##### 



---

---

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

(Mark one)

|  |  |                                                                                                                                          
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
|  |  |                                                                                                                                          
|  |  | OR                                                                                                                                       
|  |  |                                                                                                                                          
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934                                                 

For the transition period from _________________ to _______________.

Commission File Number 000-29215LENDINGTREE, INC.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 25-1795344                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               |  |                                     
|11115 Rushmore Drive
Charlotte, North Carolina                 |  | 28277                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip code)                          

(704) 541-5351
(Registrants telephone number, including area code)

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 [  ].

As of October 31, 2002 there were 22,331,571 shares of Common Stock, $0.01
par value, outstanding. Additionally, there are 392,590 shares of treasury
stock issued but not outstanding.

---

---





---



##### 



LendingTree, Inc.
Table of Contents

|          |  |                                                                                                                         |  |       
|--------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ------
|          |  |                                                                                                                         |  | Page  
|          |  |                                                                                                                         |  | Number
|          |  |                                                                                                                         |  |       
|Part I    |  | Financial Information:                                                                                                  |  |       
|          |  |                                                                                                                         |  |       
|Item 1.   |  | Consolidated Financial Statements (Unaudited)                                                                           |  |       
|          |  |                                                                                                                         |  |       
|          |  | Consolidated Balance Sheets  September 30, 2002 and December 31, 2001                                                  |  | 3     
|          |  |                                                                                                                         |  |       
|          |  | Consolidated Statements of Operations 
          Three and nine months ended September 30, 2002 and
September 30, 2001 |  | 4     
|          |  |                                                                                                                         |  |       
|          |  | Consolidated Statements of Cash Flows 
          Nine months ended September 30, 2002 and September 30, 2001           |  | 5     
|          |  |                                                                                                                         |  |       
|          |  | Consolidated Statement of Changes in Shareholders Equity
(Deficit) 
          September 30, 2002                      |  | 6     
|          |  |                                                                                                                         |  |       
|          |  | Notes to Consolidated Financial Statements                                                                              |  | 7     
|          |  |                                                                                                                         |  |       
|Item 2.   |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations                                   |  | 18    
|          |  |                                                                                                                         |  |       
|Item 3.   |  | Quantitative and Qualitative Disclosures about Market Risk                                                              |  | 37    
|          |  |                                                                                                                         |  |       
|Item 4.   |  | Controls and Procedures                                                                                                 |  | 37    
|          |  |                                                                                                                         |  |       
|Part II   |  | Other Information:                                                                                                      |  |       
|          |  |                                                                                                                         |  |       
|Item 1.   |  | Legal Proceedings                                                                                                       |  | 38    
|          |  |                                                                                                                         |  |       
|Item 2.   |  | Changes in Securities and Use of Proceeds                                                                               |  | 38    
|          |  |                                                                                                                         |  |       
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                                                        |  | 38    
|          |  |                                                                                                                         |  |       
|Signature |  |                                                                                                                         |  | 39    



---



PRODUCTS MENTIONED IN THIS REPORT ARE USED FOR IDENTIFICATION PURPOSES ONLY AND
MAY BE TRADE NAMES OR TRADEMARKS OF LENDINGTREE, INC. OR THIRD PARTIES.



---



2



---



##### 



PART I  Financial Information

Item 1. Consolidated Financial Statements.


LendingTree, Inc.
Consolidated Balance Sheets
(unaudited)

|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |       |         |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------------------- | ------------------------- | ------ | ---------------- | ------ | ------------ | ----- | ------- | ------ | 
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        | September 30,    |        | December 31,
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        | 2002             |        | 2001        
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |             
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        | ($ in thousands)
|Assets                                                                                                                                                                                                                                                                                     |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |             
|Current assets:                                                                                                                                                                                                                                                                            |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |             
|                                                                                                                                                                                                                                                                                           | Cash and cash equivalents                                                                                                                                      |                                                     | $                                                    | 4,093                     |        |                  | $      | 3,400        |      
|                                                                                                                                                                                                                                                                                           | Restricted cash                                                                                                                                                |                                                     |                                                      | 9,586                     |        |                  |        | 2,764        |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                | Total cash and cash equivalents and restricted cash |                                                      |                           | 13,679 |                  |        |              | 6,164 |        
|                                                                                                                                                                                                                                                                                           | Accounts receivable, net of allowance for doubtful accounts                                                                                                    |                                                     |                                                      | 18,150                    |        |                  |        | 11,438       |      
|                                                                                                                                                                                                                                                                                           | Prepaid expenses and other current assets                                                                                                                      |                                                     |                                                      | 1,553                     |        |                  |        | 1,174        |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     | Total current assets                                 |                           |        | 33,382           |        |              |       | 18,776  |       
|Equipment, furniture and leasehold improvements, net                                                                                                                                                                                                                                       |                                                                                                                                                                |                                                     | 1,888                                                |                           |        |                  | 2,016  |             
|Software, net                                                                                                                                                                                                                                                                              |                                                                                                                                                                |                                                     | 1,219                                                |                           |        |                  | 2,854  |             
|Intangible assets, net                                                                                                                                                                                                                                                                     |                                                                                                                                                                |                                                     | 1,916                                                |                           |        |                  | 3,667  |             
|Other assets                                                                                                                                                                                                                                                                               |                                                                                                                                                                |                                                     | 272                                                  |                           |        |                  | 618    |             
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     | Total assets                                         |                           | $      | 38,677           |        |              | $     | 27,931  |       
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |      
|Liabilities and Shareholders Equity (Deficit)                                                                                                                                                                                                                                             |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |             
|Current liabilities:                                                                                                                                                                                                                                                                       |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |             
|                                                                                                                                                                                                                                                                                           | Accounts payable                                                                                                                                               |                                                     | $                                                    | 5,456                     |        |                  | $      | 4,508        |      
|                                                                                                                                                                                                                                                                                           | Deferred revenue                                                                                                                                               |                                                     |                                                      | 1,285                     |        |                  |        | 2,013        |      
|                                                                                                                                                                                                                                                                                           | Accrued incentive and other compensation                                                                                                                       |                                                     |                                                      | 4,104                     |        |                  |        | 5,627        |      
|                                                                                                                                                                                                                                                                                           | Accrued professional services and other fees                                                                                                                   |                                                     |                                                      | 216                       |        |                  |        | 444          |      
|                                                                                                                                                                                                                                                                                           | Accrued consumer promotional costs                                                                                                                             |                                                     |                                                      | 1,144                     |        |                  |        | 1,709        |      
|                                                                                                                                                                                                                                                                                           | Accrued other expenses                                                                                                                                         |                                                     |                                                      | 2,346                     |        |                  |        | 1,774        |      
|                                                                                                                                                                                                                                                                                           | Current portion capital lease obligations                                                                                                                      |                                                     |                                                      | 381                       |        |                  |        | 743          |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      | Total current liabilities |        |                  | 14,932 |              |       |         | 16,818 | 
|Deposits by subtenants                                                                                                                                                                                                                                                                     |                                                                                                                                                                |                                                     | 122                                                  |                           |        |                  | 145    |             
|Capital lease obligations                                                                                                                                                                                                                                                                  |                                                                                                                                                                |                                                     | 19                                                   |                           |        |                  | 291    |             
|Commitments
and contingencies (Note 9)
Mandatorily redeemable securities
Series A convertible preferred stock, $.01 par value, 8% cumulative,
6,885,715 shares authorized, 6,038,940 and 6,885,715 shares
issued and outstanding at September 30, 2002 and December 31, 2001, respectively |                                                                                                                                                                |                                                     | 21,685                                               |                           |        |                  | 23,878 |             
|Shareholders equity (deficit):                                                                                                                                                                                                                                                            |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |             
|                                                                                                                                                                                                                                                                                           | Common stock, $.01 par value, 100,000,000 shares authorized, 22,265,655 and
19,907,034 shares issued at September 30, 2002
and December 31, 2001, respectively |                                                     |                                                      | 227                       |        |                  |        | 199          |      
|                                                                                                                                                                                                                                                                                           | Treasury stock (392,590 shares at September 30, 2002 and
661,996 shares at December 31, 2001, at cost)                                                         |                                                     |                                                      | (2,494                    | )      |                  |        | (4,170       | )    
|                                                                                                                                                                                                                                                                                           | Additional paid-in-capital                                                                                                                                     |                                                     |                                                      | 131,769                   |        |                  |        | 121,675      |      
|                                                                                                                                                                                                                                                                                           | Accumulated deficit                                                                                                                                            |                                                     |                                                      | (124,391                  | )      |                  |        | (127,064     | )    
|                                                                                                                                                                                                                                                                                           | Deferred compensation                                                                                                                                          |                                                     |                                                      | (851                      | )      |                  |        | (1,477       | )    
|                                                                                                                                                                                                                                                                                           | Notes receivable from officers                                                                                                                                 |                                                     |                                                      | (2,341                    | )      |                  |        | (2,364       | )    
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     | Total shareholders equity (deficit)                 |                           |        | 1,919            |        |              |       | (13,201 | )     
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |      
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     | Total liabilities and shareholders equity (deficit) |                           | $      | 38,677           |        |              | $     | 27,931  |       
|                                                                                                                                                                                                                                                                                           |                                                                                                                                                                |                                                     |                                                      |                           |        |                  |        |              |      

The accompanying notes are an integral part of these consolidated financial statements

3



---



##### 



LendingTree, Inc.
Consolidated Statements of Operations
(unaudited)

|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |        | 
|--------------------------------------------------------------- | --------------------------------- | ------------------------ | ----- | ---------------------------------------- | ------ | --------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                |                                   |                          |       | For the Three Months Ended September 30, |        | For the Nine Months Ended September 30,
|                                                                |                                   |                          |       |                                          |        |                                        
|                                                                |                                   |                          |       | 2002                                     |        | 2001                                    |        | 2002   |        | 2001
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |     
|                                                                |                                   |                          |       | (in thousands, except per share data)    |        | (in thousands, except per share data)  
|                                                                |                                   |                          |       |                                          |        |                                        
|Revenue:                                                        |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |       
|                                                                | Exchange                          |                          | $     | 30,392                                   |        |                                         | $      | 15,243 |        |      | $      | 73,159 |        |   | $       | 40,397 |       
|                                                                | Lend-X technology                 |                          |       | 549                                      |        |                                         |        | 1,960  |        |      |        | 3,517  |        |   |         | 4,871  |       
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|                                                                |                                   | Total revenue            |       |                                          | 30,941 |                                         |        |        | 17,203 |      |        |        | 76,676 |   |         |        | 45,268 | 
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|Cost of revenue:                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |       
|                                                                | Exchange                          |                          |       | 4,478                                    |        |                                         |        | 3,033  |        |      |        | 10,923 |        |   |         | 9,314  |       
|                                                                | Lend-X technology                 |                          |       | 275                                      |        |                                         |        | 277    |        |      |        | 877    |        |   |         | 1,075  |       
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|                                                                |                                   | Total cost of revenue    |       |                                          | 4,753  |                                         |        |        | 3,310  |      |        |        | 11,800 |   |         |        | 10,389 | 
|Gross margin:                                                   |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |       
|                                                                | Exchange                          |                          |       | 25,914                                   |        |                                         |        | 12,210 |        |      |        | 62,236 |        |   |         | 31,083 |       
|                                                                | Lend-X technology                 |                          |       | 274                                      |        |                                         |        | 1,683  |        |      |        | 2,640  |        |   |         | 3,796  |       
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|                                                                |                                   | Total gross margin       |       |                                          | 26,188 |                                         |        |        | 13,893 |      |        |        | 64,876 |   |         |        | 34,879 | 
|Operating expenses:                                             |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |       
|                                                                | Product development               |                          |       | 817                                      |        |                                         |        | 1,137  |        |      |        | 2,378  |        |   |         | 3,386  |       
|                                                                | Marketing and advertising         |                          |       | 13,813                                   |        |                                         |        | 9,973  |        |      |        | 36,681 |        |   |         | 29,447 |       
|                                                                | Sales, general and administrative |                          |       | 7,772                                    |        |                                         |        | 5,362  |        |      |        | 23,393 |        |   |         | 25,927 |       
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|                                                                |                                   | Total operating expenses |       |                                          | 22,402 |                                         |        |        | 16,472 |      |        |        | 62,452 |   |         |        | 58,760 | 
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|Income (loss) from operations                                   |                                   |                          | 3,786 |                                          |        |                                         | (2,579 | )      |        |      | 2,424  |        |        |   | (23,881 | )     
|Loss on impaired investments                                    |                                   |                          |      |                                          |        |                                         |       |        |        |      |       |        |        |   | (350    | )     
|Interest and other non-operating income                         |                                   |                          | 136   |                                          |        |                                         | 176    |        |        |      | 559    |        |        |   | 522     |       
|Interest expense, financing and other charges                   |                                   |                          | (93   | )                                        |        |                                         | (590   | )      |        |      | (310   | )      |        |   | (718    | )     
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|Net income (loss)                                               |                                   |                          | 3,829 |                                          |        |                                         | (2,993 | )      |        |      | 2,673  |        |        |   | (24,427 | )     
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|Accretion of mandatorily redeemable convertible preferred stock |                                   |                          | (165  | )                                        |        |                                         | (155   | )      |        |      | (509   | )      |        |   | (361    | )     
|Dividends on mandatorily redeemable convertible preferred stock |                                   |                          | (459  | )                                        |        |                                         | (577   | )      |        |      | (2,936 | )      |        |   | (1,538  | )     
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|Net income (loss) available to common shareholders              |                                   | $                        | 3,205 |                                          |        | $                                       | (3,725 | )      |        | $    | (772   | )      |        | $ | (26,326 | )     
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|Net income (loss) per share:                                    |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |       
|                                                                | Basic                             |                          | $     | 0.14                                     |        |                                         | $      | (0.20  | )      |      | $      | (0.04  | )      |   | $       | (1.37  | )     
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|                                                                | Diluted                           |                          | $     | 0.12                                     |        |                                         | $      | (0.20  | )      |      | $      | (0.04  | )      |   | $       | (1.37  | )     
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|                                                                | Weighted average shares  basic   |                          |       | 22,202                                   |        |                                         |        | 18,976 |        |      |        | 20,803 |        |   |         | 19,190 |       
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       
|                                                                | Weighted average shares  diluted |                          |       | 32,204                                   |        |                                         |        | 18,976 |        |      |        | 20,803 |        |   |         | 19,190 |       
|                                                                |                                   |                          |       |                                          |        |                                         |        |        |        |      |        |        |        |   |         |        |       

