotional campaigns. We use data mining information to
create predictive models to make future targeting even more effective. Using e-
mail, we can also contact and survey members who have responded to a specific
offer. In addition, we are working with NFO Research, one of the world's leading
providers of research-based marketing information, to create member panels that
will provide major brands with quick feedback on new products and services.

Sales and Marketing

  We have built a sales organization dedicated to developing and maintaining
close relationships with advertisers and advertising agencies. Our sales force
is organized regionally and by specific industry and advertiser segments. To
support our sales efforts, we advertise regularly in trade publications, send
regular mailings to key marketing executives and exhibit at major trade shows.
We intend to form relationships with companies with existing local sales forces
in order to further penetrate local

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advertising markets. The first of these relationships is our alliance with Advo
Inc.'s Super Coups, in which Super Coups salespersons are selling our co-branded
services to local advertisers.

  Our marketing department is dedicated to promoting the CoolSavings brand,
developing our member content and acquiring members for our service. To attract
members and increase brand awareness, we have used a variety of advertising
methods, including a national offline branding campaign that includes
television, print, outdoor media and radio, as well as online advertising that
includes online banner advertisements on high-traffic web sites such as portals
and search engines. We also have developed network affiliate programs, in which
other companies send consumers to the CoolSavings web site and receive a fee per
each resulting member registration. Many of our advertisers provide links from
their own web sites that click through to offers on CoolSavings.

  We also have used our advertising relationships to gain additional exposure
for the CoolSavings name and piggy-bank character in retail chains and shopping
malls and on the Internet. In some cases, we have the opportunity to feature
CoolSavings on store signs and materials, such as bags and receipts.

Operations and Technology

  We have developed a proprietary system to target and personalize promotional
offers from our advertisers to our members. There are five main components of
our system:

  .  our web server technology, which allows us to display offers of interest
     for each member;

  .  our database, which processes the offers and stores the information about
     our members and their activity on our site;

  .  our data mining and targeting modules, which we use to determine the
     members to whom we will deliver offers and the most appropriate offers for
     each member;

  .  CoolSavings Coupon Manager, our software program that produces high-quality
     coupons and rebate certificates on a member's personal computer printer for
     in-store or mail-in use; and

  .  SavingsCenter software, which we and our advertisers use to create, target
     and control new offers.

  Our system has been designed around industry-standard architecture and is
designed to provide availability 24 hours-a-day, seven days-a-week. Occasionally
in the past, we have disconnected our servers to make upgrades or maintenance
checks on our system, leading to "down time" averaging approximately two hours
per month.

  Our web servers and the database behind our system as well as our data mining
servers are located at the Exodus Communications data center in Oak Brook,
Illinois. Currently, all site traffic is directed to the Exodus system and we
maintain a redundant version of our entire system at our Chicago headquarters.

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Intellectual Property

  We currently hold two United States patents, No. 5,761,648, entitled
"Interactive Marketing Network and Process Using Electronic Certificates" and
No. 5,855,007, entitled "Electronic Coupon Communication System."

  We are currently pursuing legal action against two companies that we believe
to be infringing our patent. This litigation is expensive, and the outcome of
this litigation may not be favorable to us. In addition, some of these companies
have filed counterclaims or separate lawsuits or other proceedings against us
seeking to prevent us from using our patented system, and others may do so in
the future. We have also settled seven prior lawsuits we brought against
companies that we believed were infringing our patent No. 5,761,648. Competitors
are also contesting our patent rights in the United States Patent and Trademark
Office as they relate to our patent No. 5,761,648.

  Currently, we are a defendant in two pending lawsuits involving an allegation
that our systems or methods infringe on competitors' patents. While we believe
the actions are without merit and intend to defend them vigorously, our efforts
may not be successful. We expect that, like other participants in our market, we
will increasingly be subject to infringement claims as the number of services
and competitors in our industry segment grows. Any infringement claim,
regardless of its merit, could be time-consuming, result in costly litigation,
cause service modifications or delays or require us to enter into royalty or
licensing agreements. Licenses for third party patents might not be available on
terms that are acceptable to us or at all. As a result, any claim of
infringement could harm our business, results of operations and financial
condition.

  In addition to our patents, we have registered trademarks, service marks and
copyrights in the United States and other countries. We also own common law
rights in several other marks, and have registration applications pending in the
United States and other countries.

  We regard the protection of our intellectual property, including our patents,
copyrights, service marks, trademarks, trade dress and trade secrets, as
important to our future success. We rely on a combination of these intellectual
property rights and contracts to protect the services we have created and our
competitive position in the marketplace. We have generally entered into
confidentiality and invention assignment agreements with our employees and
contractors. Where we have considered it necessary, we have required
nondisclosure agreements with our suppliers and advertisers in order to protect
confidential information about our business plans and technology. Despite these
precautions, these arrangements or the other steps which we have taken may not
protect our trade secrets or prevent another company from copying important
parts of our service. While we have registered our trademarks and service marks
in the U.S. and other countries, protection of these marks may not be available
in every country where we may do business in the future.

  We also rely on software programs that we license from other companies for key
database technology, operating system and software, and specific hardware
components for the computers in our system. These licenses may not continue to
be available to us on commercially reasonable terms in the future. As a result,
we may be required to obtain substitute technology of lower quality or at
greater cost, and may incur significant costs in converting to new technologies,
which would materially affect our business, results of operations and financial
condition.

                                       12
<PAGE>

  Seasonality

  We believe that our business is subject to seasonal fluctuations. Advertisers
generally place fewer advertisements during the first and third calendar
quarters of each year, which directly affects our business specifically, and the
advertising and direct marketing industry generally. Further, Internet user
traffic typically drops during the summer months, which reduces the amount of
advertising to sell and deliver. Expenditures by advertisers and direct
marketers tend to vary in cycles that reflect overall economic conditions as
well as budgeting and buying patterns. Our revenue has in the past and may in
the future be materially affected by a decline in the economic prospects of our
customers or in the economy in general, which could alter our current or
prospective customers' spending priorities or budget cycles or extend our sales
cycle.  The annual sales patterns of most products are affected by seasonal
influences ranging from holidays to the weather.  We are subject to industry
trends that affect Internet and traditional advertising providers generally,
including seasonality and subscriber cancellations.

  Competition

  The market for e-marketing services is new, rapidly evolving and intensely
competitive, and we expect competition to intensify. Barriers to entry for
companies in our market are low, and current and potential competitors can
launch new web sites and services at a relatively low cost.

  Our ability to compete depends on many factors, both within and beyond our
control. These factors include:

  .  advertiser identification and retention;

  .  brand recognition and credibility;

  .  pricing of our services;

  .  breadth of our service offerings for advertisers and consumers;

  .  reliability of service and quality of advertiser support;

  .  advertiser and member acquisition costs;

  .  membership size and demographics;

  .  frequency of use and consumer response rates; and

  .  technological expertise.

  We believe we are well-positioned to compete in our market as a result of the
breadth and sophistication of our services, the size and demographics of our
member audience, our experienced management and staff, our proprietary
technology and our established brand recognition.

                                       13
<PAGE>

  Currently, we compete directly with online marketing companies in several
fields, including:

  .  direct marketers, such as LifeMinders and YesMail;

  .  incentive services, such as MyPoints and Netcentives;

  .  coupon providers, such as e-centives; and

  .  sweepstakes providers, such as Webstakes.com and Sweepstakesonline.com.

  We also compete with the traditional advertising media of television, radio,
cable and print for a share of advertisers' total advertising budgets. We also
encounter competition from a number of other sources, including content
aggregation companies, companies engaged in advertising sales networks,
advertising agencies and other companies that facilitate Internet advertising.
We also face indirect competition from leading distributors of traditional
coupons by mail or newspaper inserts and from companies offering frequent flyer
points or other affinity rewards tied to responses to advertisements. Some of
the leading distributors of traditional newspaper-insert coupons compete against
us directly by delivering their promotions over the Internet.

  Many of our current and potential competitors have longer operating histories,
greater brand recognition, larger customer or user bases, and significantly
greater financial, marketing, technical and other resources than we do. In
addition, our competitors may be acquired by, receive investments from or enter
into other commercial relationships with larger, well-established and well-
financed companies as use of the Internet and other online services increases.
Therefore, some of our competitors may be able to devote greater resources to
marketing and promotional campaigns, adopt more aggressive pricing policies and
devote substantially more resources to web site and systems development. They
may also try to attract advertisers by offering free services. Increased
competition may cause us to lose brand recognition and market share and could
otherwise harm our business.

Employees

  As of March 1, 2001, we had 285 full-time employees, 93 of whom were engaged
in technology and product development, 88 in sales and marketing, 25 in client
and member services and 79 in finance, administration and operations. We have
never had a work stoppage and our employees are not covered by any collective
bargaining agreement. We consider our relations with our employees to be good.

Factors That May Affect Future Results

  In addition to the other information in this Form 10-K, the following factors
should be carefully considered in evaluating coolsavings.com and our business.
The risks and uncertainties described below are not the only ones facing our
company and there may be additional risks that we do not presently know of or
that we currently deem immaterial. All of these risks may impair our business
operations. This document also contains forward-looking statements that involve
risks and uncertainties and actual results may differ materially from the
results we discuss in the forward-looking statements. If any of the following
risks actually occur, our business, financial condition, cash flow or results of
operations could be materially adversely affected. In such case, the trading
price of our common stock could decline.

                                       14
<PAGE>

Our unproven business model makes it difficult to evaluate our business

  We launched our web site in February 1997, and operate in a market that is new
and changing rapidly. Because we have an unproven business model, it may be
difficult for you to evaluate an investment in our common stock. In addition, we
face risks, uncertainties, expenses and difficulties frequently encountered by
early stage companies in new and rapidly evolving markets, including the
Internet advertising and direct marketing market. To address these risks and
uncertainties, we must, among other things:

  .  maintain relationships with existing advertisers and attract additional
     advertisers;

  .  attract members who actively take advantage of our offers and make
     purchases, request information and otherwise interact with our advertisers;

  .  attract, integrate, motivate and retain qualified personnel;

  .  enhance our brand recognition;

  .  develop new promotions and services;

  .  continue to upgrade and develop our systems and infrastructure to
     accommodate potential growth;

  .  anticipate and adapt to the evolving Internet advertising and direct
     marketing market and changes in advertisers' promotional needs and
     policies;

  .  maintain and defend our intellectual property rights; and

  .  respond to changes in government regulations.

  We may not be successful in accomplishing these objectives. Our failure to do
so could harm our business, results of operations and financial condition.

We have liquidity constraints

  Cash on hand.  At December 31, 2000, we had $7.0 million of cash and cash
equivalents and we were not in compliance with our bank credit facilities.
Accordingly, we are operating under severely restricted cash resources, which
requires us to carefully monitor and manage our cash position.  In an effort to
preserve cash, we have implemented a cost reduction program.  We are also in
discussions with our banks to procure waivers of the non-compliance with and
modifications to the facilities to permit us to access the capital available
under those facilities.  However, even with the cost reduction program and
assuming we have access to our bank facilities, we will need to raise additional
capital to fund our operations until we are profitable and to respond to
business contingencies.  To this end, we have commenced a private offering of
our convertible debentures and warrants to increase the amount of cash on hand.
This offering, if successful, will reduce the percentage ownership of our
current shareholders in the event the debentures are converted and the
accompanying warrants are exercised.  However, there can be no assurance that we
will be successful in our discussions with our banks or obtaining the necessary
funds from our offering.  If adequate funds are not available to us on
acceptable terms, and if we are unsuccessful in our discussions with our banks,
our ability to continue to operate the business

                                       15
<PAGE>

will be jeopardized. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."

  History of losses.  We incurred net losses of $39.2 million in 2000, $16.9
million in 1999 and $5.7 million in 1998.  As of December 31, 2000, our
accumulated deficit was $60.4 million.  We expect to continue to incur operating
losses through the first half of 2001 as we continue to fund operations.  We
have set a target to be profitable in the second half of 2001.  However, we
expect that our top-line revenue for 2001 will be lower than originally
anticipated, primarily due to the slowdown of the United States economy and a
decrease in advertising by e-commerce businesses. These lower revenues may
adversely impact our ability to achieve our profitability target. In addition,
even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis. See "Item 7 -Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."

  Qualified auditor's report.  We have received a report from our independent
auditors for our fiscal year ended December 31, 2000 containing an explanatory
paragraph that describes the uncertainty as to our ability to continue as a
going concern due to our historical negative cash flow and because, as of the
date they issued their report, we did not have access to sufficient committed
capital to meet our operating needs for at least the next twelve months.  See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."

Our quarterly financial results may fluctuate, making our future financial
results difficult to forecast

  Our future operating results may vary significantly due to a variety of
factors, including the following which may be beyond our control:

  .  advertisers' demand for and use of our services;

  .  performance-based contracts, under which our revenues depend on our
     members' responsiveness to advertisers' offers;

  .  our members' demand for our services and response to the offers we make
     available to them; and

  .  litigation costs.

  As a result, we believe that quarter-to-quarter comparisons of our operating
results may not be meaningful. Moreover, these factors make our revenues
difficult to forecast. We base our estimated expenses in part on projections of
future revenue, which are inherently uncertain. We may be unable to reduce
spending quickly enough to offset any unexpected revenue shortfall, which could
cause our business and operating results to suffer. This would likely affect the
market price of our common stock in a manner which may be unrelated to our long-
term operating performance. It is likely that in one or more future quarters our
operating results will fall below the expectations of securities analysts and
investors. If this happens, our stock price will likely decline, perhaps
significantly.

                                       16
<PAGE>

We derive most of our revenues from short-term contracts with our advertisers

  A majority  of our current advertising contracts have stated terms of less
than three months. We may be unsuccessful in securing longer commitments. Some
advertisers prefer short-term contracts because they use our service to promote
limited-time promotional events or seasonal products and services. In addition,
new advertisers often request a short-term trial to assess the effectiveness of
our services, particularly because Internet-based promotional services are
relatively new and unproven. The limited duration of our advertising contracts
makes it difficult for us to forecast our revenues. If we cannot renew our
contracts or attract new advertisers, our results of operations and financial
condition will be seriously harmed.

Our operating results are subject to seasonal fluctuations

  We believe our operating results will be subject to seasonal fluctuations that
may make our stock price more volatile. Advertising sales in traditional media,
such as television and radio, generally are lower in the first and third
calendar quarters of each year. Further, Internet traffic typically decreases
during the summer months, which in turn may reduce the amount of advertising to
sell and deliver. We anticipate that our future revenues will reflect these
seasonal patterns. However, our limited operating history and the evolving
nature of the Internet advertising market make it difficult for us to predict
the precise future impact of seasonal factors on our business.

We depend on compelling promotional offers by our advertisers

  Our members' usage of our services, and the resulting attractiveness of our
service to advertisers, depend upon the quality of the promotional offers we
deliver and our members' interest in them. In addition, under some of our
advertising contracts, our revenues depend on members' responsiveness to
specific promotions. We currently consult with our advertisers about the type
and frequency of incentives they offer, but we cannot control their choice of
promotions or their fulfillment of incentives. If our advertisers' promotional
offers are not attractive to our members, we will not be able to maintain or
expand our membership or generate adequate revenues based on the size of our
membership or on the responses we produce. Moreover, if our members are not
satisfied with the offers our advertisers make available to them, or with the
products or services they receive upon redemption of offers, their negative
experiences might result in publicity that could damage our reputation, which
would harm our efforts to attract and retain members and advertisers.

We depend on the successful introduction of new services and features

  To retain and attract members and advertisers, we believe that we will need to
introduce additional services and new features on our web site. These new
features and services may require us to spend significant funds on product
development and on educating our advertisers and consumers about our new service
offerings. New services and features may contain errors or defects that are
discovered only after introduction. Correcting these defects may result in
significant costs, service interruptions, loss of advertisers' and members'
goodwill and damage to our reputation. In addition, our successful introduction
of new technologies will depend on our advertisers' ability to adapt to use
these technologies, over which we have no control. If we introduce a service or
feature that is not favorably

                                       17
<PAGE>

received, our current members may use our web site and other services less
frequently, our existing advertisers may not renew their contracts and we may be
unable to attract new members and advertisers.

We must be able to establish and maintain relationships with operators of other
web sites to attract new members

  We advertise on third-party web sites using banner advertisements and
sponsorships to attract potential new members. Competition for banner and
sponsorship placements on the highest traffic web sites is intense and we may
not be able to enter into these relationships on commercially reasonable terms,
or at all. Even if we enter into or maintain our current relationships with
other web site operators, those sites may not attract significant numbers of
users or increase traffic to our web site. Some operators of other web sites,
and parties such as Netcentives Inc. with which we create new incentive programs
for our members, may also offer competing services, alone or through an
arrangement with one of our competitors. These operators may be reluctant to
enter into or expand their relationships with us. Our business could be harmed
if we do not establish and maintain relationships with other web site operators
on commercially reasonable terms or if our relationships do not result in
additional member registrations on our web site. In addition, to attract new
members, we may enter into agreements with organizations that have established
subscription bases. These agreements may contain exclusivity provisions that
restrict our ability to enter into similar agreements with other organizations
in the same business category.

Intellectual property litigation against us can be costly and could result in
the loss of significant rights

  We expect that, as the number of services and competitors in Internet
advertising and direct marketing grows, we will be increasingly subject to
intellectual property infringement, unfair competition and related claims
against us. Third parties may also seek to invalidate our United States Patents,
No. 5,761,648, entitled "Interactive Marketing Network and Process Using
Electronic Certificates" and No. 5,855,007, entitled "Electronic Coupon
Communication System." Currently, we are a defendant in two lawsuits filed by
competitors, each of which alleges that our technology or business methods
infringe on the competitors' patent. The lawsuits seek, among other things, to
prevent us from using methods that allegedly violate the competitors' patents.
In addition, competitors have in the past, and may in the future, name our
customers as defendants in these suits, which may cause these customers to
terminate their relationships with us which, in turn, could harm our business.
While we intend to defend these actions vigorously, our efforts may not be
successful. Our failure to prevail in this litigation could result in:

  .  our paying monetary damages, which could be tripled if the infringement is
     found to have been willful;

  .  an injunction requiring us to stop offering our services in their current
     form;

  .  our having to redesign our technology and business methods, which could be
     costly and time-consuming even where a redesign is feasible; or

  .  our having to pay fees to license intellectual property rights, which may
     result in unanticipated or higher costs.

                                       18
<PAGE>

  Because of the ongoing technical efforts of others in our market and the
relatively recent introduction of our technology, we may be involved with one or
more of our competitors in legal proceedings to determine the parties' rights to
various intellectual property, including the right to our continued ownership of
our existing patents. Our failure to prevail in these proceedings could harm our
business.  See "Item 3 - Legal Proceedings"

  We cannot predict whether other third parties will assert claims of
infringement or similar charges against us, or whether any past or future claims
will harm our business. We believe that participants in our market are
increasingly attempting to obtain patent protection for their business methods.
We cannot predict when or if patents will result from these efforts, or whether
any of these third parties' patents will cover aspects of our business. The
details of currently pending United States patent applications are not publicly
disclosed until the patent is issued. Any third-party claim, with or without
merit, could be time-consuming, result in costly litigation and damages, cause
us to reduce or alter our services, delay or prevent service enhancements or
require us to enter into royalty or licensing agreements.

  In addition, legal standards regarding the validity, enforceability and scope
of intellectual property in Internet-related businesses are unproven and
continue to evolve. In this legal environment, we may be required to license
other parties' proprietary rights in an effort to clarify our ability to conduct
business or develop new services. Royalty or licensing agreements, if required,
might not be available on terms acceptable to us, or at all. If there is a
successful claim of infringement against us and we are unable to develop non-
infringing technology or license the infringed or similar technology on a timely
basis, our business could be substantially harmed.

Protecting our patents, trademarks and proprietary rights may be costly and may
distract our management.

  We regard the protection of our patent rights, copyrights, service marks,
trademarks, trade dress and trade secrets as important to our future success.
However, the steps we take to protect these and other proprietary rights will be
costly, may require significant management resources and may be inadequate. If
we are unsuccessful in protecting our proprietary rights, our business may be
seriously harmed.

  Patents

  We have two issued United States patents and several pending United States and
foreign patent applications directed to different aspects of our technology and
business processes. Nevertheless, it is possible that:

  .  our United States patents and any other patent we may obtain could be
     successfully challenged by third parties, which could limit or deprive us
     of the right to prevent others from exploiting the electronic certificate
     issuing and processing method or other inventions claimed in our current or
     future patents;

                                       19
<PAGE>

  .  current and future competitors could devise new methods of competing with
     our business that are not covered by our issued patents or any patents we
     may obtain, or against which our patents and any other patent we may obtain
     may be ineffective;

  .  our pending patent applications may not result in the issuance of patents;

  .  limit our ability to receive royalties for use of our patents by third
     parties; and

  .  a third party may have or obtain one or more patents that cause specific
     aspects of our business to be restricted or that require us to pay license
     fees.

  In addition, we cannot predict how recently enacted United States laws may
impact our proprietary rights. For example, the American Inventor's Protection
Act, which became law in October 1999, may grant partial or full immunity to
certain qualified methods of doing business from the full exclusionary rights
otherwise afforded to validly issued patents. There currently is no substantial
judicial precedent addressing this new law. We are also uncertain as to whether
countries other than the United States will grant patents for inventions
pertaining to Internet-related businesses, or as to the extent of protection
those foreign patents would afford if issued. As in the United States, the legal
standards applied abroad for intellectual property in Internet-related
businesses are evolving and unproven. Any ruling or legislation that reduces the
validity or enforceability of our patents may seriously harm our business.

  We presently have two lawsuits pending against companies we believe have
infringed on our patents. This litigation has been and will continue to be
costly, and is likely to continue over the course of several years. These
lawsuits are at an early stage, and the outcome of these lawsuits, as well as
any other lawsuits we may file, may not be favorable to us. We may not prevail
and prevent others from infringing on our patents and using our proprietary
rights. Furthermore, some of the companies we have sued have filed counterclaims
or separate lawsuits against us seeking damages or to prevent us from using
features of our system or business, and competitors are taking steps in the
United States Patent and Trademark Office to contest our patent rights. Other
defendants and competitors may take similar actions.

  Trademarks, Copyrights and Trade Secrets

  We rely on a combination of laws and contractual restrictions to establish and
protect our proprietary rights. We generally have entered into confidentiality
and invention assignment agreements with our employees and contractors, and into
non-disclosure agreements with parties with which we conduct business, in order
to limit access to and disclosure of our proprietary information. These
contractual arrangements and other steps we have taken to protect our
intellectual property may not prevent misappropriation of our proprietary rights
or deter independent third-party development or use of similar intellectual
property. In addition, we have registered and have applied for registration of
trademarks and service marks in the United States and in other countries.
However, our pending registrations might not be issued and our registered marks
may not prevent others from using similar marks.

                                       20
<PAGE>

  Domain Names

  We currently hold the Internet domain name coolsavings.com, as well as various
other related names. The requirements for holding domain names could change. As
a result, we may not acquire or maintain the "coolsavings.com" domain name in
all of the countries in which we conduct business or in which we wish to conduct
business in the future. This could impair our efforts to build brand recognition
and to increase traffic to our web site. We also could be subject to disputes
over our ownership of our domain names, which could be costly and disruptive.

  Licenses

  In the future, we may license portions of our intellectual property, including
our issued patents, to third parties. To date, we have granted one competitor
immunity from suit under one of our patents, on the condition that the
competitor restrict its coupon distribution in ways acceptable to us. Similarly,
we have also granted licenses to six other competitors under this same patent on
the condition that they restrict their coupon distribution in ways acceptable to
us. If the nature or scope of the immunity or licenses were disputed, we would
need to institute proceedings to enforce our rights under these agreements or
under our patents.

We may lose business or incur liabilities to our advertisers due to
uncertainties or inaccuracies in our database information

  It is important to our advertisers that we accurately track our members'
demographics, our delivery of offers and advertisements and, in some instances,
redemptions of incentives offered through CoolSavings. We have developed systems
designed to record information about our members' demographic profiles, usage of
our web site and other member information. If these systems do not perform as
intended, we may not be able to evaluate accurately our members' household
characteristics or the success of an advertiser's promotional campaign.
Advertisers' willingness to use our services depends in part on the size of our
membership base. In addition, in some cases our advertising rates increase as
our registered membership increases and some of our advertising contracts
require us to maintain or attain specified membership or usage levels. It is
difficult to report our membership numbers accurately because some individuals
may register more than once under different e-mail addresses, and members of
households already registered with us may subsequently register themselves
individually. Many of our members were registered on our web site by other
members of their households and tend to use our web site less frequently than
the members who registered them, if at all. Furthermore, we rely on the accuracy
of the demographic, income and other information provided by our registering
members. If advertisers perceive our tracking and evaluations to be unreliable
or if our members' self-reported information proves to be inaccurate, we may
lose current and potential advertisers, suffer erosion in our advertising rates
or face disputes over proper advertising charges.

Failure to promote and protect our brand will harm our business

  We believe that strengthening our brand will be increasingly important because
our market is competitive and has low barriers to entry. Our ability to promote
and position our brand depends on the

                                       21
<PAGE>

success of our marketing efforts and whether we can provide high quality
services that motivate our members to use CoolSavings. If our brand enhancement
strategy is unsuccessful, our business will be harmed. In addition, we rely on
co-branding relationships as sources for new members. These co-branded programs
function together with our advertisers' established promotional vehicles to
direct consumers to a special CoolSavings web address. To the extent anyone we
co-brand with is subject to negative publicity, the goodwill associated with our
brand may be harmed.

We may not be able to compete successfully against current and future
competitors

  The market for e-marketing services is new, rapidly evolving and intensely
competitive. Barriers to entry for companies in our market are low, and current
and potential competitors can launch new web sites and e-marketing services at
relatively low cost.

  Currently, we compete directly with online marketing companies in several
fields:

  .  direct marketers, such as LifeMinders and YesMail;

  .  incentive services, such as MyPoints and Netcentives;

  .  coupon providers, such as e-centives; and

  .  sweepstakes providers, such as Webstakes.com and Sweepstakesonline.com.

  We also face competition from traditional direct marketers, including leading
distributors of traditional coupons by mail or newspaper inserts and from
companies offering affinity rewards tied to responses to advertisements. We
expect that some of the leading distributors of traditional newspaper-insert
coupons, which have significant existing relationships with advertisers such as
consumer packaged goods companies, will compete against us directly by
delivering their promotions over the Internet. We also compete with other web
sites, portals and advertising networks, as well as traditional offline media
such as television, radio and print, for a share of advertisers' total
advertising budgets and for consumers' attention.

  Many of our current and potential competitors have longer operating histories,
greater brand recognition, larger customer or user bases, and significantly
greater financial, marketing, technical and other resources than we do. In
addition, our competitors may be acquired by, receive investments from or enter
into other commercial relationships with, larger, well-established and well-
financed companies. Therefore, some of our competitors may be able to devote
greater resources to marketing and promotional campaigns, adopt more aggressive
pricing policies and devote substantially more resources to web site and systems
development. They may also try to attract advertisers by offering free services.
Increased competition may cause us to lose brand recognition and market share
and could otherwise harm our business.

Our revenues may be concentrated among a limited number of advertisers

  During 2000, approximately 10.3% of our revenues were derived from one
advertiser, and approximately 27.7% of our revenues were derived from our five
largest advertisers. We believe that a

                                       22
<PAGE>

relatively small number of advertisers may account for a substantial portion of
our revenues in future periods. If any of our major advertisers were to reduce
their advertising purchases substantially or to stop using our services, our
business would be seriously harmed.

Many of our customers are emerging Internet companies that represent potential
credit risks

  A significant portion of our revenues is derived from sales of advertising to
online retailers and service providers. Many of these companies have limited
operating histories, are incurring substantial losses and have limited access to
capital. Many of these companies represent potential credit risks and could
fail. If these advertisers experience financial difficulties or fail to achieve
commercial success, our business will suffer.

Our failure to attract, assimilate and retain highly skilled personnel would
seriously harm our business

  Our future success depends on the continued services of our senior management
and other key sales and technical personnel, particularly Steven M. Golden, our
Chairman and Chief Executive Officer, Paul Case, our Chief Financial Officer,
Matthew Moog, our President and Chief Operating Officer, John J. Adams, our
Executive Vice President, Operations and Technology, Jonathan J. Smith, our
Executive Vice President, Strategic Business Development, and Robert Gorman, our
Chief Privacy Officer, Executive Vice President and General Counsel. We do not
have long-term employment agreements with any of our key personnel and maintain
no "key person" life insurance policies. The loss of the services of any of our
executive officers or other key employees would likely have a negative effect on
our business, results of operations and financial condition.

  Our future success also depends on our ability to identify, attract, retain
and motivate highly skilled employees, particularly additional technical, sales
and marketing personnel. Competition for employees in our industry is intense.
We have occasionally encountered and expect to continue to encounter
difficulties in hiring and retaining highly skilled employees, particularly
qualified software developers for our web site and database systems. We may be
unable to retain our key employees or identify, attract, assimilate or retain
other highly qualified employees in the future, which may in turn harm our
business.

Our reputation and business could be damaged if we encounter system
interruptions or capacity limitations

  We seek to generate a high volume of traffic and transactions on our web site.
Our database must also handle a large volume of member data and information
about members' usage of our web site. The satisfactory performance, reliability
and availability of our web site, database systems and network infrastructure
are critical to our reputation and our ability to attract and retain large
numbers of members. Our revenues depend on promotional offers being readily
available for members and our ability to process their coupon downloads, e-mail
responses or other transactions on our web site. Any system interruptions that
result in the unavailability of our service or reduced member activity would
impair the effectiveness of our service for advertisers. Interruptions of
service may also inhibit our ability to attract and retain members, which in
turn will hinder our sales and marketing efforts. We have experienced periodic
system interruptions, which may occur from time to time in the future.

                                       23
<PAGE>

  Additionally, recent acts of sabotage, known as denial of service attacks, on
prominent, high traffic web sites have caused extended interruption of services
on those web sites. Like other operators of web sites, we could also face system
interruption or shutdown as a result of a denial of service attack.

  A substantial increase in rate of traffic on our web site will require us to
expand and upgrade our technology, processing systems and network
infrastructure. Any unexpected upgrades could be disruptive and costly. In
addition, our existing systems may encounter unexpected problems as our member
base expands. Our failure to handle the growth of our databases could lead to
system failures, inadequate response times or corruption of our data, and could
negatively affect our business, results of operations and financial condition.
We may be unable to expand and upgrade our systems and infrastructure to
accommodate this growth in a timely manner. Any failure to expand or upgrade our
systems could damage our reputation and our business.

  Furthermore, the increased use of the Internet has caused frequent
interruptions and delays in accessing and transmitting data over the Internet.
If the use of the Internet continues to grow rapidly, the Internet's
infrastructure may not continue to support the demands placed on it and its
performance and reliability may decline. Interruptions or delays in Internet
transmissions will disrupt our members' ability to access advertisers' offers on
our web site and our ability to send targeted e-mail, which may in turn
seriously harm our business and financial results. We also rely on web browser
technology to create and target promotional offers. If access to these web-based
systems is interrupted, our ability to disseminate new offers will be impaired,
which could cause lost revenues or disputes with our advertisers.

We rely on third-party service providers, and any disruption or failure in the
services they provide will harm our business

  We rely on third-party service providers to provide access to our web site and
support its operation. Any interruption or failure in these services or
deterioration in their performance could disrupt our business. Our support
arrangements with these providers are generally for a term of one year and may
be canceled on 30 days notice in certain circumstances. In the event these
arrangements are terminated, we may not be able to find alternative service
providers on a timely basis or on terms acceptable to us, or at all, which in
turn would harm our business. In addition, we rely on software licenses from
third parties. If these licenses are terminated or if such software is no longer
supported by its manufacturer, we may not be able to find and install
satisfactory alternate software on a timely basis or on terms acceptable to us,
or at all, which will harm our business.

Our business could be damaged by natural disasters and other unexpected problems

  Our success and our ability to attract new members and motivate our members to
respond to our advertisers' offers depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. Our web servers
and the database behind our system as well as the servers we use to perform data
analysis are currently located at an Exodus Communications data center in Oak
Brook, Illinois. Currently, all site traffic is directed to the Exodus system
and we maintain a fully redundant version of our entire system at our Chicago
headquarters. The computer systems at each of our

                                       24
<PAGE>

two hosting sites are vulnerable to damage or interruption from floods, fires,
power loss, telecommunication failures, and other natural disasters. In
addition, the backup system in our Chicago facility has only two hours of
emergency back-up power. The occurrence of a natural disaster or other
unanticipated problems at our facility or at the Exodus facility could result in
interruptions in or degradation of our services. Our business interruption
insurance may not adequately compensate us for resulting losses.

  Furthermore, the computer servers running our system are vulnerable to general
mechanical breakdown or component failure, computer viruses, physical or
electronic break-ins, sabotage, vandalism and similar disruptions, which could
lead to loss or corruption of data or prevent us from posting offers on our web
site, sending e-mail notifications of new offers or delivering coupons or other
certificates to our members. System failure or degradation resulting from under-
capacity or from any of these risks could harm our business.

We may be subject to claims or regulatory investigations as a result of our data
analysis activities, which could result in loss of members

  The information in our database is an integral part of our business. We have
designed our technology infrastructure and services to allow us to aggregate
data regarding specific member behavior. We have a privacy policy that governs
how we use information about our members. We currently do not sell member-
identifying information to third parties without the consent of the member and
have no plans to do so in the future. Furthermore, our e-mail notices are only
sent to members who have elected to receive them. However, some people who
receive promotions from us may still be unhappy that we contacted them. In
addition, while we strictly protect the identity of individual members, we do
provide advertisers with aggregate information regarding member demographics,
shopping preferences and past behavior.

  Our use of this aggregated information may cause dissatisfaction among our
members or otherwise lead to negative publicity. There has been substantial
publicity, governmental investigations and litigation regarding privacy issues
involving the Internet and Internet-based advertising. To the extent that our
data mining and/or other activities conflict with any privacy protection
initiatives or if any private information is inadvertently made public, we may
become a defendant in lawsuits or the subject of regulatory investigations
relating to our practices in the collection, maintenance and use of information
about, and our disclosure of these information practices to, our members.
Litigation and regulatory inquiries of these types are often expensive and time
consuming and their outcome is uncertain. We may need to spend significant
amounts on our legal defense, senior management may be required to divert their
attention from other portions of our business, and we may be required to make
changes to our present and planned products or services, any of which could
materially and adversely affect our business, financial condition and results of
operations. If, as a result of any of these proceedings, a judgment is rendered
or a decree is entered against us, it may materially and adversely affect our
business, financial condition and results of operations.

                                       25
<PAGE>

Our business will be harmed if our online security measures fail

  Because our efforts to attract and retain members depend, in part, on
potential members' expectations of privacy in using our services, our business
could be damaged by any security breach of our database or web site. We may be
required to spend significant capital and other resources to protect against
security breaches or to alleviate problems caused by these breaches. Someone
circumventing our security measures could misappropriate proprietary
information, corrupt our database or otherwise interrupt our operations. We
could also be subject to liability as a result of any security breach or
misappropriation of our members' personal data. This could include claims for
unauthorized purchases with credit card information, impersonation or other
similar fraud claims, as well as claims based upon other misuses of personal
information, such as unauthorized marketing. These claims could result in costly
litigation and could limit our ability to attract and retain advertisers and
members. Our security measures may fail to prevent security breaches. Any
failure to prevent security breaches will damage our reputation and harm our
business.

We may be liable for supplying inaccurate promotional information to consumers

  We may face liability if the promotional information in the offers available
to our members is inaccurate. Our employees may make errors in posting our
advertisers' promotions. In addition, our advertisers may make errors entering
promotional offers directly into CoolSavings using our SavingsCenter software,
and we do not proofread or otherwise verify all of these offers. Any liabilities
which we may incur because of inaccurate information in the offers that we
deliver could harm our business, results of operations and financial condition.
Additionally, any negative publicity generated as a result of inaccurate
information in the offers we deliver could damage our reputation and diminish
the value of our brand name.

Our common stock could be delisted

  As of March 26, 2001, our stock had failed to have a minimum bid price of
$1.00 per share for 26 consecutive trading days.  If our stock continues to
trade at a price below $1.00, we may be subject to our stock being delisted from
the NASDAQ national market system.  If delisting should occur, our stock price
may be negatively affected.