4



---



##### 



LendingTree, Inc.
Consolidated Statements of Cash Flows
(unaudited)

|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |       |        |         |  
|------------------------------------------------------ | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------ | --------------------------------------------------- | --------------------------------------------------- | ----- | --------------------------------- | ----- | ------- | ----- | ------ | ------- | -
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       | For the Nine Months September 30,
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                  
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       | 2002                              |       | 2001   
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |        
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       | ($ in thousands)                 
|Cash flows used in operating activities:               |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |        
|                                                       | Net income (loss)                                                                    |                                                                                      | $                                                   | 2,673                                               |       |                                   | $     | (24,427 | )    
|                                                       | Adjustments to reconcile net income (loss) to net cash used in operating activities: |                                                                                      |                                                     |                                                     |       |                                   |       |         |      
|                                                       |                                                                                      | Loss on disposal of fixed assets                                                     |                                                     |                                                     |      |                                   |       |         | 3     |       
|                                                       |                                                                                      | Depreciation and amortization                                                        |                                                     |                                                     | 5,241 |                                   |       |         | 5,851 |       
|                                                       |                                                                                      | Provision for doubtful accounts                                                      |                                                     |                                                     | 339   |                                   |       |         | (98   | )     
|                                                       |                                                                                      | Loss on impairment of investment                                                     |                                                     |                                                     |      |                                   |       |         | 350   |       
|                                                       |                                                                                      | Compensation charge related to officer note                                          |                                                     |                                                     |      |                                   |       |         | 1,365 |       
|                                                       |                                                                                      | Amortization of deferred equity based compensation                                   |                                                     |                                                     | 646   |                                   |       |         | 728   |       
|                                                       |                                                                                      | Issuance of warrants and other costs in conjunction with revolving credit facilities |                                                     |                                                     |      |                                   |       |         | 481   |       
|                                                       |                                                                                      | Amortization of deferred financing costs                                             |                                                     |                                                     | 104   |                                   |       |         | 86    |       
|                                                       |                                                                                      | Non-cash equity based compensation                                                   |                                                     |                                                     | 187   |                                   |       |         | 358   |       
|                                                       |                                                                                      | Changes in assets and liabilities, net of effects from acquisitions:                 |                                                     |                                                     |       |                                   |       |         |       |       
|                                                       |                                                                                      |                                                                                      | Accounts receivable                                 |                                                     |       | (7,051                            | )     |         |       | (2,123 | )      
|                                                       |                                                                                      |                                                                                      | Prepaid expenses and other current assets           |                                                     |       | (405                              | )     |         |       | (12    | )      
|                                                       |                                                                                      |                                                                                      | Other assets                                        |                                                     |       | 268                               |       |         |       | (52    | )      
|                                                       |                                                                                      |                                                                                      | Accounts payable                                    |                                                     |       | 948                               |       |         |       | 469    |        
|                                                       |                                                                                      |                                                                                      | Accrued promotional costs                           |                                                     |       | (565                              | )     |         |       | 1,065  |        
|                                                       |                                                                                      |                                                                                      | Accrued expenses                                    |                                                     |       | (804                              | )     |         |       | 1,256  |        
|                                                       |                                                                                      |                                                                                      | Deferred revenue                                    |                                                     |       | (728                              | )     |         |       | 345    |        
|                                                       |                                                                                      |                                                                                      | Deposits                                            |                                                     |       | (22                               | )     |         |       | 19     |        
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |      
|                                                       |                                                                                      |                                                                                      |                                                     | Net cash provided by (used in) operating activities |       |                                   | 831   |         |       |        | (14,336 | )
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |      
|Cash flows (used in) provided by investing activities: |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |        
|                                                       | Purchases of short-term investments                                                  |                                                                                      |                                                     |                                                    |       |                                   |       | (16,964 | )    
|                                                       | Sales of short-term investments                                                      |                                                                                      |                                                     |                                                    |       |                                   |       | 21,641  |      
|                                                       | Deposits to restricted cash                                                          |                                                                                      |                                                     | (32,553                                             | )     |                                   |       | (27,084 | )    
|                                                       | Use of restricted cash                                                               |                                                                                      |                                                     | 25,731                                              |       |                                   |       | 23,218  |      
|                                                       | Investments in software                                                              |                                                                                      |                                                     | (1,121                                              | )     |                                   |       | (339    | )    
|                                                       | Purchases of equipment, furniture, and leasehold improvements                        |                                                                                      |                                                     | (607                                                | )     |                                   |       | (98     | )    
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |      
|                                                       |                                                                                      |                                                                                      | Net cash (used in) provided by investing activities |                                                     |       | (8,550                            | )     |         |       | 374    |        
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |      
|Cash flows provided by financing activities:           |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |        
|                                                       | Proceeds from sales of common stock and exercise
of stock options                    |                                                                                      |                                                     | 3,731                                               |       |                                   |       | 206     |      
|                                                       | Sale of treasury stock for employee stock purchase plan                              |                                                                                      |                                                     | 620                                                 |       |                                   |       |        |      
|                                                       | Payment of capital lease obligations                                                 |                                                                                      |                                                     | (634                                                | )     |                                   |       | (532    | )    
|                                                       | Net short-term borrowings                                                            |                                                                                      |                                                     |                                                    |       |                                   |       | 1,998   |      
|                                                       | Fees paid related to debt and equity financing                                       |                                                                                      |                                                     |                                                    |       |                                   |       | (645    | )    
|                                                       | Proceeds from private placement of common stock                                      |                                                                                      |                                                     | 5,642                                               |       |                                   |       |        |      
|                                                       | Proceeds from issuance of preferred stock                                            |                                                                                      |                                                     |                                                    |       |                                   |       | 12,290  |      
|                                                       | Payment of dividends on preferred stock                                              |                                                                                      |                                                     | (970                                                | )     |                                   |       |        |      
|                                                       | Proceeds from repayment of officer note                                              |                                                                                      |                                                     | 23                                                  |       |                                   |       | 68      |      
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |      
|                                                       |                                                                                      |                                                                                      | Net cash provided by financing activities           |                                                     |       | 8,412                             |       |         |       | 13,385 |        
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |      
|Net increase (decrease) in cash and cash equivalents   |                                                                                      |                                                                                      | 693                                                 |                                                     |       |                                   | (577  | )      
|Cash and cash equivalents, beginning of period         |                                                                                      |                                                                                      | 3,400                                               |                                                     |       |                                   | 2,666 |        
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |      
|Cash and cash equivalents, end of period               |                                                                                      | $                                                                                    | 4,093                                               |                                                     |       | $                                 | 2,089 |        
|                                                       |                                                                                      |                                                                                      |                                                     |                                                     |       |                                   |       |         |      

The accompanying notes are an
integral part of these consolidated financial statements

5



---



##### 



LendingTree, Inc.
Consolidated Statement of Changes in Shareholders Equity (Deficit)
September 30, 2002
($ in thousands)
(unaudited)

|                                                                            |            |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   |         |   |  |  |  |  | 
|--------------------------------------------------------------------------- | ---------- |  | ------------ |  | ------ | - | ----- |  | ---------- | - | ------- | - | ------------ | - | ------------- | - | ---------------- | - | ------------- | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | - |  |  |  |  | 
|                                                                            |            |  | Common Stock |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   |        
|                                                                            |            |  |              |  |        |   |       |  | Additional |   |         |   |              |   |               |   |                  |   |               |       |  |   | Total  |   |  |   |       
|                                                                            |            |  | Number of    |  |        |   |       |  | Treasury   |   | Paid-In |   | Accumulated  |   | Deferred      |   | Notes Receivable |   | Shareholders' |       |  |   |       
|                                                                            |            |  | Shares       |  | Amount |   | Stock |  | Capital    |   | Deficit |   | Compensation |   | from Officers |   | Equity (Deficit) |   |               |       | 
|                                                                            |            |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       | 
|Balance at December 31, 2001                                                |            |  | 19,907,034   |  |        | $ | 199   |  |            | $ | (4,170  | ) |              | $ | 121,675       |   |                  | $ | (127,064      | )     |  | $ | (1,477 | ) |  | $ | (2,364 | ) |  | $ | (13,201 | ) |  |  |  | 
|Amortization of deferred compensation                                       |            |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       |  |   | 646    |   |  |   |        |   |  |   | 646     |   |  |  |  | 
|Accrued dividends on Series A convertible preferred stock                   |            |  |              |  |        |   |       |  |            |   |         |   |              |   | (1,488        | ) |                  |   |               |       |  |   |        |   |  |   |        |   |  |   | (1,488  | ) |  |  |  | 
|Accretion of Series A convertible preferred stock                           |            |  |              |  |        |   |       |  |            |   |         |   |              |   | (509          | ) |                  |   |               |       |  |   |        |   |  |   |        |   |  |   | (509    | ) |  |  |  | 
|Principal payment on an officer note                                        |            |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       |  |   |        |   |  |   | 23     |   |  |   | 23      |   |  |  |  | 
|Exercise of common stock warrants                                           |            |  | 404,355      |  |        |   | 4     |  |            |   |         |   |              |   | 42            |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   | 46      |   |  |  |  | 
|Proceeds from private sale of common stock                                  |            |  | 500,000      |  |        |   | 5     |  |            |   |         |   |              |   | 5,637         |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   | 5,642   |   |  |  |  | 
|Conversion of preferred stock to common stock                               |            |  | 919,894      |  |        |   | 9     |  |            |   |         |   |              |   | 3,211         |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   | 3,220   |   |  |  |  | 
|Deferred compensation adjustment for forfeited and amended options          |            |  |              |  |        |   |       |  |            |   |         |   |              |   | (64           | ) |                  |   |               |       |  |   | 64     |   |  |   |        |   |  |   |        |   |  |  | 
|Reissuance of treasury shares for employee stock purchase plan participants |            |  |              |  |        |   |       |  |            |   | 1,718   |   |              |   | (1,098        | ) |                  |   |               |       |  |   |        |   |  |   |        |   |  |   | 620     |   |  |  |  | 
|Equity based compensation                                                   |            |  | 49,422       |  |        |   | 1     |  |            |   |         |   |              |   | 644           |   |                  |   |               |       |  |   | (84    | ) |  |   |        |   |  |   | 561     |   |  |  |  | 
|Exercise of common stock options                                            |            |  | 877,540      |  |        |   | 9     |  |            |   |         |   |              |   | 3,677         |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   | 3,686   |   |  |  |  | 
|Acquired shares for stock option exercise                                   |            |  |              |  |        |   |       |  |            |   | (42     | ) |              |   | 42            |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   |        |   |  |  |  | 
|Other
comprehensive income:                                                 |            |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   |         |   |  |  |  | 
|                                                                            | Net
income |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               | 2,673 |  |   |        |   |  |   |        |   |  |   |         |   |  |  |  |  | 
|Total
other comprehensive income                                            |            |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   | 2,673   |   |  |  |  | 
|                                                                            |            |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   |         |   |  |  |  | 
|Balance at September 30, 2002                                               |            |  | 22,658,245   |  |        | $ | 227   |  |            | $ | (2,494  | ) |              | $ | 131,769       |   |                  | $ | (124,391      | )     |  | $ | (851   | ) |  | $ | (2,341 | ) |  | $ | 1,919   |   |  |  |  | 
|                                                                            |            |  |              |  |        |   |       |  |            |   |         |   |              |   |               |   |                  |   |               |       |  |   |        |   |  |   |        |   |  |   |         |   |  |  |  | 

The accompanying notes are an integral part of these consolidated financial statements

6



---



##### 



LendingTree, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1  The Company

LendingTree, Inc. was incorporated in the State of Delaware on June 7, 1996 and
commenced nationwide operations on July 1, 1998. Our mailing address is 11115
Rushmore Drive, Charlotte, North Carolina 28277 and our telephone number is
(704) 541-5351.

We are an exchange connecting consumers with Lenders, real estate professionals
or other service providers. We attract consumers to our website at through
various forms of offline and online advertising and arrangements with other
online businesses. Our exchange is designed to empower consumers, Lenders and
real estate agents with convenience, choice, and value. Our proprietary
technology platform, Lend-XSM, is the technology that powers our Internet based
exchange.

Once on our Lending Exchange, consumers begin the process by completing a
simple online credit request, or a qualification form, to obtain a loan
product. After the consumer completes the qualification form, our Lend-X
technology automatically retrieves the credit score for the particular
consumer. The consumers data and credit score are then automatically compared
to the underwriting criteria of the more than 180 banks, lenders and loan
brokers (which we refer to collectively as Lenders) participating on our
Lending Exchange. Qualified consumers can receive up to four loan offers
online, in response to a single credit request and then compare, review, and
accept the offer that best suits their needs. Lenders can generate new
business that meets their specific underwriting criteria at a lower cost of
acquisition than traditional channels. Our Lending Exchange encompasses most
consumer credit categories, including mortgages, home equity loans, automobile
loans, credit cards, and personal loans.

Through our Realty Services Exchange we enable consumers to complete one simple
form describing their realty needs and then choose a real estate professional
in their desired area. Our Realty Services Exchange is made up of more than
6,500 real estate professionals who represent more than 650 real estate
companies nationwide. We also provide access, through our website, to other
services related to owning, maintaining, and buying and selling a home.

We earn revenue from the Lenders participating in our Exchange who pay us fees
as qualification forms meet their underwriting criteria and are transmitted to
them (transmit fees). Since a qualification form can be transmitted to more
than one lender, we may generate multiple transmit fees for the same form. We
also earn revenue for services and facilities we provide in connection with
loans that the Lenders on our network close with consumers that we transmitted
to them (closed-loan fees). Additionally, in most states, real estate
professionals participating in our network pay us a fee when consumers
requests that we transmit to them result in a purchase or sale of a home. We
refer to the aggregate of these fees as our Exchange revenue.

We also license and host our Lend-X technology platform for use by other
businesses. Lend-X enables businesses to create their own customized
co-branded or private-labeled lending exchange. These exchanges, powered by
Lend-X, may be single lender or multi-lender marketplaces or may provide access
to the LendingTree exchange with more than 180 participating Lenders. Through
these Lend-X relationships, we can earn revenue both from technology fees
related to customizing, licensing and hosting the third party exchange, as well
as from transactional fees resulting from the volume processed through such
exchanges.

NOTE 2  Basis of Presentation:

Interim Financial Information

Our consolidated financial statements include all adjustments of a normal
recurring nature which, in the opinion of management, are necessary for a fair
presentation of our financial position as of September 30, 2002 and results of
operations and cash flows for the interim periods presented. The results of
operations for the quarter and nine months ended September 30, 2002 are not
necessarily indicative of the results to be expected for the entire year.

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and footnotes that are
required by generally accepted accounting principles are not included herein.
These interim consolidated

7



---



##### 



financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 2001 as reported by us in our Annual Report on Form 10-K, which
was filed with the Securities and Exchange Commission on March 5, 2002.

Use of Estimates and Judgments

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. We
base our estimates and judgments on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. On an
ongoing basis we evaluate our estimates and refine our judgments as actual
results and experiences develop. Significant estimates and judgments are
involved in the process of determining our accrual for incentive compensation,
liabilities for consumer promotional costs, revenue recognition for our Lend-X
technology arrangements and our allowance for doubtful accounts. Actual
results could differ from those estimates.

Reclassifications

Certain comparative period amounts have been reclassified to conform to current
period presentation.

Note 3  Financial Condition

Liquidity and Capital Resources

As of September 30, 2002, we had approximately $13.7 million in total cash,
consisting of $4.1 million in cash and cash equivalents and $9.6 million in
restricted cash. (See Note 4) For cash flow purposes, we classify deposits to
and uses of restricted cash as investing activities. Including the net changes
in restricted cash with cash used in operating activities, our cash required
for the nine months ended September 30, 2002 was $6.0 million.

We believe that these existing sources and the availability of the credit
facility we have in place, as well as cash generated from operations, will be
sufficient to fund our operating and capital needs over the next year.

Although we have historically experienced significant revenue growth and have
achieved profitability for the first time in the third quarter of 2002, the
operating results for future periods are subject to numerous uncertainties.
There can be no assurance that revenue growth will continue or that we will be
able to sustain profitability.

NOTE 4  Summary of Significant Accounting Policies

Restricted Cash

As of September 30, 2002, restricted cash included $7.7 million that was held
in an escrow account that has been established by us and our advertising agency
to maintain funds set aside for approved expenditures and services of the
advertising agency. Disbursements from the escrow account can only be made
with the approval of both parties. The fund is used only for future payments
of advertising costs we have previously approved. Disbursements from the
escrow account are made no sooner than one month following the invoice date for
the expenditures. We receive all income earned on funds held in this account.

Restricted cash as of September 30, 2002 also includes $1.6 million that was
held in an escrow account at our bank. The escrowed funds are pledged as
security for a letter of credit issued by our bank in August 2002. The letter
of credit expires December 31, 2003 and was issued by the bank to a bonding
company that provides surety bonds in the various states where we are licensed
to do business. The various states require surety bonds, in amounts ranging
from $5,000 to $150,000, as a part of their mortgage broker or loan originator
regulations.

The remaining $0.3 million in restricted cash as of September 30, 2002 is
primarily money set aside for the purchase of common shares under our employee
stock purchase plan from payroll withholdings of participating employees.

Accounts Receivable

Our accounts receivable are presented net of an allowance for doubtful
accounts. Management estimates the amount of the necessary allowance using its
judgment about current factors, such as customers financial condition, and
based on historical trends of receivable write-offs. Receivables are
written-off against this allowance when management determines the amount is
uncollectible.

8



---



##### 



Trade accounts receivable consists of the following:

|                                      |  |               |        |              |  |   |        |  
|------------------------------------- |  | ------------- | ------ | ------------ |  | - | ------ | -
|                                      |  | September 30, |        | December 31,
|                                      |  | 2002          |        | 2001        
|                                      |  |               |        |             
|Accounts receivable                   |  | $             | 18,481 |              |  | $ | 11,750 |  
|Less: allowance for doubtful accounts |  |               | (331   | )            |  |   | (312   | )
|                                      |  |               |        |              |  |   |        |  
|                                      |  | $             | 18,150 |              |  | $ | 11,438 |  
|                                      |  |               |        |              |  |   |        |  

In the nine months ended September 30, 2002, we
recorded bad debt expense of $0.3 million and wrote-off approximately
$0.3 million of receivables against the allowance for doubtful
accounts.

In the nine months ended September 30, 2001, we
recorded credits to bad debt expense of approximately $0.1 million
and wrote-off approximately $0.3 million of receivables against the
allowance for doubtful accounts.

Software Development Costs

Software development costs primarily include expenses incurred by us to develop
our proprietary software, which powers our website. Statement of Position No.
98-1 Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use (SOP 98-1) provides guidance regarding when software developed
or obtained for internal use should be capitalized. SOP 98-1 requires that
certain costs incurred during the application development stage be capitalized,
while costs incurred during the preliminary project stage and
post-implementation/operation stage should be expensed as incurred. We account
for our website development costs and other internal use software in accordance
with SOP 98-1.

During the three months ended September 30, 2002 and 2001, we capitalized
internal use software development costs (including compensation costs) of
approximately $0.2 million and $0.1 million, respectively. During the
nine-month periods ending 2002 and 2001, we capitalized internal use software
development costs (including compensation costs) of approximately $0.9 million
and $0.3 million, respectively.

Capitalized internal use software development costs are amortized over the
estimated life of the related application, which range from 1 to 3 years.

Intangible Assets

On July 20, 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets. This new standard,
effective January 1, 2002, changed the accounting for goodwill and
indefinite-lived intangible assets from an amortization method to an
impairment-only approach and required that amortization of goodwill and
indefinite-lived intangible assets cease. We have no goodwill or
indefinite-lived intangible assets.

Our intangible assets consisted of the following as of September 30, 2002 and
December 31, 2001:

|                            |                                    |         |                |                          |       |                         |  |              |       |     |  |   |          |              |  |  |   |       |       |  |   |       |  |  |   |       |  |  |  | 
|--------------------------- | ---------------------------------- | ------- | -------------- | ------------------------ | ----- | ----------------------- |  | ------------ | ----- | --- |  | - | -------- | ------------ |  |  | - | ----- | ----- |  | - | ----- |  |  | - | ----- |  |  |  | 
|                            |                                    |         |                | As of September 30, 2002 |       | As of December 31, 2001
|                            |                                    |         |                |                          |       |                        
|                            |                                    |         |                | (in
000s)               |       | (in
000s)             
|                            |                                    |         |                |                          |       |                        
|                            |                                    |         |                |                          |       |                         |  | Gross        |       |     |  |   |          |              |  |  |   |       | Gross |  |   |       | 
|                            |                                    |         |                | Amortization             |       | Carrying                |  | Accumulated  |       |     |  |   | Carrying | Accumulated 
|                            |                                    |         |                | Period                   |       | Amount                  |  | Amortization |       |     |  |   | Amount   | Amortization
|                            |                                    |         |                |                          |       |                         |  |              |       |     | 
|Amortized Intangible
Assets
|                            | Realtor Network                    | 3 years |                | $                        | 6,472 |                         |  | $            | 4,689 |     |  |   |          |              |  |  | $ | 6,472 |       |  | $ | 3,080 | 
|                            | Affinity program partner contracts |         | 2 - 3.75 years |                          |       | 544                     |  |              |       | 411 |  |   |          |              |  |  |   | 544   |       |  |   | 269   | 
|                            |                                    |         |                |                          |       |                         |  |              |       |     |  |   |          |              |  |  |   |       |       |  |   |       |  |  |   |       | 
|                            |                                    | Total   |                |                          |       |                         |  | $            | 7,016 |     |  | $ | 5,100    |              |  |  |   |       |       |  | $ | 7,016 |  |  | $ | 3,349 | 
|                            |                                    |         |                |                          |       |                         |  |              |       |     |  |   |          |              |  |  |   |       |       |  |   |       |  |  |   |       | 

Amortization expense of our intangible assets was $0.6 million for both the
quarters ended September 30, 2002 and 2001. Amortization expense of our
intangible assets was approximately $1.8 million for both the nine-month
periods ended September 30, 2002 and 2001. Estimated amortization expense for
the years ending December 31, 2002, 2003, 2004, 2005 and 2006 is $2.3 million,
$1.3 million, less than $0.1 million, $0, and $0 respectively.

Revenue Recognition

Exchange:

Our Lending Exchange revenue principally represents transmission fees and
closed-loan fees paid by Lenders that received a transmitted loan request or
closed a loan for a consumer that originated through our website,
www.lendingtree.com. Transmission fees are recognized at the time
qualification forms are transmitted, while closed-loan fees are recognized at
the time the Lender reports the closed loan to us, which may be several months
after the qualification form is transmitted.

9



---



##### 



Additionally, we earn revenue through a network of real estate brokers who
compensate us for real estate transactions that close with consumers that were
referred to them through our Exchange or our clients website. Revenue earned
through our network of real estate brokers is recognized upon notification by
the broker that a real estate transaction has closed.

We also derive Lending and Realty Exchange revenue from loan requests and
realty referrals that are received through private-label or co-branded websites
of other businesses that are enabled by our Lend-X technology. If these
requests are successfully transmitted to or closed by one of the Lenders or
realtors on our Exchange, we earn fees as described above.

Technology:

Lend-X technology revenue is related primarily to hosting, licensing access to
and modifying our proprietary software for use by Lenders and other third
parties.

Our typical Lend-X technology arrangement involves licensing access to and
hosting our software for use by third parties. These arrangements typically
include implementation, consulting and/or other services bundled together with
the access and hosting fees. In accordance with SAB No. 101, the revenue for
the entire arrangement is deferred and recognized over the longer of the term
of the related contract or the expected service period. Our hosting
arrangements typically do not permit customers to take possession of our
software.

Revenue from arrangements involving only consulting or other services (that is,
those services that are not bundled with access or hosting services) is
recognized as the services are performed. Maintenance is recognized ratably
over the longer of the term of the underlying agreement or the expected service
period. Maintenance includes technical support and updates and upgrades to our
software.

When a contractual arrangement requires us to provide services for significant
implementation, customization or modification of the software or when the
customer considers these services essential to the functionality of the
software product, both the software fees and consulting services revenue are
recognized in accordance with the provisions of Statement of Position (SOP)
81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts. We recognize revenue from these arrangements using
the percentage-of-completion method primarily based on labor hour inputs.
Therefore, during the implementation period, both the software fee and the
consulting service revenue are recognized as work progresses.