We may be harmed if our advertisers fail to honor their promotions on our web
site or to comply with applicable laws

  Our success depends largely upon retailers honoring our electronic and printed
coupons and upon advertisers reliably delivering and accurately representing the
listed goods and services. We have occasionally received, and expect to continue
to receive, complaints from our members about retailers' failure to honor our
coupons or about the quality of the goods and services featured in our
promotions. These complaints may be accompanied by requests for reimbursement or
threats of legal action against us. Any resulting reimbursements or related
litigation could be costly for us, divert management attention, increase our
costs of doing business or otherwise harm our business, financial condition or
results of operations. In addition, our advertisers' promotion of their goods
and services may not comply with federal, state and local laws. Our role in
facilitating advertisers' sales activities may expose us to liability under
these laws. If we are exposed to this kind of liability, we could be required to
pay

                                       26
<PAGE>

substantial fines or penalties, redesign our web site or business processes,
discontinue some of our services or otherwise spend resources to avoid
liability.

We are a defendant in a securities-related lawsuit

  We have been named as a co-defendant in a lawsuit filed in 1999 against our
Chief Executive Officer by his ex-wife. This lawsuit is based upon the
plaintiff's sale of shares of our common stock to our Chief Executive Officer in
March 1998, and makes various allegations including fraud. The suit seeks
damages in excess of $6.5 million. While we believe that this lawsuit lacks
merit, a negative outcome in this litigation could subject us to substantial
damages and negative publicity. Our defense of this litigation, even if
successful, could be costly and time-consuming.

We depend on widespread acceptance of online direct marketing and promotions and
the continued growth of online commerce

  Our success depends on the continued growth and acceptance by both consumers
and advertisers of online direct marketing and other promotional services
available through the Internet. Although incentive promotions and direct
marketing have been provided for many years through newspaper inserts, direct
mailing and other conventional marketing and sales channels, they have only
recently been offered on the Internet. Many of our current or potential
advertising customers, particularly traditional offline businesses, have little
or no experience using the Internet for advertising purposes, and may be
reluctant to spend money on our services. As a result, we face a longer sales
cycle when dealing with traditional offline businesses. At times, these sales
cycles can last more than a year. In addition, some traditional retailers may
not readily accept our computer-generated certificates as valid, in part because
of their cashiers' lack of familiarity with them and the perceived risk that
these coupons can be counterfeited. The other services we offer, including the
use of targeted e-mails to alert consumers to savings opportunities, also
represent new marketing methods whose acceptance by consumers and advertisers is
less certain than traditional marketing methods. Although we do not send
unsolicited e-mail, known as "spam," negative public perception associated with
"spam" could reduce the demand for our services.

  In addition, we are dependent upon the continued growth of the Internet as a
medium for commerce. Demand for services and products sold over the Internet is
uncertain for a number of reasons, including concerns related to the security of
transactions, network reliability and poor performance. Changes in or
insufficient availability of telecommunications services to support the Internet
also could result in slower response times and reduce usage of the Internet. If
use of the Internet does not continue to grow, grows more slowly than expected
or does not become a viable commercial marketplace, our business, results of
operations and financial condition will suffer.

Changes in consumer and advertiser trends could harm our business

  We derive substantially all of our revenues from fees charged to advertisers
for our promotional services. Therefore, we will be affected by changing trends
in retail advertising, such as the trend away from periodic promotions and
toward "everyday low prices." In addition, many of our advertisers are

                                       27
<PAGE>

national retailers and suppliers of consumer products and services. These
businesses are affected by the general economy as well as consumer confidence,
which has at times diminished despite otherwise strong financial conditions.
Consumer spending also can be affected by trends related to lifestyle, such as
changing tastes in fashion or entertainment. Any decline in demand for our
services as a result of changes in consumer or advertiser trends could harm our
business, results of operations and financial condition.

We may not be able to keep up with rapid technological developments and evolving
industry standards

  The Internet is characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing consumer and advertiser demands. Our
future success will depend on our ability to adapt our services to rapidly
changing technologies and evolving industry standards and to continually improve
the performance, features and reliability of our services. For example, we may
be required to adapt our services to be compatible with Internet-connected
devices other than traditional personal computers, such as handheld and wireless
devices. We may also need to adapt to evolving standards resulting from the
convergence of the Internet, television and other media. The widespread adoption
of new Internet, networking or telecommunications technologies or other
technological changes could require us to incur substantial expenditures to
modify or adapt our services or infrastructure.

Federal, state and local governments may further regulate the Internet, Internet
advertising and privacy which could substantially harm our business

  The adoption or modification of laws or regulations relating to the Internet,
Internet-based advertising and privacy could harm our business. In particular,
our business could be severely damaged by any regulatory restrictions on our
collection or use of information about our members.

  Laws and regulations that apply to Internet advertising and communications and
Internet users' privacy are becoming more prevalent. For example, the United
States Congress and Federal Trade Commission have adopted laws and regulations
regarding the online collection and use of information from children and the
content of Internet communications, and various states regulate e-mail
marketing. However, even in areas where there has been some legislative action,
the laws governing the Internet remain largely unsettled. There is no single
government body overseeing our industry, and some existing state laws have
different and sometimes inconsistent application to our business. It may take
years to determine whether and how existing laws, such as those governing
intellectual property, privacy, libel, taxation and the need to qualify to do
business in a particular state, apply to the Internet and Internet advertising.
Also, we conduct trivia quizzes and other contests and sweepstakes on our web
site, which may be subject to gaming and sweepstakes laws. Our attempts to
comply with these laws may be inadequate, in part because the effect of these
laws on our activities is often unclear.

  We expect that regulation of the Internet and Internet advertising will
intensify. New laws could slow the growth in Internet use and decrease the
acceptance of the Internet as a commercial medium, which would harm our
business. For example, a number of proposals to restrict the collection of
information about Internet users and to tax Internet-based transactions are
under consideration by federal, state, local

                                       28
<PAGE>

and foreign governmental organizations. A three-year federal moratorium on new
state Internet sales tax legislation is currently in effect, but it is scheduled
to expire in October 2001, and does not preempt existing state tax laws. An
increase in the taxation of online transactions or other new regulations could
increase our costs of doing business or otherwise harm us by making the Internet
less attractive for consumers and businesses. In addition, existing laws such as
those governing intellectual property and privacy may be interpreted to apply to
the Internet and Internet advertising. Our strategy to expand into international
markets will likely subject us to additional regulation. Foreign countries, for
example those in the European Union, often regulate areas such as Internet user
privacy more strictly than the United States.

  Any application of existing laws and regulations to the Internet, new
legislation or regulation that imposes stricter restrictions on privacy,
consumer protection or advertising practices, any government investigation of
our privacy practices or other business methods, or the application of laws from
jurisdictions whose laws do not currently apply to us could:

  .  create uncertainty in the marketplace that could reduce demand for our
     services;

  .  limit our ability to collect and to use data from our members, which could
     prevent us from attracting and retaining advertisers;

  .  result in expensive litigation, costly and disruptive efforts to respond to
     governmental investigations and burdensome fines or penalties;

  .  require us to redesign our web site, registration process, database or
     targeting methods, an of which could be expensive and disruptive to our
     business;

  .  increase the cost of delivering our services to advertisers;

  .  require us to qualify to do business in additional jurisdictions, or
     subject us to liability for having failed to qualify to do business
     wherever our members reside;

  .  reduce the efficacy of our targeted promotional services; or

  .  in some other manner harm our business, results of operations and financial
     condition.

Our business may suffer if the security of Internet commerce is compromised

  Concerns about the security of transactions conducted on the Internet and
consumer privacy may inhibit the growth of the Internet generally, and online
commerce in particular. Any compromise of security involving Internet-based
transactions could result in negative publicity and deter people from using the
Internet or from using it to conduct transactions that involve transmitting
confidential information, such as registering for membership or purchasing goods
and services. This could harm our business because most of our advertisers use
our services to encourage people to purchase goods or services on the Internet.

Our executive officers and directors and entities affiliated with them
beneficially own approximately 65% of our outstanding common stock and,
therefore, have the ability to exercise significant control over us, and third
parties may be deterred from acquiring us.

                                       29
<PAGE>

  Our executive officers, directors and entities affiliated with them, in the
aggregate, beneficially own approximately 65% of our outstanding common stock.
As a result, these shareholders, if acting together, will have the ability to
control all matters requiring approval by our shareholders, including the
election and removal of directors and the approval of any merger, consolidation
or sale of all or substantially all of our assets. This could discourage others
from initiating potential merger, takeover or other change of control
transactions, which could cause our stock price to decline.

  In addition, provisions of our articles of incorporation, our bylaws and
Michigan law could make it difficult for a third party to acquire us or change
our management, even if doing so would be beneficial to our shareholders. These
provisions include:

  .  authorizing the board to issue one or more series of preferred stock;

  .  limiting the persons who may call special meetings of shareholders;

  .  prohibiting shareholder action by written consent;

  .  prohibiting shareholders from filling any vacancy on the board; and

  .  establishing advance notice requirements for nominations for election of
     directors or for proposing matters that can be acted on by shareholders at
     shareholder meetings.

Our stock price has been volatile

  The market price of our common stock has been volatile and could be subject to
wide fluctuations in response to factors such as the following, many of which
are beyond our control:

  .  quarterly variations in our operating results;

  .  operating results that vary from the expectations of securities analysts
     and investors;

  .  changes in expectations as to our future financial performance, including
     financial estimates by securities analysts and investors;

  .  changes in market valuations of other Internet companies;

  .  governmental regulation of the Internet or Internet advertising, including
     any governmental inquiry of another Internet company;

  .  loss of a major advertiser;

  .  resolution of our pending or future patent litigation or other changes in
     the status of our intellectual property rights;

  .  announcements of significant claims or legal proceedings against us;

  .  announcements of technological innovations or new services by us or our
     competitors;

  .  announcements by us or our competitors of significant contracts,
     acquisitions, strategic partnerships, joint ventures or capital
     commitments;

                                       30
<PAGE>

  .  changes in our liquidity position;

  .  departures of key personnel; and

  .  future sales of our common stock.

  Domestic and international stock markets often experience extreme price and
volume fluctuations. The market prices of the securities of Internet-related and
technology companies are often highly volatile and subject to wide fluctuations
that bear little relation to actual operating performance of these companies. As
a result, investors may be unable to sell shares of our common stock at or above
the price they paid for the stock.

  In the past, some companies that have experienced volatility in the market
price of their stock have been the object of securities class action litigation.
Securities class action litigation involving CoolSavings would result in
substantial costs and a diversion of management's attention and resources, and
would harm our stock price.

ITEM 2.  PROPERTIES

  Our executive and operating offices are currently located in Chicago,
Illinois, in a 63,408 square foot facility. This lease expires in 2010 although
we have options to expand the leased space and to extend the term of this lease.
In addition, we maintain 3,252 square feet of our former office space in
Chicago, Illinois pursuant to a lease expiring on March 16, 2002, which we are
currently attempting to sublet.  We lease 3,251 square feet of office space in
San Francisco, California, which lease expires on July 31, 2005, and 3,078
square feet of office space in New York City, New York, which  expires on June
30, 2005, each for use as a sales office.

ITEM 3.  LEGAL PROCEEDINGS

  On October 21, 1998, we instituted a lawsuit in the Northern District of
Illinois against Catalina Marketing International, Inc., and its affiliate
Supermarkets Online, Inc. for infringement of our United States Patent No.
5,761,648, seeking unspecified damages and a permanent injunction against
further infringement. The defendants have filed counterclaims alleging
invalidity of our patent and are seeking unspecified damages and injunctive
relief. In addition, on February 18, 2000, Catalina Marketing filed a request
for re-examination of our United States Patent No. 5,761,648 with the United
States Patent and Trademark Office, which request was granted on May 2, 2000.
Therefore, our United States Patent No. 5,761,648 will be re-examined, which may
result in the patent being narrowed in scope or found invalid. With the
exception of discovery related to a fraud claim, the court has suspended the
lawsuit pending the outcome of the re-examination of our patent.

  On November 15, 1999, Catalina Marketing filed a separate lawsuit against us
in the United States District Court for the Middle District of Florida. The
complaint alleges that our systems and methods infringe Catalina Marketing's
United States Patent No. 4,674,041, and seeks to enjoin us from further
infringing its patent. While the litigation against us is in the early stage and
its outcome cannot be predicted, we believe that our technology does not
infringe Catalina's patent and that the litigation is

                                       31
<PAGE>

therefore without merit. We have filed a motion for summary judgment in this
matter and such motion remains pending. We intend to defend the action
vigorously.

  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. We have filed with the Patent and Trademark Office a
request for a re-examination of the infringement claims in this case, which
request for re-examination was granted in March 2001.

  On August 23, 1999, we instituted a lawsuit in the Northern District of
Illinois against Bright Street.com Inc. for infringement of our United States
Patent No. 5,761,648, seeking unspecified damages and a permanent injunction
against further infringement. The defendant has filed counterclaims alleging
invalidity and unenforceability of our patent and are seeking unspecified
damages and injunctive relief.

  Bright Street.com has advised us that it is taking steps in the United States
Patent and Trademark Office to contest our rights in our United States Patent
No. 5,761,648. If Bright Street is successful, we may lose some or all of our
rights in our United States Patent No. 5,761,648.

  On December 3, 1998, we filed a patent infringement lawsuit against
IQ.commerce Corporation in the United States District Court for the Northern
District of Illinois for infringement of our Patent No. 5,761,648, "Interactive
Marketing Network and Process Using Electronic Certificates." In December 2000,
we settled the lawsuit pursuant to a settlement agreement under which
IQ.commerce Corporation acknowledged the validity and enforceability of our
patent. IQ.commerce Corporation was granted a limited, royalty-bearing license
and an option to an unlimited license, which together would allow for future
offerings based on CoolSavings technology.

  All of the foregoing pending lawsuits and allegations are at an early stage
and may not be resolved favorably to us. For example, we may not prevail and
prevent others from using our proprietary rights. We may be required to alter or
stop selling our services, or to pay costs and legal fees or other damages in
connection with these cases and the various counterclaims that have been
asserted against us. Our patents or future patents may be found invalid or
unenforceable. Furthermore, additional counterclaims, separate lawsuits or other
proceedings may be brought against us to invalidate our patents or force us to
change our services or business methods.

  In addition, on September 21, 1999, Kathryn L. Meklir, the ex-wife of Steven
M. Golden, our Chairman and Chief Executive Officer, filed suit against both Mr.
Golden and CoolSavings in Oakland County, Michigan, alleging several claims,
including fraud, arising out of her March 1998 sale of 2,000 shares of our
common stock to Mr. Golden, and seeking damages in excess of $6.5 million.
Although the transaction was a private sale between the parties, the plaintiff
has named us as a defendant in the lawsuit. We recently filed for summary
judgment, which motion remains pending. While the outcome of any litigation is
uncertain, we believe that this suit and the claims asserted against us have no
merit, and we intend to defend it vigorously. A negative outcome in this suit
could subject us to substantial

                                       32
<PAGE>

damages and negative publicity. Our defense of this litigation may be costly and
time-consuming even if we are successful.

  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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year covered by this report.

                                    PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

  Our common stock is traded on the Nasdaq National Market under the symbol
"CSAV." The following table presents the per share high and low bid prices of
our common stock for the periods indicated as reported by the Nasdaq National
Market.

<TABLE>
<CAPTION>

                                                          High        Low
                                                        ---------  ---------
<S>                                                     <C>        <C>
    Fiscal Year Ended December 31, 2000
       Second Quarter 2000............................     $7.125     $3.063
       Third Quarter 2000.............................      6.125      2.125
       Fourth Quarter 2000............................      2.750      0.469
</TABLE>

  On March 1, 2001, the closing sales price of the common stock was $0.80 and
our common stock was held by approximately 2,300 holders of record.

  We have never declared nor paid any cash dividends on our common stock. We
currently anticipate that we will retain any future earnings for the development
and operation of our business. In addition, our credit facility with American
National Bank, Chicago, Illinois, currently prohibits the payment of cash
dividends on our capital stock. Accordingly, we do not anticipate paying cash
dividends on our capital stock in the foreseeable future.

Recent Sales of Unregistered Securities

  Within the period covered by this report, we have issued and sold unregistered
securities in the amounts, at the times and for the aggregate amounts of
consideration listed as follows:

                                       33
<PAGE>

  On April 3, 2000, Steven M. Golden, our Chairman and Chief Executive Officer,
exercised his vested options to purchase 322,000 shares of our common stock in
exchange for the delivery of a $700,000 promissory note. The note provides for
interest at the rate of 6.71% per annum, payable annually. The principal amount
of the note and all unpaid interest is due on April 3, 2004. This sale was made
pursuant to an exemption from registration afforded by Section 4(2) and Rule 701
of the Securities Act of 1933.

  On April 6, 2000, we granted Coupco, Inc. an option to purchase up to $500,000
of our common stock at the per share public offering price established in the
initial public offering. This option was granted in consideration for Coupco
providing us consulting services related to our license of certain of its
intellectual property.

  Upon the closing of our initial public offering, unsecured convertible
subordinated notes with a principal balance of $4,996,000 automatically
converted into 793,068 shares of the our common stock. Additionally, our entire
Series A convertible preferred stock issue automatically converted into
2,822,096 shares of our common stock upon the closing of the offering.

  On June 19, 2000, we issued 83,334 shares of common stock to two individuals
as consideration for certain patent rights. The common stock issued was valued
at $500,000 based upon the closing price of our common stock on the date of
issuance. This sale was made pursuant to an exemption from registration afforded
by Section 4(2) of the Securities Act of 1933.

  During 2000, upon the exercise of options to purchase shares of common stock
that had been granted under our Stock Option Plan by 11 employees, we issued an
aggregate of 379,730 shares of common stock for an aggregate purchase price of
$825,121 (including 322,000 shares of stock purchased by our Chairman referenced
above). These sales were made pursuant to an exemption from registration
afforded by Rule 701 of the Securities Act of 1933.

  No underwriters were engaged in connection with the foregoing sales of
securities. The recipients of the above securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had access, through their
relationship with us, to information about us.

                                       34
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

     The statement of operations data set forth below for the years ended
December 31, 1998, 1999 and 2000 and the balance sheet data as of December 31,
1999 and 2000 have been derived from audited financial statements. The statement
of operations data for the period ended December 31, 1996 and 1997 and the
balance sheet data as of December 31, 1996, 1997 and 1998 are derived from
audited financial statements that do not appear in this report.

     You should read the selected financial data set forth below with the
financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which are included
elsewhere in this report.