Losses, if any, are recognized when identified.

Advertising Expenses

Advertising expenses consist of certain direct expenses, including television,
radio and affiliate and partner marketing fees, as well as certain indirect
expenses, such as agency fees and production costs. We expense advertising
costs as incurred. For the quarters ended September 30, 2002 and 2001,
advertising expenses were $13.0 million and $9.4 million, respectively. For
the nine months ended September 30, 2002 and 2001, advertising expenses were
$34.7 million and $27.8 million, respectively.

Incentive Compensation

Under our incentive compensation plan, employees can earn a bonus in addition
to their salary based on achievement of various financial and operational
performance factors or other specific goals. The actual bonus formula may vary
by individual and the goals are not the same from year to year. During the
year, we make monthly estimates of the amount of the bonus each eligible
employee has earned based on actual and forecasted levels of Company
achievement relative to pre-established goals and historical averages of
personal performance. These monthly estimates are accrued with a charge to
operating income for that period. The awards are typically paid to the
employee following the completion of a year.

Consumer Promotional Costs

At our discretion, we may offer consumers that utilize our exchange services
certain promotional incentives to complete a transaction. We may offer these
consumers the opportunity to receive cash payments, gift certificates, airline
miles or other discounts or coupons in the event they complete a transaction
utilizing our services. We estimate the liability for these consumer
promotional costs each month based on the number of consumers that are
presented such offers, the cost of the item being offered and the historical
trends of consumers qualifying for the offer and our payout rates. The
estimated costs of the consumer promotional incentives are charged to operating
income each period. We adjust our estimates to actuals in the period
consumers are paid.

10



---



##### 



Stock-Based Compensation

We account for the effect of our stock-based compensation plans for employees
under Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS No. 123) using the optional intrinsic value
method. The intrinsic value method results in compensation cost equal to the
excess of the fair value of the stock over the exercise or purchase price at the
date of award. Such compensation costs (if any) are recorded over the vesting
period of the respective option and presented in the consolidated statement of
operations as a cost of revenue or operating expense, consistent with where the
optionees compensation is recorded. On an annual basis, we also disclose the
pro forma income statement effect of our stock-based compensation plans as if we
had adopted the fair value approach. The fair value approach results in
compensation cost using an option-pricing model that takes into account the fair
value at the grant date, the volatility of our stock price, the exercise price, the expected life of the award, the
expected dividends, and the risk-free interest rate expected over the life of
the award.

We account for the effect of stock-based compensation for non-employees under
SFAS No. 123, using the fair value approach.

Supplemental Cash Flow Information

In both the quarters ended September 30, 2002 and 2001, we paid interest of less
than $0.1 million and paid no income taxes during those periods due to
carryforward tax losses applicable for those periods. In both the nine months
ended September 30, 2002 and 2001, we paid interest of approximately $0.1
million and paid no income taxes during those periods due to carryforward tax
losses applicable for those periods.

A supplemental schedule of non-cash financing and investing activities follows
(in thousands):

|                                                                           |  |                   |       |      |  |   |       | 
|-------------------------------------------------------------------------- |  | ----------------- | ----- | ---- |  | - | ----- | 
|                                                                           |  | Nine Months Ended
|                                                                           |  | September 30,    
|                                                                           |  |                  
|                                                                           |  | 2002              |       | 2001
|                                                                           |  |                   |       |     
|Note receivable issued to officer to acquire Series A
preferred stock      |  | $                 |      |      |  | $ | 829   | 
|Acquisition of assets through a capital lease                              |  |                   |      |      |  |   | 85    | 
|Accretion of Series A preferred stock                                      |  |                   | 509   |      |  |   | 361   | 
|Stated value dividends on Series A preferred stock                         |  |                   | 1,959 |      |  |   | 1,538 | 
|Issuance of warrants in conjunction with credit facility
agreements        |  |                   |      |      |  |   | 481   | 
|Issuance of warrants in connection with Series A
preferred stock financing |  |                   |      |      |  |   | 431   | 
|Conversion of Series A preferred stock to common stock                     |  |                   | 3,220 |      |  |   |      | 

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 146 (SFAS 146) which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
This statement nullifies Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). The provisions
of this statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. We will
adopt SFAS 146 on January 1, 2003. We do not expect the impact of adopting this
statement will have a material impact on our results of operations, financial
condition or cash flows.

NOTE 5  Segment Data

Based on the nature of our products and services, the types of customers and the
regulatory environment, we have organized our business into three operating
segments: our Lending Exchange, our Realty Services Exchange, and Lend-X
technology operations.

We regularly review the revenue, cost of revenue and gross margin for these
segments. No other operating expenses, measure of profitability or assets or
liabilities are consistently segregated or allocated into these segments for
regular review by management or in determining allocations of resources. There
are no inter-segment revenues.

11



---



##### 



The following tables present the revenue and gross margin for each of our three
segments for the quarters ended September 30, 2002 and 2001, as well as a
reconciliation to consolidated net income (loss).

|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |        |       |  
|----------------------- | ------------------ | ---------------------- | ------ | ---------------------------------------- |  | -------- | ----- | --------- |  | ---------- | ------ | ------------ |  | - | --- |  |  | - | ------ | ------ | ----- | -
|                        |                    |                        |        | For the Quarter Ended September 30, 2002
|                        |                    |                        |        |                                         
|                        |                    |                        |        | Exchanges                                |  |          |       |           |  |            |        |              |  |   |     | 
|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     | 
|                        |                    |                        |        | Lending                                  |  | Realty   |       | Total     |  | Lend-X     |        |              |  |  
|                        |                    |                        |        | Exchange                                 |  | Services |       | Exchanges |  | Technology |        | Consolidated
|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |             
|Revenue                 |                    | $                      | 27,482 |                                          |  | $        | 2,910 |           |  | $          | 30,392 |              |  | $ | 549 |  |  | $ | 30,941 |       
|Cost of revenue         |                    |                        | 2,896  |                                          |  |          | 1,582 |           |  |            | 4,478  |              |  |   | 275 |  |  |   | 4,753  |       
|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |       
|Gross margin            |                    | $                      | 24,586 |                                          |  | $        | 1,328 |           |  | $          | 25,914 |              |  | $ | 274 |  |  | $ | 26,188 |       
|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |       
|Reconciling items:      |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |       
|                        | Operating expenses |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        | 22,402 |      
|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |       
|                        |                    | Income from operations |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        | $      | 3,786 |  
|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |       
|                        |                    | Non-operating income   |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |        | 136   |  
|                        |                    | Non-operating expense  |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |        | (93   | )
|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |       
|Consolidated net income |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  | $ | 3,829  |       
|                        |                    |                        |        |                                          |  |          |       |           |  |            |        |              |  |   |     |  |  |   |        |       

|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |        |        |  
|--------------------- | ------------------ | --------------------------- | ------ | ---------------------------------------- |  | -------- | ----- | --------- |  | ---------- | ------ | ------------ |  | - | ----- |  |  | - | ------ | ------ | ------ | -
|                      |                    |                             |        | For the Quarter Ended September 30, 2001
|                      |                    |                             |        |                                         
|                      |                    |                             |        | Exchanges                                |  |          |       |           |  |            |        |              |  |   |       | 
|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       | 
|                      |                    |                             |        | Lending                                  |  | Realty   |       | Total     |  | Lend-X     |        |              |  |  
|                      |                    |                             |        | Exchange                                 |  | Services |       | Exchanges |  | Technology |        | Consolidated
|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |             
|Revenue               |                    | $                           | 13,903 |                                          |  | $        | 1,340 |           |  | $          | 15,243 |              |  | $ | 1,960 |  |  | $ | 17,203 |       
|Cost of Revenue       |                    |                             | 2,015  |                                          |  |          | 1,018 |           |  |            | 3,033  |              |  |   | 277   |  |  |   | 3,310  |       
|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|Gross margin          |                    | $                           | 11,888 |                                          |  | $        | 322   |           |  | $          | 12,210 |              |  | $ | 1,683 |  |  | $ | 13,893 |       
|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|Reconciling items:    |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|                      | Operating expenses |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        | 16,472 |       
|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|                      |                    | Loss from operations        |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        | $      | (2,579 | )
|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|                      |                    | Loss on impaired investment |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |        |       |  
|                      |                    | Non-operating income        |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |        | 176    |  
|                      |                    | Non-operating expense       |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |        | (590   | )
|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|Consolidated net loss |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  | $ | (2,993 | )     
|                      |                    |                             |        |                                          |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       

The following tables present the revenue and gross margin for each of our three
segments for the nine months ended September 30, 2002 and 2001, as well as a
reconciliation to consolidated net income (loss).

12



---



##### 



|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |        |       |  
|----------------------- | ------------------ | ---------------------- | ------ | -------------------------------------------- |  | -------- | ----- | --------- |  | ---------- | ------ | ------------ |  | - | ----- |  |  | - | ------ | ------ | ----- | -
|                        |                    |                        |        | For the Nine Months Ended September 30, 2002
|                        |                    |                        |        |                                             
|                        |                    |                        |        | Exchanges                                    |  |          |       |           |  |            |        |              |  |   |       | 
|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       | 
|                        |                    |                        |        | Lending                                      |  | Realty   |       | Total     |  | Lend-X     |       
|                        |                    |                        |        | Exchange                                     |  | Services |       | Exchanges |  | Technology |        | Consolidated
|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |             
|Revenue                 |                    | $                      | 66,294 |                                              |  | $        | 6,865 |           |  | $          | 73,159 |              |  | $ | 3,517 |  |  | $ | 76,676 |       
|Cost of revenue         |                    |                        | 7,016  |                                              |  |          | 3,907 |           |  |            | 10,923 |              |  |   | 877   |  |  |   | 11,800 |       
|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|Gross margin            |                    | $                      | 59,278 |                                              |  | $        | 2,958 |           |  | $          | 62,236 |              |  | $ | 2,640 |  |  | $ | 64,876 |       
|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|Reconciling items:      |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|                        | Operating expenses |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   | $      | 62,452 |      
|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|                        |                    | Income from operations |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |        | 2,424 |  
|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|                        |                    | Non-operating income   |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |        | 559   |  
|                        |                    | Non-operating expense  |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |        | (310  | )
|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       
|Consolidated net income |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  | $ | 2,673  |       
|                        |                    |                        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |        |       

|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |        |         |  
|--------------------- | ------------------ | --------------------------- | ------ | -------------------------------------------- |  | -------- | ----- | --------- |  | ---------- | ------ | ------------ |  | - | ----- |  |  | - | ------- | ------ | ------- | -
|                      |                    |                             |        | For the Nine Months Ended September 30, 2001
|                      |                    |                             |        |                                             
|                      |                    |                             |        | Exchanges                                    |  |          |       |           |  |            |        |              |  |   |       | 
|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       | 
|                      |                    |                             |        | Lending                                      |  | Realty   |       | Total     |  | Lend-X     |        |             
|                      |                    |                             |        | Exchange                                     |  | Services |       | Exchanges |  | Technology |        | Consolidated
|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |             
|Revenue               |                    | $                           | 36,997 |                                              |  | $        | 3,400 |           |  | $          | 40,397 |              |  | $ | 4,871 |  |  | $ | 45,268  |       
|Cost of Revenue       |                    |                             | 6,824  |                                              |  |          | 2,490 |           |  |            | 9,314  |              |  |   | 1,075 |  |  |   | 10,389  |       
|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |       
|Gross margin          |                    | $                           | 30,173 |                                              |  | $        | 910   |           |  | $          | 31,083 |              |  | $ | 3,796 |  |  | $ | 34,879  |       
|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |       
|Reconciling items:    |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |       
|                      | Operating expenses |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         | 58,760 |        
|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |       
|                      |                    | Loss from operations        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         | $      | (23,881 | )
|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |       
|                      |                    | Loss on impaired investment |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |        | (350    | )
|                      |                    | Non-operating income        |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |        | 522     |  
|                      |                    | Non-operating expense       |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |        | (718    | )
|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |       
|Consolidated net loss |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  | $ | (24,427 | )     
|                      |                    |                             |        |                                              |  |          |       |           |  |            |        |              |  |   |       |  |  |   |         |       

NOTE 6  Financing Sources

Revolving Line of Credit

On July 13, 2001, we entered into a loan and security agreement and revolving
credit note with GE Capital Commercial Services, Inc. (GE). Under these
arrangements, GE has provided a two-year senior revolving credit facility with a
maximum availability of up to $15.0 million. Under this facility we have pledged
our trade accounts receivable and borrowings are limited to 90% of our eligible
accounts receivable and bear interest at the prime rate. We also pay GE a fee
equal to 0.115% of the eligible accounts receivable arising during the term of
the facility. As of September 30, 2002, we had no borrowings outstanding under
the GE credit facility and we had eligible receivables of approximately $7.0
million. Our eligible receivables at September 30, 2002 excluded approximately
$9.4 million of invoices related to September receivables that in the normal
course of business were not transmitted to and approved by GE until October
2002.