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                               ------------------------------------------------------------------------------------
                                                      1996              1997               1998              1999              2000
                                               -----------       -----------       ------------      ------------      ------------
                                                                 (in thousands, except share and per share data)
<S>                                            <C>               <C>               <C>               <C>               <C>
Statement of Operations Data:
  Net revenues...........................      $        --       $       110       $      1,143      $     12,916      $     39,866
  Cost of revenues.......................               --               148                428             1,818             7,028
                                               -----------       -----------       ------------      ------------      ------------
  Gross profit (loss)....................               --               (38)               715            11,098            32,838
  Operating expenses:
     Sales and marketing.................              253             1,202              2,494            17,838            41,607
     Product development.................              131               719              1,217             4,503             7,764
     General and administrative,
       exclusive of compensation related
       to stock options..................              499               766              2,350             5,890            18,885
  Compensation related to stock
       options...........................               --                --                 --                --             3,960
                                               -----------       -----------       ------------      ------------      ------------
    Total operating expenses.............              883             2,687              6,061            28,231            72,216
                                               -----------       -----------       ------------      ------------      ------------
    Loss from operations.................             (883)           (2,725)            (5,346)          (17,133)          (39,378)
      Interest income
        (expense), net...................                9                (3)                40               265               138
      Amortization of debt
       discount..........................               --                (4)              (435)               --                --
                                               -----------       -----------       ------------      ------------      ------------
    Net loss.............................      $      (874)      $    (2,732)      $     (5,741)     $    (16,868)     $    (39,240)
                                               ===========       ===========       ============      ============      ============
    Deemed dividend representing the
       beneficial conversion feature
       of preferred stock................               --                --                 --                --           (19,868)
                                               -----------       -----------       ------------      ------------      ------------
    Loss applicable to common
       shareholders......................      $      (874)      $    (2,732)      $     (5,741)     $    (16,868)     $    (59,108)
                                               ===========       ===========       ============      ============      ============
    Historical loss per common
      share, basic and diluted...........      $     (0.06)      $     (0.15)      $      (0.27)     $      (0.57)     $      (1.63)
                                               ===========       ===========       ============      ============      ============
    Weighted average shares used
      to compute historical basic
      and diluted loss per
      common share.......................       13,697,334        18,266,572         21,547,177        29,804,681        36,313,759
                                               ===========       ===========       ============      ============      ============
</TABLE>

<TABLE>
<CAPTION>
                                                                               December 31,
                                                            --------------------------------------------------
                                                             1996      1997       1998        1999        2000
                                                            -----     -----     ------     -------     -------
                                                                              (in thousands)
<S>                                                         <C>       <C>       <C>        <C>         <C>
Balance Sheet Data:
  Cash and cash equivalents......................           $ 449     $  64     $4,895     $17,489     $ 7,042
  Working capital (deficit)......................             283      (886)     3,788      15,703      (1,624)
  Total assets...................................             466       353      6,371      29,590      29,150
  Long-term debt, including current portion......             300       241        300         878       4,389
  Total shareholders' equity (deficit)...........              (4)     (775)     4,594      19,120       9,742
</TABLE>

                                      35
<PAGE>

ITEM 7.    MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS

  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.  These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of numerous factors, many of which are
described in the "Factors That May Affect Future Results" section and elsewhere
in this report.  We are under no duty to update any of the forward-looking
statements after the date of this report to conform these statements to actual
results, unless required by applicable securities laws.

Overview

  CoolSavings is a comprehensive e-marketing solution for both offline and
online advertisers that provides a broad range of branded consumer promotional
incentives and data mining technology to help leading brick and mortar
retailers, e-tailers and consumer packaged good manufacturers build profitable
one-to-one relationships. With a database of more than 13 million registered
members (as of March 1, 2001), CoolSavings supplies marketers with a single
resource for accessing and engaging a dynamic group of shoppers. 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, sales notices, gift certificates, contests and banner
advertisements to promote sales of products or services in stores or online.

  We were incorporated in December 1994 as Interactive Coupon Marketing Group,
Inc. and changed our corporate name to coolsavings.com inc. in November 1998.
From inception through February 1997, our primary activities consisted of
initiating sales and marketing efforts, developing our business model, building
our software and hardware infrastructure, developing and protecting our
intellectual property, raising capital and recruiting employees.  We launched
our web site in February 1997 and thereafter began generating revenues.

How we generate revenue

  E-marketing Services Revenue

  We generate substantially all of our revenues primarily by providing online
marketing, or e-marketing, services to our advertisers.

  E-marketing services revenue also includes barter transactions, where we
exchange advertising space on our web site or in e-mails for reciprocal
advertising space or traffic on other web sites. Revenue from these barter
transactions is recorded at the estimated fair value of the advertisements
delivered and is recognized when the advertisements are included on our web site
or in our e-mails. Prior to January 2000, barter transactions were recorded at
the fair value of the goods or services provided or received,

                                       36
<PAGE>

whichever was more readily determinable in the circumstances. In January 2000,
the Company adopted Emerging Issues Task Force ("EITF") 99-17, "Accounting for
Advertising Barter Transactions". In accordance with EITF 99-17, barter
transactions have been valued based on similar cash transactions which have
occurred within six months prior to the date of the barter transaction. For the
year ended December 31, 2000, barter revenue was less than 6% of net revenues.


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

  .  the number of offers 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);

  .  the number of purchases made or qualified leads generated; and

  .  the number of registered members in our database.

  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 2000, our
largest advertiser accounted for 10.3% of our revenues and our top five
advertisers together accounted for approximately 27.7% 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 fourth quarter. In addition, expenditures by advertisers tend to be
cyclical, reflecting overall general economic conditions and consumer buying
patterns. If purchasing patterns or timing of purchasing by advertisers were to
change, our operations and quarter-to-quarter comparisons could be materially
affected.

  Licensing Revenue

  We license portions of our intellectual property, including our issued
patents, to third parties.  Approximately 2% of our revenues were generated from
royalty and license fees and other miscellaneous sources during the year ended
December 31, 2000.

                                       37
<PAGE>

Expenses

  Cost of Revenues

  Our cost of revenues consists primarily of Internet connection charges, web
site equipment depreciation, salaries of operations personnel, fulfillment costs
related to member loyalty incentives and other related operations costs.  In the
first three quarters of fiscal year 2000 we expanded our web server capacity and
our investment in data mining tools and personnel.

  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, are expensed in the period incurred.
In the fourth quarter of fiscal year 2000 we began to anticipate the slowing
economy and implemented a new cost reduction plan. This plan included a
significant decrease in offline marketing expenditures and a reduction in
salaried personnel and third party technical consultants. We believe that this
plan will significantly reduce operating expenses and have a positive effect on
cash flow.

  Product Development

  Product Development costs include expenses for the development of new or
improved technologies designed to enhance the performance of our service,
including the salaries 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

  We have incurred significant losses since our inception.  As of December 31,
2000, our accumulated deficit was approximately $60.4 million.  While we expect
to continue to incur significant operating losses during the first half of 2001,
we have set a goal to be profitable in the second half of fiscal year 2001. Even
though we are experiencing a decrease in top-line revenue as a result of the
slowing economy, we believe that the actions we have taken to reduce expenses
coupled with our emphasis on cost control should permit us to achieve that goal.
There can be no assurance, however, that we will be successful in achieving our
profitability goal.  See "- Liquidity and Capital Resources" below, and "Item 1.
Business - Factors That May Affect Future Results" above.

                                       38
<PAGE>

<TABLE>
<CAPTION>

                                                               Year Ended December 31,
                                                     -------------------------------------------
                                                       2000             1999              1998
                                                     -------          -------           -------
<S>                                                  <C>              <C>              <C>
  Net revenues..............................           100.0%           100.0%            100.0%
  Cost of revenues..........................            17.6             14.1              37.4
                                                     -------          -------           -------
  Gross profit (loss).......................            82.4             85.9              62.6
  Operating expenses:
    Sales and marketing.....................           104.4            138.1             218.3
    Product development.....................            19.5             34.9             106.5
    General and administrative, exclusive
     of compensation related to stock
     options                                            47.4             45.6             205.6
   Compensation related to stock options                 9.9                                ---
                                                     -------                            -------
    Total operating expenses................           181.2            218.6             530.4
                                                     -------          -------           -------
  Loss from operations......................           (98.8)          (132.7)           (467.8)
                                                     -------          -------           -------
  Other income:
    Interest income (expense), net..........             1.8              2.1               3.5
    Amortization of debt discount...........             ---              ---             (38.1)
   Interest expense representing beneficial
    conversion feature of subordinated
    notes...................................            (1.4)             ---               ---
                                                     -------          -------           -------
                                                         0.4              2.1             (34.6)
                                                     -------          -------           -------
  Net loss                                             (98.4)          (130.6)           (502.4)
  Deemed dividend representing the
   beneficial conversion feature of
   preferred stock..........................           (49.9)             ---               ---
                                                     -------          -------           -------
  Net loss applicable to common
   shareholders.............................          (148.3)%         (130.6)%          (502.4)%
                                                     =======          =======           =======
</TABLE>

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

  Net Revenues

  Net revenues increased 209% to $39.9 million in 2000 from $12.9 million in
1999.  The revenue increase was attributable to our continued ability to rapidly
expand our member base, to sign up additional offline and online advertisers,
and to expand programs with existing advertisers into more comprehensive
promotion programs, including targeted e-mail, category newsletters, printable
coupons, e-coupons, savings notices, rebates, lead generation, loyalty points
and free samples.  Our member base grew to approximately 12 million registered
members at December 31, 2000 from approximately 5.0 million at December 31,
1999.

  Cost of Revenues and Gross Profit

  Cost of revenues increased to $7.0 million in 2000, from $1.8 million in 1999.
Gross profit decreased as a percentage of net revenues to 82.4% in 2000, from
85.9% in 1999.  The absolute dollar increase in cost of revenues was primarily
due to increased costs for incentive points and gift certificates, costs related
to building our server and networking infrastructure in response to the growth
in activity by

                                       39
<PAGE>

our members, and the hiring of additional operations personnel to service our
increased advertiser base.

  Operating Expenses

  Sales and Marketing. Sales and marketing expenses increased to $41.6 million,
or 104% of net revenues in 2000, from $17.8 million, or 138% of net revenues, in
1999. The $23.8 million increase in sales and marketing expenses was primarily
due to increased expenses associated with promotional and marketing efforts,
member acquisition costs, the hiring of additional sales and marketing
personnel, and increased sales commissions.  These marketing efforts enabled us
to more than double our registered member base.  We spent approximately $30.2
million for combined online and offline advertising in 2000, up from
approximately $13.5 million in 1999.  Throughout fiscal year 2000, we were able
to achieve significant reductions in the average cost of registering new
members.  This was primarily due to our brand awareness and our ability to
negotiate lower cost per acquisition rates with other web sites.  We expect
these factors will permit us to continue to pursue a more cost effective
customer acquisition strategy, even with reduced emphasis on more costly offline
advertising.  Sales and marketing expenses as a percentage of net revenues
decreased due to the growth in net revenues.

  Product Development. Product development expenses increased to $7.8 million,
or 19.5% of net revenues, in 2000, from $4.5 million, or 34.9% of net revenues,
in 1999.  On July 1, 2000 we adopted the provisions of EITF 00-2 ("Accounting
for Web Site Development Costs") and capitalized $2.7 million of web site
development costs incurred on projects in process at December 31, 2000. For
prior periods through June 30, 2000, all product development expenditures were
expensed as incurred. The absolute dollar increase in product development
expenses was primarily due to expenditures related to third-party technical
consultants and the hiring of additional personnel to enhance the features and
functionality of our web site, less the effect of capitalized web site
development costs. The decrease in product development expenses as a percentage
of net revenues is a result of the growth in net revenues and the capitalization
of web site development costs in 2000.

  General and Administrative. General and administrative expenses increased to
$18.9 million, or 47.4% of net revenues, in 2000, from $5.9 million, or 45.6% of
net revenues, in 1999. The absolute dollar increase in general and
administrative expenses was primarily due to the hiring of additional personnel
to support the growth of our business and recruiting costs related to filling
key management positions, as well as increased legal fees, costs associated with
our initial public offering, and additional provisions for doubtful accounts.
General and administrative expenses increased as a percentage of net revenues
due to slightly faster growth in expenses than the growth in net revenues.  In
2000, we incurred higher occupancy expense associated with our move to a larger
office space and we expanded our administrative systems to support our growth
and operations as a public company.

  Stock Option Compensation. On December 30, 1999, we entered into a termination
and consulting agreement with our former President.  In conjunction with the
termination and consulting agreement, we agreed, effective January 6, 2000, to
extend the expiration date of the former president's options to purchase an
aggregate of 661,250 shares of the Company's common stock at a price of $2.17
per share

                                       40
<PAGE>

until the first anniversary of the termination of the consulting agreement. The
extension of the stock option agreements resulted in a remeasurement of the
compensation cost associated with the stock options. Accordingly, a total non-
cash compensation charge of $4.0 million was recognized on a straight-line basis
during 2000.

  Interest Income, Net.  Interest income, net, includes income from our cash and
investments and expenses related to our financing obligations.  Interest income,
net, decreased to $138,000 in 2000, from $264,000 in 1999.  The decrease in net
interest income is attributable to higher interest expense on borrowings under
our credit facilities and a beneficial conversion charge of $555,000, partially
offset by interest earned on excess cash invested.

  Income Taxes

  As of December 31, 2000, we had approximately $63.2 million of federal and
state net operating loss carryforwards, which may be available to offset future
taxable income. Our federal and state net operating loss carryforwards expire
beginning in 2018.

  Non-cash charges

  During the fiscal year 2000, we incurred a $19.9 million charge for the
beneficial conversion of our pre-initial public offering shares of Series A
convertible preferred stock into post initial public offering common shares, and
a $555,000 charge for the beneficial conversion of our pre-initial public
offering convertible subordinated notes into post initial public offering common
shares.

Year Ended December 31, 1999 compared to year ended December 31, 1998

  Net Revenues

  Net revenues increased 1,030% to $12.9 million in 1999, from $1.1 million in
1998. The increase in net revenues was primarily due to an increase in the
number of advertisers, increases in our advertising rates due to expanded
service offerings, and application of those rates to an expanded membership
base. Our member base grew from approximately 1.9 million registered members on
December 31, 1998 to over 5.0 million on December 31, 1999.

  Cost of Revenues

  Cost of revenues increased to $1.8 million in 1999, from $428,000 in 1998.
Gross profit increased as a percentage of net revenues to 85.9% in 1999, from
62.6% in 1998. The absolute dollar increase in cost of revenues was primarily
due to building our server and networking infrastructure in response to the
growth in activity by our members and the hiring of 18 additional operations
personnel to service our increased advertiser base.  The increased costs were
approximately $660,000 for infrastructure and

                                       41
<PAGE>

$830,000 for operations personnel costs. However, our gross profit as a
percentage of net revenues increased because cost of revenues increased more
slowly than net revenues.

  Operating Expenses

  Sales and Marketing.  Sales and marketing expenses increased to $17.8 million,
or 138% of net revenues, in 1999, from $2.5 million, or 218% of net revenues, in
1998.  The $15.3 million increase in sales and marketing expenses was primarily
due to increased expenses associated with promotional and marketing efforts, the
hiring of additional sales and marketing personnel and increased sales
commissions.  We spent approximately $4.1 million for online advertising in
1999, up from approximately $1.3 million in 1998. While we incurred no offline
advertising expenses in 1998, we incurred offline-advertising expenses of
approximately $9.4 million in 1999.  Sales and marketing expenses as a
percentage of net revenues decreased due to the growth in net revenues.

  Product Development. Product development expenses increased to $4.5 million,
or 34.9% of net revenues, in 1999, from $1.2 million, or 106% of net revenues,
in 1998. The absolute dollar increase in product development expenses was
primarily due to the hiring of additional personnel and associated software
costs related to enhancing the features and functionality of our web site and
costs incurred in our Year 2000 readiness effort. Product development expenses
decreased as a percentage of net revenues due to the growth in net revenues.

  General and Administrative.  General and administrative expenses increased to
$5.9 million, or 45.6% of net revenues, in 1999, from $2.3 million, or 206% of
net revenues, in 1998.  The absolute dollar increase in general and
administrative expenses was primarily due to the hiring of additional personnel
to support the growth of our business, recruiting costs related to filling key
management positions and legal fees.  General and administrative expenses
decreased as a percentage of net revenues due to the growth in net revenues.

  Other Income (Expenses), Net

  Other income (expenses), net, includes income from our cash and investments
and expenses related to our financing obligations. Interest income, net,
increased to $264,000 in 1999, from $40,000 in 1998.  The increase in interest
income was primarily due to a higher average cash balance during 1999 as a
result of the receipt of $8.5 million from the sale of shares of our common
stock, $5.0 million from the sale of our convertible subordinated notes and
$20.0 million from the sale of shares of our Series A convertible preferred
stock.

  Income Taxes

  As of December 31, 1999, we had approximately $23.5 million of federal and
state net operating loss carryforwards, which may be available to offset future
taxable income. Our federal and state net operating loss carryforwards expire
beginning in 2018.  From our formation through June 1, 1998, we elected, under
Section 1362(a) of the Internal Revenue Code, to be treated as an S-corporation
for

                                       42
<PAGE>

income tax purposes. Accordingly, we were not liable for federal income taxes
during that period and any taxable income was included in the tax returns of our
shareholders.

Liquidity and Capital Resources

  Since our inception, we have financed our operations primarily through the
sale of our common and preferred stock and convertible subordinated notes. In
May 2000, we completed an initial public offering of 3,300,000 shares of our
common stock, resulting in proceeds to us of approximately $20,000,000, after
deducting underwriters discounts and commissions and other related offering
expenses.  Upon the closing of the initial public offering, all of our
previously issued unsecured convertible subordinated notes with a principal
balance of $5.0 million automatically converted into 793,068 shares of our
common stock and all of our outstanding Series A convertible preferred stock
automatically converted into 2,822,096 shares of our common stock.  As of
December 31, 2000, we had approximately $7.0 million in cash and cash
equivalents.

  Net cash used in operating activities was $25.5 million, $17.4 million, and
$4.8 million in the years ended December 31, 2000, 1999, and 1998, respectively.
In each period, net cash used in operating activities resulted primarily from
our net losses and increases in accounts receivable, partially offset by
increases in accounts payable and accrued expenses. During the fiscal year ended
December 31, 2000, we had non-cash expenses totaling approximately $10.0 million
for depreciation and amortization, loss or disposal of property and equipment,
provision for doubtful accounts, amortization of prepaid advertising costs,
amortization of debt discount and stock option compensation.