As of September 30, 2002, we were in
compliance with all covenants contained in our agreement with GE.

Revolving Loan

In March 2001, LendingTree and the Federal Home Loan Mortgage Corporation
(Freddie Mac), a current customer, entered into a two-year revolving loan
agreement whereby Freddie Mac agreed to provide us a two-year credit facility
under which we could borrow up to $2.5 million on a revolving basis through
February 2003, subject to certain covenants and restrictions.

On August 30, 2002, we terminated this loan agreement with Freddie Mac. We had
never borrowed money under this revolving loan and based on our favorable
operating results and improved outlook, we determined that it was highly
unlikely we would ever use this line.

13



---



##### 



NOTE 7  Mandatorily Redeemable Series A 8% Convertible Preferred Stock

In March 2001, we issued 3,700,001 shares of mandatorily redeemable Series A 8%
Convertible Preferred Stock (Series A Preferred Stock) to a group of investors
for $12.95 million or $3.50 per share. We issued an additional 128,571 shares of
Series A Preferred Stock on April 30, 2001 at $3.50 per share plus accumulated
dividends. After deducting fees and expenses related to both transactions, this
resulted in net proceeds to us totaling approximately $12.2 million. In
addition, we loaned our Chief Executive Officer $0.7 million to acquire 200,000
shares of the Series A Preferred Stock that is evidenced by a promissory note
from him to us.

In conjunction with the March 2001 closing of the Series A Preferred Stock
transaction, an Equity Rights Certificate issued to an affiliate of Capital Z on
September 29, 2000, for $10.0 million, was converted into 2,857,143 shares of
Series A Preferred Stock at an effective rate of $3.50 per share.

The holders of the Series A Preferred Stock are entitled to receive dividends on
the Series A Preferred Stock equal to eight percent (8%) of the stated value per
share payable at our option (i) in cash on each quarterly dividend payment date
or (ii) by an upward adjustment to the stated value per share on a quarterly
dividend payment date. The initial stated value per share was $3.50. Through
March 31, 2002 we elected to pay the Series A Preferred Stock dividends by
increasing the stated value per share such that as of March 31, 2002 the stated
value per share was $3.80. For the quarter ended June 30, 2002, we declared cash
dividends to the holders of our Series A Preferred Stock in the amount of
approximately $0.5 million, payable on July 1, 2002. For the quarter ended
September 30, 2002, we declared cash dividends to the holders of our Series A
Preferred Stock in the amount of approximately $0.5 million. These dividends
were paid on September 30, 2002.

These quarterly cash dividends resulted in dividend charges of approximately
$0.9 million on our consolidated statements of operations for the nine-month
period ended September 30, 2002. As a result of the stated value dividends
through March 31, 2002, we increased the carrying value of the Series A
Preferred Stock on our consolidated balance sheet by approximately $0.6 million.
We also recognized in the three months ended March 31, 2002, as an increase to
our net loss attributable to common shareholders, an additional $1.4 million of
dividend charges resulting from the excess of the fair value of the common stock
that the 8% dividends on the Series A Preferred Stock will convert into over the
$3.50 conversion price. For the quarters ended September 30 and June 30, 2002,
we did not record these additional charges as we elected to settle the quarterly
dividend obligation in cash rather than by an increase to the stated value.
Thus, in total for the nine months ended September 30, 2002, we have recorded
approximately $2.9 million of total dividend charges. If, in future periods, we
were to settle the dividend obligations by increasing the stated value of the
preferred stock and if the market price of our common stock remains above $3.50
per share, we will incur additional fair value dividend charges.

Each share of Series A Preferred Stock is convertible at the option of the
holder at any time into the number of shares of common stock as is determined by
dividing the current value per share by the conversion price. The current value
per share is defined as the stated value per share, plus cumulative adjustments
for dividends. The conversion price is $3.50 per share, subject to adjustment
for the stock splits and similar events. In 2002 several holders of our Series A
Preferred Stock converted 846,775 preferred shares and accrued dividends into
919,894 shares of our common stock.

Beginning March 20, 2004, at our option, the shares of Series A Preferred Stock
will be redeemable for cash at a price per share equal to the applicable
percentage multiplied by the then current value per share. The applicable
percentage is initially 120% and declines to 105% on a quarterly basis over the
two-year period ending March 21, 2006. If we continue to pay quarterly cash
dividends, on March 20, 2004 the shares of Series A Preferred Stock will be
redeemable for cash at a price per share of $4.56 and will decline to a price
per share of $3.99 at March 21, 2006.

We are required to redeem all Series A Preferred Stock shares remaining
outstanding on March 20, 2006 at a price of 105% of the then current value per
share. We are accreting the value of the preferred stock up to the redemption
value of the shares using the effective interest method. This is increasing the
value of the Series A Preferred Stock and the charge is included in the
computation of net income (loss) attributable to common shareholders. For the
quarter and nine months ended September 30, 2002, we recorded approximately $0.2
million and $0.5 million, respectively, of accretion charges.

As of September 30, 2002, there were 6,038,940 shares of Series A Preferred
Stock outstanding which, if converted, would become 6,552,405 shares of common
stock.

14



---



##### 



NOTE 8  Equity Based Compensation

As of September 30, 2002, we have approximately $0.9 million of deferred equity
based compensation remaining on our consolidated balance sheet primarily related
to common stock options granted in late 1999 and early 2000 before our initial
public offering with exercise prices below fair market value. In the quarter
ended September 30, 2002, as a result of employees leaving the company, we have
adjusted the balance of deferred compensation by less than $0.1 million to
reflect forfeited and expired options. We are amortizing the deferred
compensation to expense over the options four-year vesting periods. For both
the quarters ended September 30, 2002 and 2001, this amortization resulted in
compensation expense of $0.2 million. For both the nine months ended September
30, 2002 and 2001, this amortization resulted in compensation expense of $0.6
million.

NOTE 9  Commitments and Contingencies

A covenant in one of our capital lease agreements requires that we maintain a
total cash balance of not less than $3.0 million throughout the term of the
lease. If our total cash balance falls below $3.0 million at the end of a
period, we will be required to collateralize the balance of the lease with cash.
As of September 30, 2002, we were in compliance with this covenant and the
balance of this lease was approximately $0.3 million.

Important components of our intellectual property are subject to an amended
software customization, license and services agreement between
LendingTree and Freddie Mac. Pursuant to this
agreement with Freddie Mac, a version of our core software that was customized
to operate according to certain standards established by Freddie Mac will be
released to Freddie Mac from escrow if we fail to meet specified financial
covenants or other requirements. We were in compliance with all covenants
contained in the agreement as of September 30, 2002. Portions of this amended
agreement continue indefinitely.

On September 10, 2001, Block Financial Corporation, or Block, filed a complaint
in the United States District Court for the Western District of Missouri [Block
Financial Corporation v. LendingTree, Inc., Case Number 01-1007-CV-W-3], against
us, alleging that our financial card (credit card) qualification form processing
system infringes its U.S. Patent No. 6,014,645 entitled, Real-Time Financial
Card Application System. The complaint seeks both monetary damages in the form
of a reasonable royalty and injunctive relief. On November 19, 2001, we filed an
answer to the complaint denying infringement of the Block patent. We also filed
a counterclaim against Block seeking a declaratory judgment of non-infringement
and invalidity of the Block patent. In addition, we have filed a request with
the United States Patent Office (USPTO) seeking a re-examination of Blocks
patent in light of prior art which was not cited in the original patent.
The request was granted in August of this year and the USPTO is currently
re-examining the Block patent. We also sought and received an Order from the
federal district court where the case is pending to stay further discovery in
the proceedings until the USPTO completes its re-examination of the Block patent.
While the lawsuit is in an early stage, we believe that we have meritorious
defenses to Blocks claim and we do not believe that this action will have a
material impact on our financial condition, cash flows or results of operations.

We are involved in other litigation from time to time that is routine in nature
and incidental to the conduct of our business. We believe that the outcome of
any such litigation would not have a material adverse effect on our financial
condition, cash flows or results of operations.

NOTE 10  Net Income (Loss) per Common Share

We compute net income (loss) per common share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share, (SFAS No. 128).

As of September 30, 2002, we had outstanding stock options to acquire 5,836,000 shares of common stock and warrants to
acquire 244,000 shares of common stock. Additionally, there were 6,038,940 shares of Series A Preferred Stock that were convertible into
6,552,405 shares of common stock. At September 30, 2002, participants in our Employee Stock Purchase plan had
contributed amounts that entitled them to purchase approximately 89,000 shares of common stock.

As shown in the table below, basic net income (loss) per common share is computed by dividing net income
(loss) available to common shareholders by the weighted average number of common
shares outstanding.

Diluted net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares plus, to the extent they are anti-dilutive, the effect of
outstanding preferred shares using the if-converted method and outstanding
stock options, shares issuable pursuant to our employee stock purchase plan and
warrants using the treasury stock method.

15



---



##### 



The following are the components of the numerators and denominators used to
compute the basic and diluted net income (loss) per share amounts for the
periods presented.

|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |         |        | 
|----------------------------------- | --------------------------------------------------------------- | -------------------------------- | ---- | -------------- | ------ | ----------------- | ----- | ------ | ------ | ---- | ----- | ------ | ------ | - | ----- | ------- | ------ | 
|                                    |                                                                 |                                  |      | Quarter Ended  |        | Nine Months Ended
|                                    |                                                                 |                                  |      | September 30,  |        | September 30,    
|                                    |                                                                 |                                  |      |                |        |                  
|                                    |                                                                 |                                  |      | 2002           |        | 2001              |       | 2002   |        | 2001
|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |     
|                                    |                                                                 |                                  |      | (in thousands) |        | (in thousands)   
|Numerator:                          |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        
|                                    | Net income (loss)                                               |                                  | $    | 3,829          |        |                   | $     | (2,993 | )      |      | $     | 2,673  |        |   | $     | (24,427 | )     
|                                    | Accretion of mandatorily redeemable
convertible preferred stock |                                  |      | (165           | )      |                   |       | (155   | )      |      |       | (509   | )      |   |       | (361    | )     
|                                    | Dividends on mandatorily redeemable
convertible preferred stock |                                  |      | (459           | )      |                   |       | (577   | )      |      |       | (2,936 | )      |   |       | (1,538  | )     
|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        
|                                    | Net income (loss) available to common shareholders              |                                  | $    | 3,205          |        |                   | $     | (3,725 | )      |      | $     | (772   | )      |   | $     | (26,326 | )     
|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        
|Denominator:                        |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        
|                                    | Weighted average shares, basic                                  |                                  |      | 22,202         |        |                   |       | 18,976 |        |      |       | 20,803 |        |   |       | 19,190  |       
|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        
|Basic net income (loss) per share   |                                                                 | $                                | 0.14 |                |        | $                 | (0.20 | )      |        | $    | (0.04 | )      |        | $ | (1.37 | )      
|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        
|                                    | Effect of dilutive securities:                                  |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |         |       
|                                    | Options                                                         |                                  |      | 3,278          |        |                   |       |       |        |      |       |       |        |   |       |        |       
|                                    | Warrants                                                        |                                  |      | 133            |        |                   |       |       |        |      |       |       |        |   |       |        |       
|                                    | Employee stock purchase plan                                    |                                  |      | 39             |        |                   |       |       |        |      |       |       |        |   |       |        |       
|                                    | Mandatorily redeemable convertible preferred stock              |                                  |      | 6,552          |        |                   |       |       |        |      |       |       |        |   |       |        |       
|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        
|                                    |                                                                 | Weighted average shares, diluted |      |                | 32,204 |                   |       |        | 18,976 |      |       |        | 20,803 |   |       |         | 19,190 | 
|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        
|Diluted net income (loss) per share |                                                                 | $                                | 0.12 |                |        | $                 | (0.20 | )      |        | $    | (0.04 | )      |        | $ | (1.37 | )      
|                                    |                                                                 |                                  |      |                |        |                   |       |        |        |      |       |        |        |   |       |        

For the quarter ended September 30, 2002, the numerator for calculating diluted
net income per share is net income and the denominator is the diluted weighted average
shares. For all other periods presented, due to our net losses, the
numerator for calculating per share amounts is net loss attributable to common
shareholders and the denominator is the basic weighted average shares.

The table below indicates the number of options and warrants to purchase common
stock that were not included in the computation of diluted net income (loss) per
share because the applicable exercise price was greater than the average market
price of the common shares for that period (out-of-the-money stock options):

|                               |  |                |    |                   |  |      |       |      |  |  |    |  |  |  |       | 
|------------------------------ |  | -------------- | -- | ----------------- |  | ---- | ----- | ---- |  |  | -- |  |  |  | ----- | 
|                               |  | Quarter Ended  |    | Nine Months Ended
|                               |  | September 30,  |    | September 30,    
|                               |  |                |    |                  
|                               |  | 2002           |    | 2001              |  | 2002 |       | 2001
|                               |  |                |    |                   |  |      |       |     
|                               |  | (in thousands) |    | (in thousands)   
|Out-of-the-money stock options |  |                | 98 |                   |  |      | 2,490 |      |  |  | 98 |  |  |  | 3,017 | 

The table below indicates, for the periods that we have net losses, the number
of potential common shares and contingently issuable shares that were not
included in the computation of diluted net income (loss) per share as the effect
would be antidilutive:

16



---



##### 



|                                                                 |  |                |       |                   |  |      |       |  |  |  |       | 
|---------------------------------------------------------------- |  | -------------- | ----- | ----------------- |  | ---- | ----- |  |  |  | ----- | 
|                                                                 |  | Quarter Ended  |       | Nine Months Ended
|                                                                 |  | September 30,  |       | September 30,    
|                                                                 |  |                |       |                  
|                                                                 |  | 2001           |       | 2002              |  | 2001
|                                                                 |  |                |       |                   |  |     
|Antidilutive potential common shares                             |  | (in thousands) |       | (in thousands)   
|Options, treasury stock method                                   |  |                | 1,259 |                   |  |      | 3,128 |  |  |  | 1,062 | 
|Warrants, treasury stock method                                  |  |                | 159   |                   |  |      | 125   |  |  |  | 142   | 
|Employee stock purchase plan, treasury stock method              |  |                | 27    |                   |  |      | 13    |  |  |  | 9     | 
|Mandatorily redeemable convertible preferred stock, if converted |  |                | 7,181 |                   |  |      | 6,424 |  |  |  |      | 
|                                                                 |  |                |       |                   |  |      |       |  |  |  |       | 
|                                                                 |  |                | 8,626 |                   |  |      | 9,690 |  |  |  | 1,213 | 
|                                                                 |  |                |       |                   |  |      |       |  |  |  |       | 

17



---



##### 



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

Overview

LendingTree, Inc. was incorporated in the State of Delaware on June 7, 1996 and
commenced nationwide operations on July 1, 1998. Our mailing address is 11115
Rushmore Drive, Charlotte, North Carolina 28277 and our telephone number is
(704) 541-5351.

We are an exchange connecting consumers with Lenders, real estate professionals
or other service providers. We attract consumers to our website at
www.lendingtree.com through various forms of offline and online advertising and
arrangements with other online businesses. Our exchange is designed to empower
consumers, Lenders and real estate agents with convenience, choice, and value.
Our proprietary technology platform, Lend-XSM, is the technology that powers our
Internet based exchange.

Once on our Lending Exchange, consumers begin the process by completing a simple
online credit request, or a qualification form, to obtain a loan product. After
the consumer completes the qualification form, our Lend-X technology
automatically retrieves the credit score for the particular consumer. The
consumers data and credit score are then automatically compared to the
underwriting criteria of the more than 180 banks, lenders and loan brokers
(which we refer to collectively as Lenders) participating on our Lending
Exchange. Qualified consumers can receive up to four loan offers online, in
response to a single credit request and then compare, review, and accept the
offer that best suits their needs. Lenders can generate new business that meets
their specific underwriting criteria at a lower cost of acquisition than
traditional channels. Our Lending Exchange encompasses most consumer credit
categories, including mortgages, home equity loans, automobile loans, credit
cards, and personal loans.

Through our Realty Services Exchange we enable consumers to complete one simple
form describing their realty needs and then choose a real estate professional in
their desired area. Our Realty Services Exchange is made up of more than 6,500
real estate professionals who represent more than 650 real estate companies
nationwide. We also provide access, through our website, to other services
related to owning, maintaining, and buying and selling a home.

We earn revenue from the Lenders participating in our Exchange who pay us fees
as qualification forms meet their underwriting criteria and are transmitted to
them (transmit fees). Since a qualification form can be transmitted to more than
one lender, we may generate multiple transmit fees for the same form. We also
earn revenue for services and facilities we provide in connection with loans
that the Lenders on our network close with consumers that we transmitted to them
(closed-loan fees). Additionally, in most states, real estate professionals
participating in our network pay us a fee when consumers requests that we
transmit to them result in a purchase or sale of a home. We refer to the
aggregate of these fees as our Exchange revenue.

We also license and host our Lend-X technology platform for use by other
businesses. Lend-X enables businesses to create their own customized co-branded
or private-labeled lending exchange. These exchanges, powered by Lend-X, may be
single lender or multi-lender marketplaces or may provide access to the
LendingTree exchange with more than 180 participating Lenders. Through these
Lend-X relationships, we can earn revenue both from technology fees related to
customizing, licensing and hosting the third party exchange, as well as from
transactional fees resulting from the volume processed through such exchanges.

18



---



##### 



Results of Operations

Quarter Ended September 30, 2002 Compared to
     Quarter Ended September 30,
2001

As described above, our Exchange business includes revenue and costs from two
operating segments, our Lending Exchange and our Realty Services Exchange. Our
Lend-X technology business constitutes a third operating segment. Management
regularly reviews the revenue, cost of revenue and gross margins for these
segments. No other operating expenses, measure of profitability or assets or
liabilities are consistently segregated or allocated into these segments for
regular review by management or in determining allocations of resources. There
are no inter-segment revenues.



---

Consolidated Results


---

Revenue

For the quarter ended September 30, 2002, our consolidated revenue was
approximately $30.9 million, compared with approximately $17.2 million for the
same period of 2001. Our Lending Exchange segment accounted for approximately
89% of our revenue in the quarter ended September 30, 2002 contributing $13.6
million to the overall $13.7 million increase in consolidated revenue. Our
Realty Services segment accounted for 9% of our revenue in the quarter ended
September 30, 2002 and accounted for $1.6 million of our increase in
consolidated revenue. Lend-X technology revenue was the remaining 2% of our
revenue in the quarter ended September 30, 2002, which was about $1.5 million
lower than the same period last year. See additional details by segment below.

Gross margin

For the quarter ended September 30, 2002, our consolidated gross margin was
$26.2 million, or 84.6% of revenue. In the same period a year ago, our
consolidated gross margin was $13.9 million, or 80.8% of revenue, which is an
increase of approximately $12.3 million over the same period last year. Our
Lending Exchange segment had a $12.7 million increase in gross margin compared
to the third quarter of 2001. We attribute this increase in gross margin
primarily to the scalability of our Lending Exchange business model. Our Realty
Services segment added approximately $1.0 million to the increase in gross
margin while gross margin for our Lend-X technology segment decreased $1.4
million. See additional details by segment below.



---

Lending
Exchange Segment Results


---

Revenue

We earn Lending Exchange revenue primarily from Lenders on our network that pay
us fees for qualification forms that are transmitted to them (transmit fees) and
for loans they make to consumers that we transmitted to them (closed-loan fees).
In order to enhance our customers experience and provide them with the best
opportunity to find a loan that best fits their needs, our on-line Lending
Exchange was designed such that a consumers discrete qualification form can be
transmitted to up to four Lenders. In this way, we generate multiple
transmission fees for the same qualification form and increase the likelihood
that the consumer will close a loan with one of the Lenders on our Exchange.

On an ongoing basis, we undertake initiatives aimed at improving the number of
multiple transmissions of a qualification form and at increasing the rate at
which a qualification form results in a closed loan.



| |  |  | An ongoing initiative has been to add to the number and variety of
Lenders on our exchange, thus increasing capacity and our ability to
handle different types of loan requests. At September 30, 2002 we had
more than 180 participating Lenders on our exchange compared to more
than 120 participating Lenders at September 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Additionally, we offer advisory services and have begun offering
several new tools to enable our Lenders to process qualification forms
and close loans more efficiently, including benchmark and best
practices studies and automation tools, including our Automated
Decisioning Engine (ADE) feature in our Lend-X technology offering.
This ADE feature allows Lenders to provide automated responses to
pre-qualification requests. As of September 30, 2002, we had 33 Lenders
utilizing our ADE compared to 10 Lenders as of September 30, 2001. In
addition to the increased utilization of our ADE feature, we also have
seen an increase in the number of Lenders utilizing their own version
of automated decisioning. We have also held several best-practices
seminars and are in our second

19



---



##### 





| |   |  | round of benchmark studies for our
Lenders, both of which have the objective of coaching Lenders on the
best ways to increase their capacity and close more loans through our
channel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Several of our Lenders have agreed to participate in our Choice Model
program. Under the Choice Model, when a consumer receives fewer than
four offers, we run the consumers request through a set of broader
filters that the participating Lenders have agreed upon and attempt to
obtain the consumer up to four offers. The Choice Model gives the
Lenders the opportunity to participate in under-served markets at a
reduced transmit fee and gives the consumer a better experience and an
improved chance at closing a loan.                                                                                                                                                                                                                
|
| |  |  | We also undertake initiatives directed to the consumer. For example, we
recently began offering a more dynamic filtering process. This process
provides the consumer an opportunity to change their down payment or
loan value on their mortgage or home equity qualification form in an
effort to successfully pass the filters of more Lenders in an attempt
to receive up to 4 loan offers. Additionally, from time to time we also
test the impact of providing consumers with incentives or rewards for
using our services.                                                                                                                                                                                                                       
|
| |  |  | From time to time, as management determines is necessary, such as in
periods of rising interest rates when mortgage refinance volume is
expected to decline, we will implement a number of other initiatives
that we have already designed and/or tested. These initiatives are
generally structured to increase our consumer volume and capitalize on
supply channels that we do not currently focus on in our core business.
Such initiatives include expanding our efforts towards taking high
value qualification forms over the telephone from consumers who are not
willing or able to apply for loans directly over the Internet, direct
mail marketing and other programs aimed at increasing consumer volume
from a variety of supply sources.

For the quarter ended September 30, 2002, Lending Exchange revenue increased
approximately $13.6 million to $27.5 million, or nearly double from $13.9
million in the same period of 2001. This increase in Lending Exchange revenue
primarily reflects (1) an increase in the number of mortgage and home equity
closed loans, (2) an increase in our mortgage and home equity product pricing
and (3) an increase in overall volume leading to an increase in multiple
transmissions of qualification forms.

The table below illustrates several key components of our Lending Exchange
revenue for the quarters ended September 30, 2002 and 2001.

|                            |                        |         |                                  |        |  |        |              |              |                                  |         |           |        |  |        |    |              |              |   |              |        |           |  |     |     |  |  |     |     |  |  |    |    | 
|--------------------------- | ---------------------- | ------- | -------------------------------- | ------ |  | ------ | ------------ | ------------ | -------------------------------- | ------- | --------- | ------ |  | ------ | -- | ------------ | ------------ | - | ------------ | ------ | --------- |  | --- | --- |  |  | --- | --- |  |  | -- | -- | 
|                            |                        |         | Quarter Ended September 30, 2002 |        |  |        |              |              | Quarter Ended September 30, 2001
|                            |                        |         | (in thousands)                  
|                            |                        |         |                                  |        |  |        | Discrete     |              | Multiple                         |         | Number    |        |  |        |    |              | Discrete     |   | Multiple     |        | Number   
|                            |                        |         |                                  |        |  |        | Transmission |              | Transmission                     |         | of Closed |        |  |        |    |              | Transmission |   | Transmission |        | of Closed
|Lending Exchange            |                        | Revenue |                                  | Volume |  | Volume |              | Transactions |                                  | Revenue |           | Volume |  | Volume |    | Transactions
|Mortgage                    |                        | $       | 16,609                           |        |  |        | 300          |              |                                  |         | 806       |        |  |        | 21 |              |              | $ | 7,605        |        |           |  | 144 |     |  |  | 370 |     |  |  | 12 |   
|Home Equity                 |                        |         | 7,775                            |        |  |        | 90           |              |                                  |         | 275       |        |  |        | 20 |              |              |   | 4,540        |        |           |  | 53  |     |  |  | 165 |     |  |  | 14 |   
|Auto, Personal, Credit Card |                        |         | 2,228                            |        |  |        | 165          |              |                                  |         | 434       |        |  |        | 49 |              |              |   | 1,446        |        |           |  | 161 |     |  |  | 304 |     |  |  | 44 |   
|All Other Exchange Fees     |                        |         | 870                              |        |  |        |              |              |                                  |         |           |        |  |        |    |              |              |   | 312          |        |           |  |     |     |  |  |     |     |  |  |    |   
|                            |                        |         |                                  |        |  |        |              |              |                                  |         |           |        |  |        |    |              |              |   |              |        |           |  |     |     |  |  |     |     |  |  |    |   
|                            | Total Lending Exchange |         | $                                | 27,482 |  |        |              | 555          |                                  |         |           | 1,515  |  |        |    | 90           |              |   | $            | 13,903 |           |  |     | 358 |  |  |     | 839 |  |  |    | 70 | 
|                            |                        |         |                                  |        |  |        |              |              |                                  |         |           |        |  |        |    |              |              |   |              |        |           |  |     |     |  |  |     |     |  |  |    |   

Mortgage Revenue

Mortgage revenue more than doubled to $16.6 million in the quarter ended
September 30, 2002 from $7.6 million in the quarter ended September 30, 2001, an
increase of $9.0 million.

As seen in the table above, the number of closed mortgage transactions increased
75% to approximately 21,000 in the quarter ended September 30, 2002 from
approximately 12,000 closed transactions in the same period of 2001. This
increase of 9,000 additional closed-loan transactions contributed approximately
$4.3 million to the overall increase in mortgage revenue.