  Net cash used in investing activities was $9.6 million, $3.7 million, and $1.1
million in the years ended December 31, 2000, 1999, and 1998, respectively.  In
each period, net cash used in investing activities resulted from purchases of
property and equipment and amounts used in developing our database. Included in
the investing activities above, we capitalized $2.7 million of web site
development costs in 2000 and we capitalized $1.4 million of software
development costs in 1999.

  Net cash provided by financing activities were $24.6 million, $33.6 million,
and $10.7 million in the years ended December 31, 2000, 1999, and 1998,
respectively.  Net cash provided by financing activities in the fiscal year 2000
is attributable to the net proceeds of our initial public offering
(approximately $20.0 million) and proceeds from long-term borrowings under our
bank lines of credit.  Net cash provided by financing activities in the fiscal
year 1999 resulted primarily from the cash proceeds received from our issuance
of shares of common and preferred stock and convertible notes.  We invest these
proceeds 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 an aggregate of $4.4
million borrowed, and $1.6 million in letters of credit outstanding, at December
31, 2000.  Under the credit facility with American National Bank (the "ANB
Facility") we have two term loans and one $3.0 million revolving credit line.
The first term loan, which had an outstanding balance of $2.3 million at
December 31, 2000, is payable in installments through June 30, 2003.  The second
term loan, which had an outstanding balance of $1.5 million at December 31,
2000, is payable in installments through December 31, 2003.  The outstanding
balances under the term loans bear interest at the bank's prime rate plus

                                       43
<PAGE>

1.25% (10.75% at December 31, 2000). We had no borrowings outstanding under the
revolving line of credit at December 31, 2000. However, we had $1.6 million of
letters of credit outstanding under the line to collateralize lease deposits on
our office facilities. These letters of credit reduce the amount of borrowings
available to us under the line dollar for dollar. The outstanding principal
balance under this line bears interest at the bank's prime rate plus 1.0%.

  Under the credit facility with Midwest Guaranty Bank, we have a $1.0 million
equipment line. At December 31, 2000, we had $632,000 outstanding under this
line. Borrowings under this line bear interest at the bank's prime rate plus
1.0%, and the weighted average interest rate on our outstanding borrowings under
this line at December 31, 2000 was 9.0%. Borrowings are collateralized by the
specific equipment purchased and are payable in installments through August
2003.

  As of March 31, 2001, we were not in compliance with the tangible capital
funding and liquid asset requirements of the ANB facility. This non-compliance
has caused us to be out of compliance with the Midwest Guaranty facility.
Accordingly, we have reclassified $2.3 million of otherwise long-term borrowings
under the ANB facility and $355,000 of otherwise long-term borrowings under the
Midwest Guaranty facility as currently payable. We are involved in discussions
with both lenders to procure waivers of the non-compliance and modifications to
the covenants with which we are not in compliance.

  Our operations have generated a negative cash flow in each year of our
existence. In the fourth quarter of fiscal year 2000 we implemented a new cost
reduction plan. This plan included a significant decrease in offline marketing
expenditures and a reduction in salaried personnel and third party technical
consultants. We further reduced salaried personnel and marketing expenditures in
the first quarter of 2001. We believe that this plan will significantly reduce
operating expenses and have a positive effect on cash flow. However, even with
our cost reduction plan in place we will require additional debt or equity
financing during 2001. Although we are in the process of raising additional
capital through the private sale of our convertible notes and warrants, there
can be no assurance that we will be successful in obtaining adequate funds. Our
independent auditors have issued their report on our financial statements for
2000 with an explanatory paragraph. This paragraph describes the uncertainty as
to our ability to continue as a going concern. If adequate funds are not
available to us on acceptable terms, or if we are unsuccessful in our
discussions with our banks, our ability to continue to operate the business will
be jeopardized. See "Item 1. Business - Factors That May Affect Future Results"
above.

Mergers and Acquisitions

  On November 30, 2000, we entered into an agreement for the purchase of certain
intellectual property and software relating to an internet search engine
capability with Surfari, Inc. We will be obligated to deliver to Surfari up to
$1 million dollars of our common stock as consideration for the assets
purchased, based on a percentage of the revenue received by us which relates
directly to the use of internet search engine capability during the one year
period commencing on March 12, 2001, the date we launched the CoolShopper
service utilizing the acquired technology.

                                       44
<PAGE>

Recent Accounting Pronouncements

  In May 2000, the Emerging Issues Task Force ("EITF") released Issue 00-2,
"Accounting for Web Site Development Costs". EITF Issue 00-2 establishes
standards for determining the capitalization or expensing of incurred costs
relating to the development of Internet web sites based upon the respective
stage of development. Issue 00-2 is effective for fiscal quarters beginning
after June 30, 2000 (including costs incurred for projects in process at the
beginning of the quarter of adoption). We adopted the provisions of EITF 00-2
effective July 1, 2000, and have capitalized $2.7 million of web site
development costs incurred on projects in process as of December 31, 2000. Upon
completion of the web site development projects, these costs are amortized on a
straight-line basis over periods not to exceed three years. Our web site
development costs for all prior periods through June 30, 2000 were expensed.

  In January 2000, the EITF released the final Issue No. 99-17, "Accounting for
Advertising Barter Transactions". EITF Issue 99-17 establishes standards for
determining the amount of revenue which may be recognized in barter transactions
involving the exchange of advertising services. Our barter revenue recognition
policy is in compliance with EITF Issue 99-17.

  In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements", which provides additional
guidance in applying generally accepted accounting principles for revenue
recognition. Our revenue recognition policy is in compliance with SAB No. 101.

  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The statement, as amended, is effective for fiscal years beginning after
June 15, 2000. As we do not have any derivative instruments or hedging
activities, SFAS No. 133 is not expected to have a material effect on our
financial results.


  In March 2000, the FASB issued Interpretation No. 44 ("Interpretation 44"),
"Accounting for Certain Transactions involving Stock Compensation," an
interpretation of Accounting Principles Board Opinion No. 25 ("Opinion 25").
Interpretation 44 clarifies (a) the definition of "employee" for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of previously fixed stock options or awards, and (d)
the accounting for the exchange of stock compensation awards in a business
combination. Interpretation 44 was effective July 1, 2000, but certain
conclusions in Interpretation 44 cover specific events that occurred after
either December 15, 1998 or January 12, 2000.

Factors Affecting Operating Results

  Our results of operations have varied widely in the past and we expect that
they will continue to vary significantly in the future due to a number of
factors, including those set forth in Item 1 of this report. You should read the
section titled "Business - Factors That May Affect Future Results" and
"Business -Risks Related to the Internet Industry" in Item 1 of this report
carefully.

QUARTERLY FINANCIAL DATA

The following are unaudited quarterly results:
<TABLE>
<CAPTION>
                                                                            For the three months ended
                                               March 31, 2000       June 30, 2000        September 30, 2000        December 31, 2000
                                               --------------       -------------        ------------------        -----------------
<S>                                            <C>                  <C>                  <C>                       <C>
Net revenues                                   $   8,086,000        $  8,948,000            $11,294,000              $ 11,538,000
Operating expenses                                15,720,000          17,945,000             18,913,000                19,637,000
Loss from operations                              (8,702,000)        (10,360,000)            (9,821,000)              (10,495,000)
Loss applicable to common shareholders (a)       (13,595,000)        (25,574,000)            (9,534,000)              (10,405,000)
Weighted average shares outstanding               31,729,705          35,281,040             39,093,660                39,093,660
Basic and diluted earnings per share                   (0.43)              (0.72)                 (0.24)                    (0.27)

                                               March 31, 1999       June 30, 1999        September 30, 1999        December 31, 1999
                                               --------------       -------------        ------------------        -----------------
Net revenues                                   $     890,000        $  2,075,000            $ 3,276,000              $  6,675,000
Operating expenses                                 3,328,000           4,229,000              7,659,000                13,015,000
Loss from operations                              (2,694,000)         (2,497,000)            (4,799,000)               (7,143,000)
Loss applicable to common shareholders            (2,624,000)         (2,392,000)            (4,725,000)               (7,127,000)
Weighted average shares outstanding               25,249,484          30,488,448             31,681,249                31,707,949
Basic and diluted earnings per share                   (0.10)              (0.08)                 (0.15)                    (0.23)
</TABLE>

(a) Loss applicable to common shareholders is increased by $4,967,000 and
$14,901,000 related to a deemed dividend representing the beneficial conversion
feature of preferred stock in the quarters ended March 31, 2000 and June 30,
2000, respectively.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

  We had no holdings of derivative financial or commodity instruments at
December 31, 2000. However, we are exposed to financial market risks
associated with fluctuations in interest rates. Because all of the amounts in
our portfolioof our investment portfolio or related income would not be
significantly have expected maturities of three months or less, we believe that
the fair valueimpacted by increases or decreases in interest rates due mainly
to the short-term nature of our investment portfolio. If market

                                       45


<PAGE>

rates were to increase immediately by 10 percent from levels on December 31,
2000, the fair value of this investment portfolio would decline 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
percent from levels on December 31, 2000, the resultant decrease in interest
earnings of our investment portfolio would not have a material impact on our
earnings as a whole. The Company has both fixed and variable rate debt as
described in Note 5a.

                                       46
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS


                                                                           Page
                                                                           -----
Report of Independent Accountants  .......................................  F-2

Financial Statements:

  Balance Sheets  ........................................................  F-3

  Statements of Operations  ..............................................  F-4

  Statements of Shareholders' (Deficit) Equity  ..........................  F-5

  Statements of Cash Flows  ..............................................  F-6

  Notes to Financial Statements  .........................................  F-7
<PAGE>

                       Report of Independent Accountants


To the Board of Directors and
Shareholders of coolsavings.com, inc.:


  In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of
coolsavings.com,inc. (the "Company") at December 31, 2000 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has negative working capital, is in non-
compliance with certain covenants of its credit facilities with lenders and has
sustained losses and negative cash flows from operations since its inception,
which raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



PricewaterhouseCoopers LLP

Chicago, Illinois
March 19, 2001

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                                                COOLSAVINGS.COM INC.
                                                   BALANCE SHEETS
                                                                              December 31,     December 31,
                                                                                  2000             1999
                                                                              ------------     ------------
                             ASSETS
<S>                                                                           <C>              <C>
Current assets:
Cash and cash equivalents                                                     $  7,041,501     $ 17,488,788
Restricted cash                                                                     28,000           95,352
Accounts receivable, net of allowance of  $1,318,097 and  $118,154  at
     December 31, 2000 and 1999, respectively                                    9,329,761        4,381,463
Prepaid advertising                                                                193,829        2,787,327
Prepaid assets                                                                     528,676          290,103
Other assets                                                                       661,697          498,137
                                                                              ------------     ------------
                    Total current assets                                        17,783,464       25,541,170
                                                                              ------------     ------------

Property and equipment                                                           9,444,645        3,494,784
Capitalized software costs                                                       1,489,913        1,489,913
Capitalized web site costs                                                       2,667,633                -
                                                                              ------------     ------------
Total                                                                           13,602,191        4,984,697
Less accumulated depreciation and  amortization                                 (2,912,914)        (935,862)
                                                                              ------------     ------------
                                                                                10,689,277        4,048,835
Intangible assets, patents and licenses,
     net of accumulated amortization of $147,914 at December 31, 2000              677,086               --
                                                                              ------------     ------------
Total assets                                                                  $ 29,149,827     $ 29,590,005
                                                                              ============     ============

                              LIABILITIES
Current liabilities:
Accounts payable, including amounts due to related parties of
     $180,300 and $24,944 at December 31, 2000 and 1999, respectively         $  6,730,244     $  2,344,841
Cash overdraft                                                                   1,335,333               --
Accrued marketing expense                                                        2,289,015        1,057,149
Accrued compensation                                                             2,229,404           31,294
Accrued expenses, including amounts due to related parties of $34,542 and
     $91,292 at December 31, 2000 and 1999, respectively                         1,062,088          604,674
Other accrued liabilities                                                          220,116          139,757
Deferred revenue                                                                 1,151,902          417,974
Current maturities of long-term debt                                             1,728,380          246,601
Long-term debt reclassified as currently payable                                 2,661,010               --
Convertible subordinated notes payable,
  including $3,561,569 due to related parties                                           --        4,996,369
                                                                              ------------     ------------
                    Total current liabilities                                   19,407,492        9,838,659
                                                                              ------------     ------------
Long-term debt, less current  maturities                                                --          631,831
                                                                              ------------     ------------

Commitments and contingencies (Note 6)

                            SHAREHOLDERS' EQUITY

Series A convertible preferred stock, no par value, 10,000,000 and 5,000
     shares authorized at December 31, 2000 and 1999, respectively, zero
     and 2,197.650 shares issued and outstanding at December 31, 2000 and
     1999, respectively
(Liquidation preference of $9,100.63 per share)
Common stock, no par value,  100,000,000 and 69,000,000 shares
       authorized at December 31, 2000 and 1999, respectively,
       39,093,660 and 31,715,449 shares issued and outstanding
       at December 31, 2000 and 1999, respectively                              73,658,743       27,844,658
Additional paid-in capital                                                         (47,244)      15,204,073
Accumulated deficit                                                            (60,351,872)     (21,111,924)
Notes receivable from related  parties                                          (3,517,292)      (2,817,292)
                                                                              ------------     ------------
Total shareholders' equity                                                       9,742,335       19,119,515
                                                                              ------------     ------------
Total liabilities and shareholders' equity                                    $ 29,149,827     $ 29,590,005
                                                                              ============     ============
</TABLE>

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

                                      F-3
<PAGE>


                             COOLSAVINGS.COM INC.
                            STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  For the Year Ended
                                                                     December 31,
                                                    -----------------------------------------------
                                                        2000              1999             1998
                                                    ------------      ------------      -----------
<S>                                                 <C>                <C>              <C>
Revenue:
     e-marketing services                           $ 39,048,978      $ 12,908,534      $ 1,142,819
     License royalties                                   816,820             7,198               --
                                                    ------------      ------------      -----------
Net revenues                                          39,865,798        12,915,732        1,142,819
Cost of revenues                                       7,028,143         1,817,444          427,769
                                                    ------------      ------------      -----------
Gross profit                                          32,837,655        11,098,288          715,050

Operating expenses:
     Sales and marketing                              41,607,341        17,837,722        2,494,395
     Product development                               7,763,656         4,503,223        1,217,101
     General and administrative, exclusive of
          compensation related to stock options       18,884,707         5,890,193        2,349,725
     Compensation related to stock options             3,959,565                --               --
                                                    ------------      ------------      -----------
Total operating expenses                              72,215,269        28,231,138        6,061,221
                                                    ------------      ------------      -----------

Loss from operations                                 (39,377,614)      (17,132,850)      (5,346,171)

Other income (expense):
     Interest and other income                         1,157,532           492,971           88,322
     Interest expense                                   (464,719)         (228,500)         (48,517)
     Amortization of debt discount                            --                --         (434,894)
     Interest expense representing beneficial
          conversion feature of subordinated notes      (555,147)               --               --

                                                    ------------      ------------      -----------
                                                         137,666           264,471         (395,089)
                                                    ------------      ------------      -----------

Loss before income taxes                             (39,239,948)      (16,868,379)      (5,741,260)
Income taxes                                                  --                --               --
                                                    ------------      ------------      -----------
Net loss                                             (39,239,948)      (16,868,379)      (5,741,260)
Deemed dividend representing the
     beneficial conversion feature
     of preferred stock                              (19,867,723)               --               --
                                                    ------------      ------------      -----------
Loss applicable to common shareholders              $(59,107,671)     $(16,868,379)     $(5,741,260)
                                                    ============      ============      ===========


Basic and diluted net loss per share                      $(1.63)           $(0.57)          $(0.27)
                                                    ============      ============      ===========

Weighted average shares used in the calculation
     of basic and diluted net loss per share          36,313,759        29,804,681       21,547,177
                                                    ============      ============      ===========
</TABLE>

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

                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                                             COOLSAVINGS.COM INC.
                                  STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY
                                 YEARS ENDED DECEMBER 31, 2000, 1999 and 1998

                                              Preferred Stock             Common Stock                Additional
                                           -----------------------   ----------------------------        Paid-in
                                             Shares       Amount        Shares           Amount          Capital
                                           ----------    ---------    ----------       ----------      ----------

<S>                                        <C>           <C>          <C>              <C>             <C>

Balances,  December 31, 1997                       --         --      19,518,916      $ 2,783,365    $     62,730

Issuance of common stock                           --         --       5,095,983       10,717,500
Issuance of warrants                               --         --              --               --         376,369
Stock option compensation                          --         --              --               --          16,312
Conversion from S-Corp to C-Corp                   --         --              --               --      (5,119,061)
Net loss                                           --         --              --
                                           ----------    ---------    ----------       ----------      ----------
Balances,  December 31, 1998                       --         --      24,614,899       13,500,865      (4,663,650)

Issuance of preferred stock,
   net of issuance costs                    2,197.650         --              --               --      19,867,723
Issuance of common stock                           --         --       4,906,594        8,500,000              --
Exercise of options and warrants                              --       1,507,190        2,843,793              --

Issuance of common stock for
advertising                                        --         --         686,766        3,000,000              --
Net loss
                                           ----------    ---------    ----------       ----------      ----------
Balances,  December 31, 1999                2,197.650         --      31,715,449       27,844,658      15,204,073

Issuances of common stock,
   net of issuance costs                           --         --       3,300,000       19,624,872
Common stock issued for
   convertible preferred stock             (2,197.650)        --       2,822,096       19,867,723
Deemed dividend representing the
   beneficial conversion feature
   of preferred stock                              --         --              --               --     (19,867,723)
Common stock issued for
   convertible subordinated notes                  --         --         793,068        4,996,369
Deemed dividend representing the
   beneficial conversion feature
   of convertible subordinated notes               --         --              --               --         555,147
Deferred stock compensation                                                                             3,959,565
Amortization of compensation expense
Compensatory stock option                                                                                 101,694
Issuance of common stock for patent rights         --         --          83,334          500,000
Exercise of stock options                          --         --         379,730          825,121

Redemption of fractional shares                    --         --             (17)              --              --
Net loss
                                           ----------    ---------    ----------       ----------      ----------
Balances,  December 31, 2000                       --         --      39,093,660      $73,658,743    $    (47,244)
                                           ==========    =========    ==========       ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                             COOLSAVINGS.COM INC.
                           STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY (continued)
                                 YEARS ENDED DECEMBER 31, 2000, 1999 and 1998