During the quarter ending September 30, 2002, we
experienced significant growth with purchase mortgage revenue
increasing 77% and refinance mortgage revenue increasing 134% over
the same period in 2001. For the quarter ended September 30, 2002
compared to the same period of 2001, the overall mix of mortgage
revenue derived from consumers refinancing existing mortgages
increased slightly from 73% to 78%. We do  not currently anticipate
that the favorable impact from historical low interest rate levels
will continue to drive significant revenue growth. Accordingly, we
continue to evaluate and undertake initiatives to increase our
revenue in other ways, such as those discussed in the paragraphs
above. Further, in prior periods when substantial volume increases
were not being caused by declining interest rates and refinance
mortgage revenue represented a lower proportion of the overall
mortgage revenue, we experienced increases in our mortgage transmit
rates and multiple transmits of qualification forms, as well as a
shift to more home equity loan demand. We expect there will be a
similar result when interest rates begin to increase again.

20



---



##### 



In addition to the above, the overall increase in mortgage revenue reflects a
number of initiatives, including expanding the capacity of our Lender network,
training Lenders in best practices and providing automation tools. As a
result, we have seen an increase in our average closing rate for mortgages to
9.5% in the quarter ended September 30, 2002 compared to 6.5% in the same
period of 2001. Additionally, due to the typical time lag between the
transmission of a qualification form and the closing of a mortgage loan, higher
levels of multiple transmission volume experienced in one quarter will benefit
our closing revenue in the subsequent quarter. Accordingly, the second quarter
2002 increase of 172,000 multiple transmissions over the same period in 2001
also contributed to the $4.3 million increase in revenue from closed mortgage
loan transactions in the third quarter of 2002. We anticipate, if our close
rates remain at or near current levels, that the higher multiple transmission
volume shown in the table above for the third quarter 2002 compared to the
third quarter 2001 will also result in higher closed mortgage loan revenue for
the remainder of the year.

Multiple transmissions of mortgage qualification forms increased by
approximately 436,000 in the quarter ended September 30, 2002 from the same
period of 2001. This resulted in an increase in mortgage revenue of
approximately $3.5 million. We believe that the increase in our multiple
transmissions and transmit rate reflects the expanding capacity of our Lender
network and the effect of some of our initiatives to increase the number of
offers a consumer receives.

In November 2001 our closed-mortgage-loan fee pricing changed from a flat fee
of $400 to a tiered structure, ranging from $300 to $750, which had the effect
of raising our average revenue per closing and contributed $1.1 million to the
increase in mortgage revenue this quarter. Additionally, in November 2001 we
increased our standard transmit fee from $8.00 per transmit to $9.00 per
transmit. This price increase contributed $0.1 million of additional mortgage
revenue in this quarter.

Home Equity Revenue

Home Equity revenue increased approximately $3.2 million, or 71%, to $7.8
million in the quarter ended September 30, 2002 from $4.5 million in the same
period of 2001.

As can be seen in the table above, the number of closed home equity
transactions increased by 43% to approximately 20,000 closed transactions in
the quarter ended September 30, 2002 from approximately 14,000 closed
transactions in the same period of 2001. This increase in closed transactions
contributed $1.5 million to the increase in Home Equity revenue. Most of this
increase can be attributed to higher consumer demand for home equity loans
driven by the success of our product-focused marketing campaigns and higher
transmit rates reflecting our increased Lender capacity (see discussion
regarding volume below).

Multiple transmissions of home equity qualification forms increased by
approximately 67% or 110,000 transmissions in the quarter ended September 30,
2002 from the same period in 2001. This increase contributed $0.8 million to
home equity revenue in the quarter ended September 30, 2002. While the average
rate at which we were able to transmit each discrete home equity qualification
form remained flat at about 3.1 times, we had an increase of 70% in the number
of discrete home equity transmissions. We attribute this increase in discrete
transmissions to our 2002 advertisements, which periodically focused on and
targeted our home equity product and our increased lender capacity.

Our November 2001 closed-loan fee pricing change for home equity transactions
increased our standard fee from $250 to $275 and resulted in a $0.7 million
increase in closed loan fees this quarter. Additionally, in November 2001 we
increased our standard transmit fee from $8.00 per transmit to $9.00 per
transmit. This price increase contributed an additional $0.2 million of home
equity revenue.

Auto, Personal and Credit Card Revenue

Auto, Personal and Credit Card products accounted for $2.2 million of Lending
Exchange revenue in the quarter ended September 30, 2002 compared to $1.4
million in the same period of 2001, an increase of approximately $0.8 million
which can primarily be attributed to higher auto revenue. Auto revenue was
$1.4 million in the quarter ended September 30, 2002
compared $0.6 million in the same period of 2001. This increase was primarily
due to 119% more closed auto loan transactions in the quarter ended September
30, 2002 as compared to the same period in 2001. This increase in closings is
due to increased volume generated through new and expanded business
relationships with on-line portals and better Lender coverage of the consumer
credit categories resulting in a higher number of loan offers per consumer.

21



---



##### 



All Other Exchange Fees

All other exchange fees, as shown in the table above, increased by
approximately $0.6 million to approximately $0.9 million in the quarter ended
September 30, 2002 compared to $0.3 million in the same period of 2001. The
increase can primarily be attributed to new business arrangements with other
online businesses that offer various complementary products to our customers
through their websites, such as credit report services and home security and
insurance services.

Cost of Revenue and Gross Margin

For the quarter ended September 30, 2002 gross margin for the Lending Exchange
segment was $24.6 million, or 89.5% of our Lending Exchange revenue. This is a
$12.7 million improvement, or over 100% higher, from the same period in 2001 in
which we had a gross margin of $11.9 million, or 85.5% of our Lending Exchange
revenue. We attribute this increase in gross margin primarily to the
scalability of our Lending Exchange business model. As our closed transaction
volume and rate of multiple transmissions of discrete qualification forms
increase, our costs do not necessarily increase in proportion. Additionally,
as we add Lenders to our Exchange, we increase our capacity to provide the
growing number of consumers using our services the ability to find and close
loans. As a result, when more loans close through our Lending Exchange and our
revenue increases, it has a positive impact on our gross margin and gross
margin percentage because many of our costs are fixed or controllable. The
November 2001 changes in pricing for our transmit fees and closed-loan fees, as
discussed above, also favorably impacted our gross margin this period.

While our Lending Exchange revenue nearly doubled quarter over quarter, our
Lending Exchange costs of revenue increased by only 44%, or $0.9 million, to
$2.9 million in the quarter ended September 30, 2002 from $2.0 million in the
quarter ended September 30, 2001. The increase in cost of revenue primarily
reflects a $0.6 million increase in our employment expenses (employees and
independent contractors) related to our customer care department to help better
manage and direct our consumer call and e-mail volume.

Additionally, credit-scoring fees were $0.3 million higher in the quarter ended
September 30, 2002 as compared to the same period of 2001. This increase was
directly related to the increase in volume to our site.

As noted above, from time to time, we will implement initiatives that are
generally structured to increase our consumer volume and capitalize on supply
channels that we do not currently focus on in our core business. Such
initiatives will generally increase costs of revenue on an absolute dollar
basis and could either increase or decrease our gross margin and gross margin
percentage.

Realty Services Segment Results

Revenue

We earn Realty Services revenue from real estate brokers participating in our
network that pay us a fee when consumers requests that we transmit to them
result in a purchase or sale of a home.

Realty Services revenue more than doubled to $2.9 million in the quarter ended
September 30, 2002 from $1.3 million in the same period of 2001. This $1.6
million increase is due to a higher number of closed transactions in the
quarter. Our closed transactions increased 86% to 1,300 in the quarter ended
September 30, 2002 from 700 in the same period of 2001. This increase is
primarily a function of a 7% increase in Realty Services transmission volume
and an improvement in the close rate. We have grown this business by increasing the number of real estate
professionals participating in our exchange, coupled with expanding our
training and best-practices programs. We have also increased our marketing
efforts to improve consumer awareness of the benefits of closing a transaction
through our services. Additionally, throughout 2002 we have entered into
arrangements with several new affinity groups or membership programs to provide
their members with benefits for using our services. We are able to market our
services
directly to the members in these groups and provide them with benefits that are
affiliated with their membership such as airline miles, store gift certificates
or other incentives.

Cost of Revenue and Gross Margin

Realty Services gross margin and gross margin percentage improved in the third
quarter 2002 from the same period of 2001. Gross margins were $1.3 million, or
45.6% of Realty Services revenue, and $0.3 million, or 24.0% of Realty Services
revenue, in the quarters ended September 30, 2002 and 2001, respectively. In
the fourth quarter of 2001, we decreased the amount of incentives offered to
each realty consumer. Accordingly, on a comparative basis to the prior year
periods, we anticipate that costs will continue to decrease as a percentage of
Realty Services revenue.

22



---



##### 



Realty Services cost of revenue increased approximately $0.6 million, or 55%,
from the quarter ended September 30, 2001 compared to the same period in 2002.
This increase is primarily due to an increase in the number of closed Realty
Services transactions that resulted in a higher number of incentives and
promotional payments made directly to consumers for using our services.

Lend-X Technology Segment Results

Revenue

We license and host our Lend-X technology platform for use by other businesses.
This enables these businesses to create their own customized co-branded or
private-labeled lending exchanges. Through these relationships, we can earn
Lend-X technology revenue from technology fees related to customizing,
licensing and hosting the third party exchange.

Lend-X technology revenue totaled $0.5 million, or 2% of our revenue, for the
quarter ended September 30, 2002 compared to $2.0 million, or 11.4% of revenue
for the same period of 2001. While we do continue to generate revenue from the
licensing and use of our software, it can be irregular based on the size and
timing of new contracts. Additionally, we have shifted the primary strategy
for Lend-X to support the growth of our Exchange and have provided
approximately $0.2 million in sales allowances to certain customers. Accordingly, our focus for
Lend-X is to facilitate the delivery of consumer demand to our Lending and
Realty Services Exchanges. We achieve this through using our technology in
arrangements with other businesses that transmit consumers to our Exchanges.

Cost of Revenue and Gross Margin

For the quarter ended September 30, 2002, Lend-X technology gross margin was
$0.3 million, or 50.0% of Lend-X technology revenue, compared to $1.7 million,
or 85.9% of Lend-X technology revenue, for the quarter ended September 30,
2001. This decrease is primarily a result of the decline in revenue, while
many of the costs are fixed in nature and therefore did not decrease from
period to period.

Costs of revenue associated with Lend-X technology are employment costs related
to customizing and/or implementing Lend-X for third parties and ongoing server
costs related to hosting Lend-X for these companies. These costs were
approximately $0.3 million in both the quarters ended September 30, 2002 and
September 30, 2001.

Consolidated Operating Expenses

Product Development

Product development expense was approximately $0.8 million for the quarter
ended September 30, 2002 compared to $1.1 million for the quarter ended
September 30, 2001. Product development costs consist of expenses incurred
related to the ongoing efforts to enhance and maintain the functionality of our
exchange technology and include compensation costs and server costs as well as
other hardware. Compensation costs accounted for 96% and 93% of product
development expense for the quarter ended September 30, 2002 and September 30,
2001, respectively.

The decrease in expense is primarily due to fewer number of employees in
product development in 2002 as compared to 2001. In addition, we had $0.1
million more capitalized employment expenses in the quarter ended September 30,
2002 as compared to the same period in 2001. This increase in capitalization
is due to our technology department incurring more
time on development for our website and Exchange and adding increased
functionality in the third quarter of 2002 versus system maintenance and
customizing our software for customers in the same period in 2001.

Marketing and Advertising

Marketing and advertising expenses of $13.8 million were approximately 45% of
our consolidated revenue in the quarter ended September 30, 2002 compared to
$10.0 million, or 58% of our consolidated revenue, in the quarter ended
September 30, 2001. Although we had an overall increase of $3.8 million in
marketing and advertising expense in the quarter ended September 30, 2002
compared to the same period of 2001, we were able to achieve a decrease in
these costs expressed as a percentage of revenue. We attribute the decrease in
marketing and advertising as a percentage of revenue to a number of factors:



| |  |  | An increase in consumer volume. We have seen continued improvements
in consumer awareness of LendingTree, which has resulted in a 67%
national brand awareness, up from 59% a year ago.                                                                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Improved operating metrics.The substantial increases in revenue are
attributable to a number of factors, including improvements in our
closing rates and transmit rates and the impact of our pricing changes,
as well as the overall low interest rate environment (as discussed
above);

23



---



##### 





| |   |  |  More product-focused advertising. We have adjusted our advertising
mix to grow the home equity product. Among our offerings, the home
equity product contributes the highest revenue-per-consumer and,
therefore, has the greatest impact on our marketing and advertising
costs as a percentage of revenue; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | New and expanded business relationships. We have also established
new and expanded business relationships with a number of online
businesses that focus on consumers that are more likely to have an
interest in one or more of our lending or realty related services.                                           

The $3.8 million increase in marketing and advertising expenses in the quarter
ended September 30, 2002 as compared to the same period of 2001 is due to
increased spending in several areas of our marketing focus. We incurred $1.5
million more expense with online partners and for the costs of promoting our
brand and products within various third-party membership programs. We also
incurred $1.1 million more in spending for media costs such as cable television
commercials, network radio and internet-based advertisements. Additionally, we
incurred $1.0 million more in expense for new advertising production in the
quarter ended September 30, 2002 and $0.2 million more expense for marketing
research, direct mail marketing and tradeshows.