                                                                                 Notes
                                            Deferred                           Receivable         Total
                                              Stock          Accumulated      From Related     Shareholders'
                                           Compensation        Deficit           Parties          Equity
                                           ------------     -------------     ------------     -------------
<S>                                       <C>              <C>               <C>              <C>
Balances,  December 31, 1997               $        --      $ (3,621,346)     $        --      $   (775,251)

Issuance of common stock                            --                --               --        10,717,500
Issuance of warrants                                --                --               --           376,369
Stock option compensation                                                                            16,312
Conversion from S-Corp to C-Corp                    --         5,119,061               --                 -
Net loss                                                      (5,741,260)              --        (5,741,260)
                                           ------------     -------------     ------------     -------------
Balances,  December 31, 1998                        --        (4,243,545)              --         4,593,670

Issuance of preferred stock,
   net of issuance costs                            --                --               --        19,867,723
Issuance of common stock                            --                --               --         8,500,000
Exercise of options and warrants                    --                --       (2,817,292)           26,501

Issuance of common stock for
advertising                                         --                --               --         3,000,000
Net loss                                            --       (16,868,379)              --       (16,868,379)
                                           ------------     -------------     ------------     -------------
Balances,  December 31, 1999                        --       (21,111,924)      (2,817,292)       19,119,515

Issuances of common stock,
   net of issuance costs                            --                --               --        19,624,872
Common stock issued for
   convertible preferred stock                      --                --               --        19,867,723
Deemed dividend representing the
   beneficial conversion feature
   of preferred stock                               --                --               --       (19,867,723)
Common stock issued for
   convertible subordinated notes                   --                --               --         4,996,369
Deemed dividend representing the
   beneficial conversion feature
   of convertible subordinated notes                --                --               --           555,147
Deferred stock compensation                 (3,959,565)               --               --                 -
Amortization of compensation expense         3,959,565                                            3,959,565
Compensatory stock option                           --                --               --           101,694
Issuance of common stock for patent right           --                --               --           500,000
Exercise of stock options                                                        (700,000)          125,121

Redemption of fractional shares                     --                --               --                --
Net loss                                            --       (39,239,948)              --       (39,239,948)
                                           ------------     -------------     ------------     -------------
Balances,  December 31, 2000               $        --      $(60,351,872)     $(3,517,292)     $  9,742,335
                                           ============     =============     ============     =============

                   The accompanying notes are an integral part of the financial statements.
</TABLE>

                                      F-5
<PAGE>

                             COOLSAVINGS.COM INC.
                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                 For the Year Ended
                                                                                                    December 31,
                                                                                 -------------------------------------------------
                                                                                      2000              1999              1998
                                                                                 --------------    --------------    -------------

<S>                                                                              <C>               <C>               <C>
Cash flows used in operating activities:
Net loss                                                                         $ (39,239,948)    $ (16,868,379)    $ (5,741,260)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                   2,482,087           651,294          236,557
     Loss on disposal of property and equipment                                        286,375                --               --
     Stock option compensation                                                       3,959,565                --           16,312
     Provision for doubtful accounts, net of write-offs                              1,199,943           104,654           13,500
     Amortization of prepaid advertising                                             1,518,550                --               --
     Amortization of debt discount                                                     555,147                --          434,894
Changes in assets and liabilities:
     Decrease (increase) in restricted cash                                             67,352           (28,000)         (67,352)
     Increase in accounts receivable                                                (6,148,241)       (4,204,317)        (223,303)
     Decrease (increase) in prepaid and other current assets                           774,507          (135,693)         (59,656)
     Increase in accounts payable                                                    4,385,782         1,611,217           45,523
     Increase in deferred revenue                                                      733,928           196,662          221,312
     Increase in accrued and other liabilities                                       3,967,749         1,310,508          323,338
                                                                                 --------------    --------------    -------------
Net cash flows used in operating activities                                        (25,457,204)      (17,362,054)      (4,800,135)
                                                                                 --------------    --------------    -------------

Cash flows used in investing  activities:
Purchases of property and equipment                                                 (6,715,039)       (2,215,015)      (1,040,575)
Proceeds from sale of equipment                                                        121,305                --               --
Cash paid for intangible assets                                                       (325,000)               --               --
Capitalized software costs                                                                  --        (1,444,012)         (45,901)
Capitalized web site development costs                                              (2,667,633)               --               --
                                                                                 --------------    --------------    -------------
Net cash used in investing activities                                               (9,586,367)       (3,659,027)      (1,086,476)
                                                                                 --------------    --------------    -------------

Cash flows from financing activities:
Proceeds from short-term debt                                                               --                --          900,000
Repayment of debt obligations                                                         (621,272)               --       (1,050,000)
Advances on notes payable                                                            4,132,230           578,760          149,861
Proceeds from exercise of stock options                                                125,121            26,500               --
Proceeds from convertible notes payable                                                     --         4,996,369               --
Proceeds from issuance of preferred stock                                                   --        20,000,000               --
Proceeds from issuance of common stock                                              23,100,000         8,500,000       10,717,500
Cash paid for issuance costs                                                        (3,475,128)         (486,899)              --
Cash overdraft                                                                       1,335,333                --               --
                                                                                 --------------    --------------    -------------
Net cash provided by financing activities                                           24,596,284        33,614,730       10,717,361
                                                                                 --------------    --------------    -------------

Net increase (decrease) in cash                                                    (10,447,287)       12,593,649        4,830,750
Cash and cash equivalents, beginning of period                                      17,488,788         4,895,139           64,389
                                                                                 --------------    --------------    -------------
Cash and cash equivalents, end of period                                          $  7,041,501      $ 17,488,788      $ 4,895,139
                                                                                 ==============    ==============    =============

Supplemental schedule of cash flow information,
      cash paid for interest                                                      $    228,424      $    225,819      $    48,517

Non-cash investing and financing activity:
     Common stock issued in exchange for patent rights                            $    500,000      $         --      $        --
     Common stock issued upon conversion of preferred stock                         19,867,723                --               --
     Common stock issued upon conversion of subordinated notes                       4,996,369                --               --
     Issuance of common stock in exchange for shareholder notes
        upon exercise of stock options and warrants                                    700,000         2,817,292               --
     Issuance of common stock in exchange for advertising                                   --         3,000,000               --
     Issuance of stock options for consulting services                                 101,694                --               --
</TABLE>

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


                                      F-6
<PAGE>

                              COOLSAVINGS.COM INC.
                         NOTES TO FINANCIAL STATEMENTS

1.   Summary of Significant Accounting Policies:

a.   The Company: The Company provides a comprehensive e-marketing solution for
     both offline and online advertisers that provides a broad range of branded
     consumer promotional incentives and data mining technology to help leading
     brick and mortar retailers, e-tailers and consumer packaged good
     manufacturers build profitable one-to-one relationships. 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, sales notices, gift certificates, contests and
     banner advertisements to promote sales of products or services in stores or
     online.

     In November 1998, the Company changed its corporate name from Interactive
     Coupon Marketing Group, Inc. to coolsavings.com inc.

     These financial statements are prepared on a going-concern basis which
     assumes that the Company will realize its assets and discharge its
     liabilities in the normal course of business. The Company's ability to meet
     its obligations in the ordinary course of business is dependent upon its
     ability to establish profitable operations or raise additional financing
     through public or private equity financing, bank financing, or other
     sources of capital. During 1999, the Company raised approximately $33.0
     million from sales of common stock, preferred stock and convertible
     subordinated notes. In January 2000, the Company obtained a credit facility
     that originally provided for borrowings of up to $6.5 million, which was
     amended in October 2000 to provide for up to an additional $3.5 million in
     borrowings. In May 2000 the Company completed an initial public offering of
     shares of its common stock resulting in proceeds to the Company of
     approximately $19.6 million, after deducting underwriters discounts and
     commissions and other related offering expenses.

b.   Profitability Uncertain and Liquidity Constraints: The Company has
     sustained significant net losses and negative cash flows from operations
     since inception. At December 31, 2000, the Company had negative working
     capital. In addition, the Company is not in compliance with certain
     covenants of its credit facilities with lenders. During 2000, the Company
     utilized approximately $25.5 million of cash in its operations and had cash
     and cash equivalents of $7.0 million at December 31, 2000.

     The Company is seeking additional sources of financing to supplement
     amounts contributed by its shareholders (See Note 11) and expects to obtain
     the necessary financing to successfully execute its business plan, however
     there can be no assurance that the Company will obtain necessary financing.
     Management plans to generate positive cashflows from operations and has
     implemented cost reductions in marketing, general and administrative and
     technology expenses (See Note 11). Current market conditions are
     significantly affecting the Company's operating results. The ultimate
     recoverability of property and equipment and other assets is dependent
     upon, among other things, the success of the cost reductions and sustained
     revenue growth, the attainment of which cannot presently be assured. Since
     there is no assurance that management

                                      F-7
<PAGE>

     will complete their plans, there is substantial doubt about the Company's
     ability to continue as a going concern. The financial statements do not
     include any adjustments that may result from this outcome of this
     uncertainty.

c.   Cash and Cash Equivalents:   The Company considers all highly liquid
     investments with an original maturity of three months or less to be cash
     equivalents. Cash equivalents consist primarily of deposits in money market
     funds and certificates of deposit.  Checks issued but not presented to the
     banks for payment may create negative book balances.  Such negative cash
     balances are recorded in "Cash overdraft" in the accompanying balance
     sheets.

d.   Concentration of Credit Risk:   Financial instruments that potentially
     subject the Company to a concentration of credit risk consists of cash and
     cash equivalents and accounts receivable. Cash and cash equivalents are
     deposited with high credit quality financial institutions. The Company's
     accounts receivable are derived from revenue earned from customers located
     primarily in the U.S. and are denominated in U.S. dollars. For the year
     ended December 31, 2000, the Company had one customer that accounted for
     approximately 10.3% of net revenues. For the years ended December 31, 1999
     and 1998, there were no customers accounting for more than 10% of net
     revenues. Additionally, no customers accounted for more than 10% of the
     Company's net receivables for any period presented.

e.   Fair Value of Financial Instruments:   The Company's financial
     instruments, including cash and cash equivalents, accounts receivable and
     accounts payable are carried at cost, which approximates their fair value
     because of the short-term maturity of these instruments. The carrying value
     for all long-term debt outstanding at the end of all periods presented
     approximates fair value.

f.   Property and Equipment:   Property and equipment are recorded at cost.
     Depreciation and amortization are computed using primarily the straight-
     line method over the estimated useful lives of the assets. Useful lives for
     computer hardware and software are 3 to 5 years, and 5 to 7 years for
     furniture and fixtures. Leasehold improvements are amortized over the term
     of the lease or the estimated useful life, whichever is shorter. Upon sale
     or retirement of property and equipment, the cost and related accumulated
     depreciation or amortization are eliminated from the respective accounts,
     and the resulting gain or loss is included in the determination of net
     income. Maintenance and repair costs are expensed as incurred.

g.   Intangible Assets:   Intangible assets are comprised of various licenses
     and patents that are recorded at cost.  Amortization is computed using the
     straight-line method over the estimated useful life of the asset or the
     license period, whichever is shorter.  Amortization periods range from 2 to
     7 years.

h.   Long-Lived Assets:   The Company assesses the recoverability of long-lived
     assets at the entity level, whenever adverse events or changes in
     circumstances or business climate indicate that an impairment may have
     occurred. If the future cash flows (undiscounted and without interest)
     expected to result from the use of the related assets are less than the
     carrying value of such assets, an impairment has incurred and a loss is
     recognized to reduce the carrying value of the long-lived assets to fair
     value, which is determined by discounting estimated future cash flows. The
     Company has not recognized an impairment loss in any of the periods
     presented.

                                      F-8
<PAGE>

i.   Revenue Recognition:  Revenue subject to time-based contracts is recognized
     ratably over the duration of the contract. Deferred revenue represents the
     portion of revenue that has not been recognized related to time based
     contracts. For contracts based on certain performance or delivery criteria,
     revenue is recognized in the month performance is delivered to the
     customer.

j.   Advertising:  Advertising costs are expensed as incurred. Advertising
     expense was $31,423,213, $14,136,270, and $1,426,452, during the years
     ended December 31, 2000, 1999, and 1998 respectively.

k.   Income Taxes:  Until June 1, 1998, the Company had elected, under Section
     1362(a) of the Internal Revenue Code, to be treated as an S-corporation for
     income tax purposes. As such, the Company was not liable for federal income
     taxes and any taxable income of the Company was included in the tax returns
     of the Company's shareholders. Income taxes are accounted for using an
     asset and liability approach, which requires the recognition of taxes
     payable or refundable for the current year and deferred tax liabilities and
     assets for the future tax consequences of events that have been recognized
     in the Company's financial statements or tax returns. The measurement of
     current and deferred tax liabilities and assets are based on provisions of
     the enacted tax law; the effects of future changes in tax laws or rates are
     not anticipated. The measurement of deferred tax assets is reduced, if
     necessary, by the amount of any tax benefits that, based on available
     evidence, are not expected to be realized.

l.   Use of Estimates:  The preparation of the financial statements in
     conformity with generally accepted accounting principles requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. Actual
     results could differ from those estimates.

m.   Capitalized Software Costs:  The Company accounts for software development
     costs in accordance with the American Institute of Certified Public
     Accountants Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
     Cost of Computer Software Developed or Obtained for Internal Use" which
     requires capitalization of certain costs including the cost of outside
     consultants. These costs are amortized using the straight-line method over
     three years, beginning when individual modules are placed into service. The
     Company recognized $496,530 and $111,659 in amortization expense for the
     years ended December 31, 2000 and 1999, respectively. No software
     development costs were capitalized in the year ended December 31, 2000. In
     the year ended December 31, 1999, the Company capitalized $1.4 million
     dollars of software development costs.

n.   Capitalized Web Site Development Costs:  Effective July 1, 2000, the
     Company applied the standards of EITF No. 00-2 (See Note 1s), which
     requires capitalization of certain web site development costs. The Company
     capitalized costs of $2,667,633 related to web site

                                      F-9
<PAGE>

     development in the year ended December 31, 2000, and recorded $47,851 of
     amortization expense.

o.   Stock-Based Compensation: Financial Accounting Standards Board ("FASB")
     Statement of Accounting Standards (SFAS) No. 123, "Accounting for Stock-
     Based Compensation" encourages, but does not require, companies to record
     compensation cost for stock-based compensation at fair value. The Company
     has chosen to continue to account for stock-based compensation using the
     intrinsic value method prescribed in Accounting Principles Board Opinion
     No. 25, "Accounting for Stock Issued to Employees" and its related
     Interpretations. Accordingly, compensation cost for stock options is
     measured as the excess, if any, of the fair market value of a share of the
     Company's stock at the date of the grant over the amount that must be paid
     to acquire the stock. Total compensation expense recognized in connection
     with non-employee stock option grants was $16,312 during the year ended
     December 31, 1998. Due to the vesting terms of non-employee options, no
     future compensation expense will be recognized in connection with these
     grants. No compensation expense has been recorded in connection with stock
     option grants in 1999. See Note 8h for a discussion of common stock
     compensation related to the departure of our former president.

     On April 6, 2000, the Company granted an option to purchase up to $500,000
     of our common stock at the per share public offering price established in
     the Company's initial public offering. This option was granted for
     consulting services related to intellectual property licensed by the
     Company. The options were valued at $101,694 using the Black-Scholes option
     pricing model. The options expired unexercised during 2000.

p.   Basic and Diluted Net Loss Per Share:  The Company computes net loss per
     share in accordance with the provisions of SFAS 128 "Earnings per Share"
     ("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
     the provisions of SFAS 128 and SAB 98, basic and diluted net loss per share
     applicable to common shareholders is computed by dividing the net loss
     applicable to common shareholders for the period by the weighted average
     number of common shares outstanding for the period. The calculation of
     diluted net loss per share excludes shares of common stock issuable upon
     the conversion of unsecured convertible subordinated notes (see Note 5b),
     exercise of employee stock options and warrants (See Note 8g), and the
     conversion of preferred stock (See Note 8a) as the effect of such exercises
     would be anti-dilutive. Refer to Note 9--Earnings Per Share for the
     reconciliation of the numerator and denominator of the basic and diluted
     EPS calculation.

q.   Comprehensive Earnings:  The Company reports comprehensive earnings in
     accordance with SFAS Statement No. 130, "Reporting Comprehensive Income,"
     which establishes standards for the reporting and display of comprehensive
     earnings and its components in general-purpose financial statements. There
     were no components of other comprehensive income during any of the periods
     presented.


r.   Segment Information:  SFAS No. 131, "Disclosures About Segments of an
     Enterprise and Related Information" requires that management identify
     operating segments based on the way that management desegregates the entity
     for making internal operating decisions. The Company

                                      F-10
<PAGE>

     currently operates under the definition of one segment.

s.   Recent Pronouncements:   In June 1998, the FASB issued SFAS No. 133,
     "Accounting for Derivative Instruments and Hedging Activities." This
     statement establishes accounting and reporting standards for derivative
     instruments and hedging activities and requires recognition of all
     derivatives as assets or liabilities in the statement of financial position
     and measurement of those instruments at fair value. The statement as
     amended is effective for the Company commencing January 1, 2001. As the
     Company does not have any derivative instruments or hedging activities,
     SFAS No. 133 is not expected to have a material effect on its financial
     results.

     In May 2000, the Emerging Issues Task Force ("EITF") released Issue No.
     00-2, "Accounting for Web Site Development Costs". EITF Issue No. 00-2
     establishes standards for determining the capitalization or expensing of
     incurred costs relating to the development of Internet web sites based upon
     the respective stage of development. The Issue is effective for fiscal
     quarters beginning after June 30, 2000 (including costs incurred for
     projects in process at the beginning of the quarter of adoption). The
     Company applied this guidance effective July 1, 2000. (See Note 1n)

     In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
     101, "Revenue Recognition in Financial Statements", which provides
     additional guidance in applying generally accepted accounting principles
     for revenue recognition. The Company believes its revenue recognition
     policy is in compliance with SAB No. 101.

     In January 2000, the EITF released the final Issue No. 99-17, "Accounting
     for Advertising Barter Transactions". EITF Issue 99-17 establishes
     standards for determining the amount of revenue which may be recognized in
     barter transactions involving the exchange of advertising services.  The
     Company believes that its barter revenue recognition policy is in
     compliance with EITF Issue 99-17.

     Barter revenue includes amounts recorded for barter transactions in which
     the Company exchanged promotion or direct marketing services for
     advertising. Prior to January 2000, barter transactions were recorded at
     the fair value of the goods or services provided, or received, whichever
     were more readily determinable. Upon adoption of EITF 99-17, barter
     transactions have been valued based upon similar cash transactions which
     have occurred within six months prior to the date of the barter
     transaction. In the years ended December 31, 2000 and 1999, barter revenues
     were $2.3 million and $144,000, respectively.

     In March 2000, the FASB issued Interpretation No. 44 ("Interpretation 44"),
     "Accounting for Certain Transactions involving Stock Compensation," an
     interpretation of Accounting Principles Board Opinion No. 25 ("Opinion
     25"). Interpretation 44 clarifies (a) the definition of "employee" for
     purposes of applying Opinion 25, (b) the criteria for determining whether a
     plan qualifies as a non-compensatory plan, (c) the accounting consequences
     of various modifications to the terms of previously fixed stock options or
     awards, and (d) the accounting for the exchange of stock compensation
     awards in a business combination. Interpretation 44 was effective July 1,
     2000, but certain conclusions in Interpretation 44 cover specific events
     that occurred after either December 15, 1998, or January 12, 2000.

t.   Reclassified Prior-Year Amounts: Certain prior-year amounts have been
     reclassified to conform to the current year's presentation.

                                      F-11
<PAGE>

2.  Related Party Transactions:

    a. Legal Services: The Company engages the services of certain attorneys who
       were members of the Company's Board of Directors during 1998 and are
       holders of the Company's stock. Total fees for services were $570,632,
       $954,839 and $388,243, during the years ended December 31, 2000, 1999 and
       1998, respectively. These fees are included in general and administrative
       expenses in the Company's statements of operations. Total fees payable
       were $214,842 and $116,236, at December 31, 2000 and 1999, respectively.

    b. Notes Receivable: In March, April, and July 1999 and April, 2000,
       shareholders provided a total of $3,517,292 notes receivable upon
       exercise of stock options and warrants by current and former officers and
       directors of the Company. These notes have variable due dates from
       December, 2002 to April, 2004, with interest at rates ranging from
       4.83% to 6.71% due annually. These notes are collateralized by the shares
       of common stock issued upon exercise of the related options and warrants
       and the makers of each note are personally liable for up to 20% of the
       face value of the note, plus accrued interest. Accrued but unpaid
       interest on these notes was $273,986 as of December 31, 2000.


    c. Convertible Subordinated Notes: On May 28, 1999, the Company issued $1.5
       million of unsecured convertible subordinated notes (See Note 5b). One
       note with a principal amount of $65,000 was held by a member of the Board
       of Directors. In October 1999, the Company borrowed approximately $3.5
       million from a major shareholder under an unsecured convertible
       subordinated note (See Note 5b). The principal aggregating $4,996,369 on
       the unsecured convertible promissory notes, were converted into 793,068
       shares of the Company's common stock upon the closing of the initial
       public offering.

    d. Warrants:  In connection with certain loans made by a major shareholder
       to the Company in 1997 and 1998, the lender received 115,000 and 747,500
       common stock warrants during 1997 and 1998, respectively. All such loans
       were repaid in 1998. The warrants were immediately exercisable and had a
       term of five years. Of the warrants, 805,000 were exercisable at $1.30
       and 57,500 were exercisable at $2.17 as of December 31, 1998. During the
       year ended December 31, 1999, all of the warrants were exercised in
       exchange for notes receivable (See Note 2b). The proportional fair value
       of warrants issued during 1997 and 1998 was $62,730 and $376,368,
       respectively. Such value represents a discount from the fair value of
       the loans and the relative fair value of the warrants had been recorded
       in the financial statements as stipulated by APB 14 and was amortized
       over the period that the loans were outstanding.

3.  Property and Equipment:  Property and equipment at December 31, 2000 and
    1999, respectively, was comprised of the following:


                                                     December 31,
                                              --------------------------
                                                 2000            1999
                                              ----------      ----------
    Computer hardware/software..........      $6,545,399      $2,709,057
    Furniture and fixtures..............       2,295,678         453,725
    Leasehold improvements..............         480,047         332,002
    Construction in process.............         123,521              --
                                              ----------      ----------
    Total                                     $9,444,645      $3,494,784
                                              ==========      ==========


4. Intangible Assets.  Intangible assets are comprised of various license
   agreements and patents that are recorded at cost. Intangible assets at
   December 31, 2000, were comprised of the following:

                                                      December 31,
                                              --------------------------
                                                 2000            1999
                                              ---------        ---------
   License agreements...............          $ 325,000        $      --
   Patents..........................            500,000               --
                                              ---------        ---------
   Total............................          $ 825,000               --
   Less amortization................           (147,914)              --
                                              ---------        ---------
   Net Intangible Assets............          $ 677,086        $      --
                                              =========        =========

                                      F-12

<PAGE>

5.  Long and Short Term Debt:

    a.  Bank Lines of Credit: The Company has two separate credit facilities
        under which the Company had borrowed an aggregate of $4.4 million, and
        had $1.6 million in letters of credit outstanding, at December 31, 2000.
        Under the credit facility with American National Bank (the "ANB
        Facility") the Company has two term loans and one $3.0 million revolving
        credit line. The first term loan, which had an outstanding balance of
        $2.3 million at December 31, 2000, is payable in installments through
        June 30, 2003. The second term loan, which had an outstanding balance of
        $1.5 million at December 31, 2000, is payable in installments through
        December 31, 2003. The outstanding balances under the term loans bear
        interest at the bank's prime rate plus 1.25% (10.75% at December 31,
        2000). There were no borrowings outstanding under the revolving line of
        credit at December 31, 2000. However, the Company had $1.6 million of
        letters of credit outstanding under the line to collateralize lease
        deposits on its office facilities. These letters of credit reduce the
        amount of borrowings available to the Company under the line dollar for
        dollar. The outstanding balance under the line bears interest at the
        bank's prime rate plus 1.0% (10.5% at December 31, 2000). Borrowings are
        collateralized by substantially all the assets of the Company.

        Under the credit facility with Midwest Guaranty Bank, the Company has a
        $1.0 million equipment line. At December 31, 2000, there was $632,000
        outstanding under this line. Borrowings under this line bear interest at
        the bank's prime rate plus 1.0% (10.5% at December 31, 2000), and the
        weighted average interest rate on the outstanding borrowings under this
        line at December 31, 2000 was 9.0%. Borrowings are collateralized by the
        specific equipment purchased and are payable in installments through
        August 2003.

        As of December 31, 2000, the Company was not in compliance with the
        tangible capital funding and liquid asset requirements of the ANB
        facility. This non-compliance has caused the Company to be out of
        compliance with the Midwest Guaranty facility. The failure to comply
        with covenant requirements constitutes an event of default under the
        respective lending agreements. As a consequence, the debt may be
        immediately payable at the option of the lenders, and, accordingly, the
        Company has reclassified $2.3 million of otherwise long-term borrowings
        under the ANB facility and $355,000 of otherwise long-term borrowings
        under the Midwest Guaranty facility as currently payable. The Company is
        involved in discussions with both lenders to procure waivers of the non-
        compliance and modifications to the covenants with which it is not in
        compliance.

                                      F-13
<PAGE>

        The aggregate principal payments over the next five years under the
        credit facilities are:

            2001................................    $ 1,728,380
            2002................................      1,628,262
            2003................................      1,032,748
            2004................................             --
            2005................................             --

                                                    -----------
            Total:                                  $ 4,389,390
            Less:  current maturities                (1,728,380)
                                                    -----------
            Total                                   $ 2,661,010
                                                    ===========

    b.  Convertible Subordinated Notes Payable: On May 28, 1999, the Company
        issued $1.5 million of unsecured convertible subordinated notes. These
        notes had a maturity date of June 30, 2000 and accrued interest at a
        rate of 10.0% per annum. Upon the closing of the Company's initial
        public offering, the notes automatically converted into 238,087 shares
        of common stock.

        On April 9, 1999, the Company received a commitment from a major
        shareholder to advance the Company up to $3.5 million by December 31,
        1999, at the Company's discretion. On October 18, 1999, the Company
        borrowed $3,496,384 under the commitment through an unsecured
        convertible subordinated note. This note accrued interest at an annual
        rate of 10.0% and had a maturity date of June 30, 2000. Upon the closing
        of the Company's initial public offering, the notes automatically
        converted into 554,981 shares of common stock.

        Based on the conversion ratio into common stock of the convertible
        subordinated notes, management determined that the discount received by
        the note holders constituted a beneficial conversion feature under the
        Emerging Issues Task Force ("EITF") Issue 98-5. The value of the
        beneficial conversion feature was computed at $555,147 and was recorded
        by the Company as additional paid in capital and interest expense.

6.  Commitments and Contingencies:

    a.  Letters of Credit: At December 31, 1999, the Company maintained a
        $70,494 letter of credit to collateralize a lease deposit on its office
        facility. The letter of credit expires after the termination of the
        lease. A certificate of deposit for this amount has been established by
        the Company in the event that the letter of credit is executed. At
        December 31, 2000, the Company maintained a $28,000 certificate of
        deposit to secure a line of credit. At December 31, 2000, the Company
        maintained four letters of credit totaling $1,610,547 which
        collateralize the lease deposits for the office facilities in Chicago,
        New York and San Francisco. The various letters of credit expire as of
        the termination date of each respective lease.

    b.  Litigation: During 2000, the Company settled several patent infringement
        suits. As a result of these settlements, the Company will receive
        certain royalty payments. One of these settlements contained certain
        change in control provisions which may result in the acquired party
        paying to the other party $1,500,000 as additional royalties.

        The Company is currently a defendant in two patent infringement lawsuits
        and one business related lawsuit. While the Company believes that these
        actions are without merit and intends to defend them vigorously, the
        Company's efforts may not be successful. 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 currently be made. Management does not believe the outcome of
        such litigation will have a material adverse effect on the Company's
        overall financial position, results of operations or cash flows.

                                      F-14
<PAGE>

    c.  Member Incentive Program: In March 2000, the Company entered into a two
        year agreement with a developer of web-based loyalty incentives
        programs. Under this agreement, the Company co-developed a custom
        loyalty program for its members using software that it licensed from the
        developer. The Company has a commitment to purchase at least $2.0
        million of incentive awards during the remaining term of the agreement.
        As of December 31, 2000, the Company had spent $1.2 million in
        connection with such incentive programs.

    d.  Leases: The Company leases equipment and its office premises under
        operating lease agreements. Rental expense under these agreements was
        $1,794,848, $439,196 and $196,894 during 2000, 1999 and 1998,
        respectively.

        At December 31, 2000, future minimum payments under noncancelable
        operating leases were as follows:

        For the years ended December 31:

            2001.................................   $ 1,965,805
            2002.................................     1,963,609
            2003.................................     1,994,813
            2004.................................     2,026,017
            2005 and thereafter..................     9,762,104
                                                    -----------
                                                    $17,712,348
                                                    ===========

    e.  Purchase of Intellectual Property: On November 30, 2000, the Company
        entered into an agreement to purchase certain intellectual property and
        software. The Company shall be obligated to deliver up to $1,000,000 in
        its Common Stock for the purchased assets contingent upon defined
        revenues which may be earned related to the use of assets.

                                      F-15
<PAGE>

7.  Income Taxes:  Under Statement of Financial Accounting Standards ("SFAS")
    No. 109, deferred tax assets and liabilities are recognized for the future
    tax consequences of differences between the carrying amounts of assets and
    liabilities and their respective tax bases and for tax carryforward items
    using enacted tax rates in effect for the year in which the differences are
    expected to reverse. Deferred tax assets consist of the following:

<TABLE>

                                                                                                    December 31,
                                                                                        ------------------------------------
                                                                                            2000                    1999
                                                                                        ------------             -----------
<S>                                                                                     <C>                      <C>
  Deferred tax assets:
     Net operating loss carryforward........................................            $ 24,021,000             $ 8,928,000
     Amounts to adjust from accrual method to the cash method of
       accounting used for tax purposes.....................................                (860,000)               (558,000)
     Allowance for doubtful accounts........................................                 501,000                      --
     Deferred royalty income................................................                 178,000                      --
     Deferred compensation..................................................               1,540,000                      --
     Property and equipment.................................................                 (48,000)                 85,000
     Capitalized software...................................................                (996,000)                     --
     Other..................................................................                 (35,000)                  6,000
     Valuation allowances...................................................             (24,301,000)             (8,461,000)
                                                                                        ------------             -----------
                                                                                        $         --             $        --
                                                                                        ============             ===========
</TABLE>

    The difference between the amount of income tax benefit recorded and the
    amount of income tax benefit calculated using the U.S. federal statutory
    rate of 38% is due to net operating losses not being benefited. For
    financial reporting purposes, the entire amount of deferred tax assets
    related principally to the net operating loss carryforwards has been offset
    by a valuation allowance due to uncertainty regarding realization of the
    asset. Accordingly, there is no provision for income taxes for the years
    ended December 31, 2000, 1999, and 1998, respectively.

    The Company has net operating loss carryforwards of approximately
    $63,212,953, $23,496,000 and $3,956,000 at December 31, 2000, 1999 and 1998,
    respectively, that expire beginning in 2018 for federal purposes.

8.  Shareholders' Equity:

    a.  Preferred Stock: In December 1999, the Company issued 2,197.650 shares
        of no par value Series A convertible preferred stock ("Convertible
        Preferred") at a price of $9,100.63 per share and received proceeds of
        $20,000,000. The Company incurred $132,000 of issuance costs. The
        holders of Convertible Preferred had various rights and preferences as
        follows:

        Voting:  Each share of Convertible Preferred had the same voting rights
        as a share of common stock and voted together as one class with the
        common stock.

        Conversion: Each share of Convertible Preferred converted to the
        Company's common stock at the closing of the initial public offering
        ("IPO"). Such shares were not required to be registered as part of the
        IPO.

        The EITF Issue 98-5 requires that beneficial conversion features present
        in the terms of the convertible securities should be recognized and
        measured by allocating a portion of the proceeds equal to the value of
        that feature to additional paid-in capital. The value of the beneficial
        conversion feature related to the preferred stock offering is in excess
        of the $19.9 million net proceeds. Accordingly, the Company allocated
        the full amount of net proceeds to the beneficial conversion feature and
        recorded $19.9 million as additional paid-in capital as of December 31,

                                      F-16
<PAGE>

        1999. The beneficial conversion feature was recognized as a deemed
        dividend of $19.9 million during 2000. Upon the closing of the Company's
        IPO, the Convertible Preferred converted into 2,822,096 shares of the
        Company's common stock.

    b.  Increase in Authorized Capital Stock:  On April 7, 2000, the Company's
        articles of incorporation were restated to increase the authorized
        capital stock to 100,000,000 shares of common stock and 10,000,000
        shares of preferred stock.

    c.  Stock Split:  On April 7, 2000 the Board of Directors approved a 1,150
        for 1 common stock split. All share and per share amounts have been
        retroactively restated to reflect the split.


    d.  Initial Public Offering:  On May 19, 2000, the Company completed its IPO
        in which the Company sold 3,300,000 shares of its common stock,
        resulting in proceeds to the Company of approximately $19.6 million,
        after deducting underwriters discounts and commissions and other related
        offering expenses.

    e.  Advertising Agreement: On May 28, 1999, the Company entered into an
        agreement with a major television network under which the Company
        purchased television advertising valued at $3.0 million in exchange for
        686,766 shares of its common stock. The advertisements stipulated in the
        agreement were aired during the twelve-month period beginning on October
        1, 1999.

        In accordance with Emerging Issue Task Force Abstract No. 96-18,
        "Accounting for Equity Instruments That Are Issued to Other Than
        Employees for Acquiring, or in Conjunction with Selling, Goods or
        Services," the Company recorded the value of spots to be received
        based on

                                      F-17
<PAGE>

        the fair value of the spots, as it was more reliably measured than the
        fair value of the stock issued at the time that the performance
        commitment by the network was reached. Amounts recorded prior to the
        running of the advertising spots were classified on the balance sheet as
        deferred advertising at December 31, 1999. As the advertising spots were
        run, the Company recognized advertising expense.

    f.  Share Warrants: During 1998, the Company issued 747,500 warrants to a
        shareholder in connection with providing short-term loans to the
        Company. See Note 2-Related Parties, for a description of the loans and
        warrants.

    g.  Common Stock Options: The Company has two stock-based compensation
        plans, the 1997 Stock Option Plan (the "Employee Plan") and the 1999
        Non-Employee Director Stock Option Plan (the "Non-Employee Plan"). The
        Employee Plan and the Company's former 1997 Non-Employee Director Stock
        Option Plan were established by action of the Company's Board of
        Directors on December 4, 1997. In March 2000, the Employee Plan was
        amended and restated. In April 1999, the Company's 1997 Non-Employee
        Director Stock Option Plan was terminated by the Board of Directors. In
        July 1999, the Board of Directors approved the establishment of the Non-
        Employee Plan. Vesting under the Employee Plan is determined by the
        Board of Directors on an individual grant basis and is typically
        incremental vesting over a period of approximately four years. Options
        granted under the Non-Employee Plan become fully vested one year from
        the date of the grant. The term of the grants made under each plan is
        established by the Board of Directors and may not exceed ten years. The
        Company is authorized to issue options under the Employee and Non-
        Employee Plans for up to 20% for the Employee Plan and 2% for the Non-
        Employee Plan of the total number of common shares outstanding,
        including those reserved for issuance upon exercise of stock options and
        warrants. The company has reserved 8,600,605 shares of Common Stock for
        the exercise of stock options.

        In addition to the above plans, the Company has granted options to a
        certain employee in conjunction with the execution of a Board-approved
        employment contract. These options are included in the disclosures that
        follow.

        The following information relates to stock options whose exercise price
        equals the fair value of the underlying stock on the date of grant:


<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                ------------------------------------------------------------------
                                                           2000                  1999                  1998
                                                ----------------------  --------------------  --------------------
                                                              Weighted              Weighted              Weighted
                                                              --------              --------              --------
                                                              Average               Average               Average
                                                              --------              --------              --------
                                                              Exercise              Exercise              Exercise
                                                              --------              --------              --------
                                                  Shares       Price     Shares      Price     Shares      Price
                                                -----------   --------  ---------   --------  ---------   --------
<S>                                             <C>           <C>       <C>         <C>       <C>         <C>
  Outstanding at beginning of period  .........   4,252,217      $3.51  1,852,627      $1.84  1,526,487      $1.77
  Granted  ....................................   1,496,583       7.25  2,538,050       4.76    343,850       2.17
  Exercised  ..................................    (379,730)      2.17   (127,190)      4.16         --         --
  Forfeited/expired  ..........................    (640,038)      5.03    (11,270)      2.85    (17,710)      2.17
                                                  ---------             ---------             ---------
  Outstanding at end of period  ...............   4,729,032      $4.59  4,252,217      $3.51  1,852,627      $1.84
                                                  =========             =========             =========
  Exercisable at end of period  ...............   1,151,357      $1.78  1,175,047      $1.65    784,283      $1.58
                                                  =========             =========             =========
  Weighted average fair value of options
    granted during the period..................                  $4.57                 $1.45                 $0.68

</TABLE>

                                      F-18
<PAGE>

The following information relates to stock options whose exercise price
exceeds the fair value of the underlying stock on the date of grant:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                ------------------------------------------------------------------
                                                           2000                  1999                  1998
                                                ----------------------  --------------------  --------------------
                                                              Weighted              Weighted              Weighted
                                                              --------              --------              --------
                                                              Average               Average               Average
                                                              --------              --------              --------
                                                              Exercise              Exercise              Exercise
                                                              --------              --------              --------
                                                  Shares       Price     Shares      Price     Shares      Price
                                                 --------     --------  ---------   --------  ---------   --------
<S>                                             <C>           <C>       <C>         <C>       <C>         <C>
  Outstanding at beginning of period..........         --     $     --    287,500     $2.29          --     $  --
  Granted.....................................         --           --         --        --     287,500      2.29
  Exercised...................................         --           --   (287,500)     2.29          --        --
  Forfeited/expired...........................         --           --         --        --          --        --
                                                 --------                --------               -------
  Outstanding at end of period................         --     $     --         --     $  --     287,500     $2.29
                                                 ========                ========               =======
  Weighted average fair value of options
   granted during the period..................         --     $     --                $  --                 $0.12
</TABLE>

  The following information relates to stock options whose exercise price is
  less than the fair value of the underlying stock on the date of grant:
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                ------------------------------------------------------------------
                                                           2000                  1999                  1998
                                                ----------------------  --------------------  --------------------
                                                              Weighted              Weighted              Weighted
                                                              --------              --------              --------
                                                              Average               Average               Average
                                                              --------              --------              --------
                                                              Exercise              Exercise              Exercise
                                                              --------              --------              --------
                                                  Shares       Price     Shares      Price     Shares      Price
                                                 --------     --------  ---------   --------  ---------   --------
<S>                                             <C>           <C>       <C>         <C>       <C>         <C>
  Outstanding at beginning of period..........         --     $     --    230,000     $2.10          --     $  --
  Granted.....................................         --           --         --        --     230,000      2.10
  Exercised...................................         --           --   (230,000)     2.10          --        --
  Forfeited/expired...........................         --           --         --        --          --        --
                                                 --------                --------               -------
  Outstanding at end of period................         --     $     --         --     $  --     230,000     $2.10
                                                 ========                ========               =======
  Weighted average fair value of options
   granted during the period..................                $     --                $  --                 $0.29
</TABLE>

  The following table summarizes information about fixed stock options
  outstanding at December 31, 2000:
<TABLE>
<CAPTION>
                                                      December 31, 2000
                                                      -----------------
                                      Outstanding                                              Exercisable
                                      -----------                                              -----------
Exercise Price Range              Options     Average        Weighted Average         Options            Weighted Average
                                               Life           Exercise Price                              Exercise Price
                                            (in years)
<S>                              <C>        <C>              <C>                     <C>                 <C>
     $0.28 - $1.75                 416,187     6.68                $0.53               324,737                 $0.28
     $2.17 - $3.69               2,316,030     7.86                 2.26               762,680                  2.17
     $4.14 - $6.25                 294,200     9.06                 4.83                58,190                  4.37
     $7.00 - $11.00              1,702,615     9.10                 8.70                 5,750                  7.91

     Totals                      4,729,032     8.28                $4.59             1,151,357                  1.78
</TABLE>

                                      F-19
<PAGE>

     The Company adopted the disclosure requirements of Statement of Financial
     Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
     Compensation," upon establishing the Employee Plan and the Non-Employee
     Plan. As permitted by SFAS 123, the Company continues to apply the
     accounting provisions of APB Opinion Number 25, "Accounting for Stock
     Issued to Employees" with regard to the measurement of compensation cost
     for options granted. The Company recognized $4.0 million, $0 and $16,312
     of compensation expense during 2000, 1999 and 1998, in conjunction with
     grants made under its fixed stock option plans. Had expense been recognized
     using the fair value method described in SFAS 123, the Company would have
     reported the following results of operations using the Black-Scholes option
     pricing model:

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                               ------------------------------------------------
                                                  2000               1999              1998
                                               -------------      ------------       -----------
<S>                                                              <C>               <C>
   Pro forma net loss applicable to common
     shareholders..........................    $(41,953,818)      $(17,608,725)      $(6,005,992)
   Deemed dividend.........................     (19,867,723)                --                --
                                               ------------       ------------       -----------
   Net loss available to common shareholder    $(61,821,541)      $(17,608,725)      $(6,005,992)
   Wtd average shares outstanding..........      36,313,759         29,804,681        21,547,177
   Pro forma net loss per basic and diluted
     share.................................          $(1.70)            $(0.59)           $(0.28)
</TABLE>

     These costs may not be representative of the total effects on pro forma
     reported income for future years. Factors that may also impact disclosures
     in future years include the attribution of the awards to the service
     period, the vesting period of stock options, timing of additional grants of
     stock option awards and number of shares granted for future awards.

     The assumptions used for valuations of option grants calculated in
     accordance with SFAS 123 are as follows:

<TABLE>
                                                       2000      1999      1998
                                                       -----     -----     -----
<S>                                                    <C>       <C>       <C>

             Annualized dividend yield.............     0.0%      0.0%      0.0%
             Risk free rate of return..............    6.28%      5.6%      5.5%
             Expected option term (in years).......    5.00      6.66      3.95
             Expected volatility...................    74.8%      0.0%      0.0%
</TABLE>

     h.  Common Stock Compensation: On December 30, 1999, the Company entered
         into a termination and consulting agreement with its former President.
         In conjunction with the termination and consulting agreement, the
         Company agreed, effective January 6, 2000, to extend the expiration
         date of the former President's options to purchase an aggregate of
         661,250 shares of the Company's common stock at a price of $2.17 per
         share until the first anniversary of the termination of the consulting
         agreement. The extension of the stock option agreements resulted in a
         remeasurement of the compensation cost associated with the stock
         options. Accordingly, a total non-cash compensation charge of
         $3,960,000 was recognized on a straight-line basis during 2000.

                                     F-20
<PAGE>

9.   Earnings Per Share:  SFAS 128 requires companies to provide a
     reconciliation of the numerator and denominator of the basic and diluted
     EPS computations. The calculation below provides net loss, weighted average
     common shares outstanding and the resultant net loss per share for both
     basic and diluted EPS for the years ended December 31, 2000, 1999 and 1998.

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                               -------------------------------------------------
                                                   2000              1999              1998
                                               ------------      ------------       -----------
<S>                                            <C>               <C>                <C>

Numerator:
 Net loss..............................        $(39,239,948)     $(16,868,379)      $(5,741,260)
Deemed dividend representing the
 beneficial conversion feature of
 preferred stock.......................         (19,867,723)               --                --
                                               ------------      ------------       -----------
Loss available to common
 shareholders..........................        $(59,107,671)     $(16,868,379)      $(5,741,260)
                                               ============      ============       ===========
Denominator:
 Weighted average common
  shares...............................          36,313,759        29,804,681        21,547,177
                                               ============      ============       ===========
Earnings per share:
 Basic and diluted.....................        $      (1.63)     $      (0.57)      $     (0.27)
                                               ============      ============       ===========
</TABLE>

10.  401(k) Plan: On February 11, 1997, the Company adopted a 401(k) plan for
     employees. All employees who meet certain age requirements are eligible to
     participate. Matching contributions are made at the discretion of the
     Company. The Company made no matching contributions during 2000, 1999, or
     1998.

11.  Subsequent Events: Commencing in the fourth quarter of 2000, and continuing
     in the first quarter of 2001, the Company has implemented a cost reduction
     program which includes among other cost savings measures, reductions in
     marketing expenditures, cost of acquiring members, and the overall number
     of employees. In March 2001, the Company has commenced a private offering
     of its convertible debentures and warrants to increase its liquidity.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None.

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information with respect to directors and executive officers required
by this Item 10 is incorporated herein by reference to the information set forth
under the caption "Directors and Executive Officers of the Company" in our Proxy
Statement for the 2001 Annual Meeting of Shareholders or the "2001 Proxy
Statement", which is expected to be filed with the Commission within 120 days
after the close of our fiscal year. Information relating to certain filings on
Forms 3, 4, and 5 of the Company is

                                     F-21
<PAGE>

contained in the 2001 Proxy Statement under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance".

ITEM 11. EXECUTIVE COMPENSATION

  The information required by this Item 11 is incorporated herein by reference
to the information set forth under the caption "Executive Compensation" in the
2001 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by this Item 12 is incorporated herein by reference
to the information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 2001 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

  The information required by this Item 13 is incorporated herein by reference
to the information set forth under the caption "Certain Relationships and
Related Transactions" in the 2001 Proxy Statement.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are filed herewith as part of this Form 10-K:

          (1) A list of the financial statements required to be filed as a part
of this Form 10-K is shown in the "Index to the Financial Statements" filed
herewith.

          (2) The following financial statement schedule is filed
as a part of this Form 10-K,--Schedule II--Valuation and Qualifying Accounts.

          (3) A list of the exhibits required by Item 601 of Regulation S-K to
be filed as a part of this Form 10-K is shown on the "Exhibit Index" filed
herewith.

     (b)  Reports on Form 8-K

          No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.

                                     F-22
<PAGE>

                                    SIGNATURES
                                    ----------

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date: March 30, 2001                         coolsavings.com inc.


                                              By: /s/ Steven M. Golden
                                                  -------------------------
                                              Steven M. Golden
                                              Chairman of the Board, Director
                                              and Chief Executive Officer

                               POWER OF ATTORNEY

          Each person whose signature appears below hereby constitutes and
appoints Steven M. Golden and Paul A. Case, and each of them, his or her
attorneys-in-fact, each with the power of substitution, for him or her in any
and all capacities, to sign any amendments to this Report on Form 10-K, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting to said
attorneys-in-fact, or his substitute or substitutes, the power and authority to
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

          Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.

Signature                    Title                               Date
---------                    -----                               ----

/s/ Steven M. Golden         Chairman of the Board, Chief        March 30, 2001
---------------------------  Executive Officer, and Director
 Steven M. Golden            (Principal Executive Officer)

/s/ Paul A. Case             Chief Financial Officer (Principal  March 30, 2001
---------------------------  Financial and Accounting Officer)
 Paul A. Case

/s/ Richard H. Rogel         Director                            March 30, 2001
---------------------------
 Richard H. Rogel

/s/ Hugh R. Lamle            Director                            March 30, 2001
---------------------------
 Hugh R. Lamle

/s/ Albert Aiello            Director                            March 30, 2001
---------------------------
 Albert Aiello

/s/ Lynette H. Mayne         Director                            March 30, 2001
---------------------------
 Lynette H. Mayne

/s/ Robert J. Kamerschen     Director                            March 30, 2001
---------------------------
 Robert J. Kamerschen

<PAGE>


                     Report of Independent Accountants on
                         Financial Statement Schedule

To the Board of Directors and Shareholders
of coolsavings.com, inc.:

Our audits of the financial statements referred to in our report dated
March 19, 2001 appearing in the 2000 Annual Report to Shareholders of
coolsavings.com,inc. also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.

PricewaterhouseCoopers LLP

Chicago, Illinois
March 19, 2001

<PAGE>

                             coolsavings.com inc.
                Schedule II--Valuation and Qualifying Accounts

<TABLE>

                                                                                                                 Balance
                                                                                                                 -------
                                                                                               Deductions       at End of
                                                                                               ----------       ---------
                                                        Additions (Reductions)                     (1)           Period
                                                -------------------------------------------        ----          ------
                                                                  Charged
                                                               --------------
                                                 Balance at       to Costs       Charged
                                                 ----------       --------       -------
                                                Beginning of        and          to Other
                                                ------------        ---          --------
Classification                                    Period          Expenses       Accounts
--------------                                    ------          --------       --------
<S>                                             <C>            <C>             <C>           <C>              <C>
Year ended December 31, 2000
Allowance for doubtful receivables                   $118,154      $1,903,156            $0        $703,213      $1,318,097

Year ended December 31, 1999:
Allowance for doubtful receivables                   $ 13,500      $  122,566            $0        $ 17,912      $  118,154
Year ended December 31, 1998:
Allowance for doubtful receivables                   $      0      $   13,500            $0        $      0      $   13,500

</TABLE>

(1) Uncollectible accounts written off.
<PAGE>

                                 EXHIBIT INDEX



Exhibit No.                            Description
----------    ------------------------------------------------------------------

3.1           Restated Articles of Incorporation (incorporated by reference to
              Exhibit 3.2 to CoolSavings' Registration Statement on Form S-1;
              file no. 333-94677)

3.2           Amended and Restated Bylaws (incorporated by reference to Exhibit
              3.3 to CoolSavings' Registration Statement on Form S-1; file no.
              333-94677)

4.1           Form of Common Stock Certificate (incorporated by reference to
              Exhibit 4.1 to CoolSavings' Registration Statement on Form S-1;
              file no. 333-94677)

4.2           Shareholders Agreement, dated as of June 1, 1998, among
              CoolSavings and certain of its Shareholders (incorporated by
              reference to Exhibit 4.2 to CoolSavings' Registration Statement on
              Form S-1; file no. 333-94677)

4.3           Registration Rights Agreement among CoolSavings and the holders of
              the 1999 Unsecured, Convertible Subordinated Promissory Notes
              (incorporated by reference to Exhibit 4.4 to CoolSavings'
              Registration Statement on Form S-1; file no. 333-94677)

4.4           Registration Rights Agreement among CoolSavings and the holders of
              the Series A Convertible Preferred Stock (incorporated by
              reference to Exhibit 4.5 to CoolSavings' Registration Statement on
              Form S-1; file no. 333-94677)

10.1          Investment Agreement, dated June 1, 1998, by and between
              CoolSavings and Lend Lease International Pty. Limited
              (incorporated by reference to Exhibit 10.1 to CoolSavings'
              Registration Statement on Form S-1; file no. 333-94677)

10.2*         Form of Indemnification Agreement (incorporated by reference to
              Exhibit 10.2 to CoolSavings' Registration Statement on Form S-1;
              file no. 333-94677)

10.3*         1997 Stock Option Plan (incorporated by reference to Exhibit 10.3
              to CoolSavings' Registration Statement on Form S-1; file no. 333-
              94677)

10.4*         1999 Director Option Plan (incorporated by reference to Exhibit
              10.4 to CoolSavings' Registration Statement on Form S-1; file no.
              333-94677)


<PAGE>

10.6*         Form of Promissory Note from current and former directors of
              CoolSavings payable to CoolSavings in consideration for exercise
              of stock options and/or warrants (incorporated by reference to
              Exhibit 10.6 to CoolSavings' Registration Statement on Form S-1;
              file no. 333-94677)

10.7          Termination Agreement, dated December 30, 1999, between
              CoolSavings and Hillel Levin (incorporated by reference to Exhibit
              10.7 to CoolSavings' Registration Statement on Form S-1; file no.
              333-94677)

10.8          Consulting Agreement, dated as of January 1, 2000, between
              CoolSavings and Hillel Levin (incorporated by reference to Exhibit
              10.8 to CoolSavings' Registration Statement on Form S-1; file no.
              333-94677)

10.9          Lease Agreement, dated February 24, 1997, between Prentiss
              Properties Acquisition Partners, L.P. and CoolSavings
              (incorporated by reference to Exhibit 10.9 to CoolSavings'
              Registration Statement on Form S-1; file no. 333-94677)

10.10         Agreement of Sublease, dated June 30, 1998, between Insurance
              Company of North America and CoolSavings (incorporated by
              reference to Exhibit 10.10 to CoolSavings' Registration Statement
              on Form S-1; file no. 333-94677)

10.11         Lease Agreement, dated January 3, 2000, between 360 North Michigan
              Trust and CoolSavings (incorporated by reference to Exhibit 10.11
              to CoolSavings' Registration Statement on Form S-1; file no. 333-
              94677)

10.12         Market Survey Panelist Agreement, dated as of October 25, 1999,
              between CoolSavings and NFO Research, Inc. (incorporated by
              reference to Exhibit 10.12 to CoolSavings' Registration Statement
              on Form S-1; file no. 333-94677)

10.13         Bankcard Marketing Agreement, dated April 2, 1999, between
              CoolSavings and First USA Bank (incorporated by reference to
              Exhibit 10.13 to CoolSavings' Registration Statement on Form S-1;
              file no. 333-94677)

10.14 **      Stock Purchase and Advertising Agreement, dated May 28, 1999,
              between CoolSavings and National Broadcasting Company, Inc.
              (incorporated by reference to Exhibit 10.14 to CoolSavings'
              Registration Statement on Form S-1; file no. 333-94677)

10.15         Agreement, dated February 8, 2000, between CoolSavings and The
              Parenting Group, Inc. (incorporated by reference to Exhibit 10.15
              to CoolSavings' Registration Statement on Form S-1; file no. 333-
              94677)

<PAGE>

10.16         Agreement, dated January 18, 2000, between CoolSavings and Mail
              Coups Inc. (incorporated by reference to Exhibit 10.16 to
              CoolSavings' Registration Statement on Form S-1; file no. 333-
              94677)

10.17         Program Agreement, dated February 17, 2000, between CoolSavings
              and First Data Merchant Services Corporation (incorporated by
              reference to Exhibit 10.17 to CoolSavings' Registration Statement
              on Form S-1; file no. 333-94677)

10.18         Loan and Security Agreement, dated January 19, 2000, between
              CoolSavings and American National Bank and Trust Company of
              Chicago (incorporated by reference to Exhibit 10.18 to
              CoolSavings' Registration Statement on Form S-1; file no. 333-
              94677)

10.19         Incentives Management Program Agreement, dated March 31, 2000,
              between CoolSavings and Netcentives Inc. (incorporated by
              reference to Exhibit 10.19 to CoolSavings' Registration Statement
              on Form S-1; file no. 333-94677)

24            Power of Attorney (included on signature page)

-------------
*     Management contract or compensatory plan or arrangement required to be
identified by Item 14(c) of Form 10-K .

**    Certain information in Exhibit 10.14 has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portion.