Management intends to continue spending increased amounts on marketing and
advertising, using cable television and network radio as our primary
advertising mediums. We will also periodically evaluate and use other mediums
such as broadcast television, direct mail and e-mail campaigns as a way to
generate more consumer volume to our site in a cost-effective manner.
Additionally, from time to time, we will also invest in new advertising
production to ensure our brand messaging remains compelling and relevant.

Sales, General and Administrative

Sales, general and administrative expenses for the quarter ended September 30,
2002 as compared to the same period of 2001 increased to $7.8 million, or 25%,
of consolidated revenue from $5.4 million, or 31%, of consolidated revenue in
the quarter ended September 30, 2001. The decline in sales, general and
administrative expenses as a percentage of revenue is consistent with
managements expectations and future outlook. Sales, general and
administrative expenses are not expected to increase in proportion to our
expected future revenue growth.

The most significant reason for the $2.4 million increase was due to $2.7
million of non-cash credits which reduced compensation expense in the quarter ended
September 30, 2001 as a result of variable accounting treatment on the
underlying securities of our Chief Executive Officers promissory note. The
promissory note was amended in August 2001 resulting in fixed accounting
treatment for the underlying securities going forward and, ending the variable
accounting charges. As an alternate comparison (not in accordance with
generally accounting principles), if one were to exclude these non-cash credits
to expense, our sales, general and administrative expenses would have decreased
by approximately $0.3 million in the quarter ended September 30, 2002 as
compared to the same period of 2001.

In addition to the changes above, we also experienced a $0.5 million increase
in employment related expenses in the quarter ended September 30, 2002 compared
to the same period in 2001 due to more employees and increased health insurance
costs. We had 246 employees at September 30, 2002 compared to 230 employees at
September 30, 2001. In addition, we recorded a $0.2 million reserve in the
quarter ended September 30, 2002 related to the estimated loss on a sublease
arrangement.

These increases in sales, general and administrative expenses were partially
offset by several decreases in expenses. Amortization and depreciation
expenses decreased by approximately $0.5 million. This decrease was primarily
due to the end of the amortization period in July 2002 for some of the software
and technology assets acquired from another company in August 2000.

Additionally, incentive compensation expenses were lower in the quarter ended
September 30, 2002 as compared to the same period of 2001. Throughout the
quarter ended September 30, 2001, our results significantly exceeded our
bonus-plan targets and this was reflected in the higher incentive compensation
accruals for that period. For 2001, the bonus plan did not have upper limits
established for payouts until after the end of the year. Conversely, for the
same period in 2002 we have established limits on incentive plan payouts and we
have substantially increased our financial targets under the bonus plan.
Accordingly, the incentive compensation expense accrued for the quarter ended
September 30, 2002 was $0.4 million lower than for the same period of 2001.

Interest and Other Non-Operating Income

Interest and other non-operating income consists of interest earned on cash and
cash equivalents and restricted cash, as well as other non-operating income
including late fees and penalties. Interest income was approximately $0.1
million in the quarter ended September 30, 2002 and $0.2 million in the quarter
ended September 30, 2001.

24



---



##### 



Interest Expense, Financing and Other Charges

Interest expense, financing and other charges were approximately $0.1 million
for the quarter ended September 30, 2002 and $0.6 million for the quarter ended
September 30, 2001. This line item consists of bank service charges, interest
on capital leases and borrowings and other expenses related to our credit
facilities. The $0.5 million decrease is primarily due to $0.4 million of
warrant and other charges incurred in the quarter ended September 30, 2001
related to the termination of a credit facility.

Dividends and Accretion of Series A Convertible Preferred Stock

The holders of our Series A Preferred Stock are entitled to receive quarterly
dividends on the Series A Preferred Stock equal to eight percent (8%) per annum
of the stated value per share payable at our option (i) in cash or (ii) by
increasing the stated value per share on the dividend payment date. The stated
value per share is the sum of the initial purchase price of $3.50 per share as
cumulatively adjusted from time to time by accumulated dividends. The stated
value per share as of September 30, 2002 is approximately $3.80.

For the quarter ended September 30, 2002, we elected to pay the quarterly
dividends in cash and payment was made on September 30, 2002.

For the quarter ended September 30, 2002, we recorded a total of $0.5 million
of dividend charges. For the quarter ended September 30, 2001, we elected to
pay the quarterly dividends by increasing the stated value per share of the
Series A Preferred Stock. As a result of these stated value dividends, we
increased the carrying value of the Series A Preferred Stock on our balance
sheet by approximately $0.5 million. We also recognized, as an increase to our
net loss attributable to common shareholders, an additional $0.1 million of
dividend charges resulting from the excess of the fair value of the common
stock that the 8% dividends on the Series A Preferred Stock will convert into
over the $3.50 conversion price that will be paid upon such conversion.
Therefore, for the quarter ended September 30, 2001, we recorded a total of
$0.6 million of dividend charges.

Beginning March 20, 2004, at our option, the shares of Series A Preferred Stock
will be redeemable for cash at a price per share equal to the applicable
percentage multiplied by the then current value per share. The applicable
percentage is initially 120% and declines to 105% on a quarterly basis over the
two-year period ending March 21, 2006. If we continue to pay quarterly cash
dividends, on March 20, 2004 the shares of Series A Preferred Stock will be
redeemable for cash at a price per share of $4.56 and will decline to a price
per share of $3.99 at March 21, 2006. Currently, and until redeemed, each
share of Series A Preferred Stock is convertible at the option of the holder at
any time into the number of shares of common stock as is determined by dividing
the current value per share by the conversion price of $3.50. The current value per
share is defined as the stated value per share (see above), plus cumulative
adjustments for dividends.

We are required to redeem all Series A Preferred Stock shares remaining
outstanding on March 20, 2006 at a price of 105% of the then current value per
share. Accordingly, we are accreting the value of the Series A Preferred Stock
up to the redemption value of the shares using the effective interest method.
This is increasing the carrying value of the Series A Preferred Stock and the
charge is included in the computation of net loss attributable to common
shareholders. In both the quarters ended September 30, 2002 and 2001, we
recorded approximately $0.2 million of accretion charges.

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

Consolidated Results

Revenue

For the nine months ended September 30, 2002, consolidated revenue was
approximately $76.7 million compared with approximately $45.3 million for the
same period of 2001, an increase of 69%. Our Lending Exchange segment
accounted for approximately 86% of our consolidated revenue in the nine months
ended September 30, 2002 and $29.3 million of the overall $31.4 million
increase in consolidated revenue over the nine months ended September 30, 2001.
Our Realty Services segment accounted for 9% of our consolidated revenue in
the nine months ended September 30, 2002 and $3.5 million of the increase in
consolidated revenue over the nine months ended September 30, 2001. Lend-X
technology revenue was 5% of our consolidated revenue in the nine months ended
September 30, 2002 and was $1.4 million lower than in the same period in 2001.
See details by segment below.

25



---



##### 



Gross Margin

For the nine months ended September 30, 2002, the consolidated gross margin was
$64.9 million, or 84.6% of consolidated revenue, compared to $34.9 million or
77.1% of revenue for the nine months ended September 30, 2001, an increase of
86%. Our Lending Exchange segment contributed to $29.1 million of the overall
$30.0 million increase in gross margin from the nine months ended September 30,
2001. We attribute this increase in gross margin primarily to the scalability
of our Lending Exchange business model. Our Realty Services segment added
approximately $2.0 million of the increase. Partially offsetting the increase
in gross margin was our Lend-X technology segment, which had a decrease in
gross margin of approximately $1.2 million.

Lending Exchange Segment Results

Revenue

We earn Lending Exchange revenue primarily from Lenders on our network that pay
us fees for qualification forms that are transmitted to them (transmit fees)
and for loans they make with consumers that we transmitted to them (closed-loan
fees). A consumers discrete qualification form can be transmitted to up to
four Lenders. In this way, we generate multiple transmission fees for the same
qualification form and increase the likelihood that the consumer will close a
loan with one of the Lenders on our Exchange.

See the Managements Discussion and Analysis above for the quarter ended
September 30, 2002 compared to the quarter ended September 30, 2001 for a
summary of various initiatives to increase revenue.

For the nine months ended September 30, 2002, Lending Exchange revenue
increased approximately $29.3 million, or 79%, to $66.3 million from $37.0
million in the quarter ended September 30, 2001. This increase in Lending
Exchange revenue primarily reflects (1) an increase in the number of closed
mortgage and home equity loans, (2) an increase in our mortgage and home equity
product pricing and (3) an increase in overall volume leading to an increase in
the number of multiple transmissions of qualification forms.

The table below illustrates several key components of our Lending Exchange
revenue for the nine months ended September 30, 2002 and 2001.

|                            |  |                                      |        |                                      |  |              |       |              |  |           |       |        |  |        |     |              |  |              |        |           |  |  |       |  |  |  |       |  |  |  |     | 
|--------------------------- |  | ------------------------------------ | ------ | ------------------------------------ |  | ------------ | ----- | ------------ |  | --------- | ----- | ------ |  | ------ | --- | ------------ |  | ------------ | ------ | --------- |  |  | ----- |  |  |  | ----- |  |  |  | --- | 
|                            |  | Nine Months Ended September 30, 2002 |        | Nine Months Ended September 30, 2001
|                            |  |                                      |        |                                     
|                            |  | (in thousands)                      
|                            |  |                                      |        |                                      |  | Discrete     |       | Multiple     |  | Number    |       |        |  |        |     | Discrete     |  | Multiple     |        | Number   
|                            |  |                                      |        |                                      |  | Transmission |       | Transmission |  | of Closed |       |        |  |        |     | Transmission |  | Transmission |        | of Closed
|Lending Exchange            |  | Revenue                              |        | Volume                               |  | Volume       |       | Transactions |  | Revenue   |       | Volume |  | Volume |     | Transactions
|Mortgage                    |  | $                                    | 36,921 |                                      |  |              | 588   |              |  |           | 1,650 |        |  |        | 49  |              |  | $            | 18,428 |           |  |  | 431   |  |  |  | 982   |  |  |  | 27  | 
|Home Equity                 |  |                                      | 21,759 |                                      |  |              | 241   |              |  |           | 723   |        |  |        | 56  |              |  |              | 12,282 |           |  |  | 150   |  |  |  | 465   |  |  |  | 37  | 
|Auto, Personal, Credit Card |  |                                      | 5,576  |                                      |  |              | 475   |              |  |           | 1,128 |        |  |        | 111 |              |  |              | 5,657  |           |  |  | 447   |  |  |  | 791   |  |  |  | 147 | 
|All Other Exchange Fees     |  |                                      | 2,038  |                                      |  |              |       |              |  |           |       |        |  |        |     |              |  |              | 631    |           |  |  |       |  |  |  |       |  |  |  |     | 
|                            |  |                                      |        |                                      |  |              |       |              |  |           |       |        |  |        |     |              |  |              |        |           |  |  |       |  |  |  |       |  |  |  |     | 
|Total Lending Exchange      |  | $                                    | 66,294 |                                      |  |              | 1,304 |              |  |           | 3,501 |        |  |        | 216 |              |  | $            | 36,998 |           |  |  | 1,028 |  |  |  | 2,238 |  |  |  | 211 | 
|                            |  |                                      |        |                                      |  |              |       |              |  |           |       |        |  |        |     |              |  |              |        |           |  |  |       |  |  |  |       |  |  |  |     | 

Mortgage Revenue

Mortgage revenue more than doubled to $36.9 million in the nine months ended
September 30, 2002 from $18.4 million in the nine months ended September 30,
2001, and increase of $18.5 million.

As seen in the table above, the number of closed mortgage transactions
increased 81% to approximately 49,000 closed transactions in the nine months
ended September 30, 2002 from approximately 27,000 closed transactions in the
same period of 2001. This increase of 22,000 additional closed-loan
transactions in 2002 contributed approximately $8.3 million to the overall
increase in mortgage revenue.

While there are many factors that can influence consumer demand, such as
increased brand awareness and advertising spending as discussed more fully
below, we believe the continued historical low levels of mortgage interest
rates have generally influenced consumers to apply for and close purchase
mortgages or to refinance existing mortgages. We have historically
demonstrated growth in both purchase mortgage and refinance mortgage revenue;
however, during the nine months ended September 30, 2002, we experienced
significant growth with purchase mortgage revenue increasing 106% and refinance
mortgage revenue increasing 99% over the same period in 2001. For the nine
months ended September 30, 2002 compared to 2001, the overall mix of mortgage
revenue derived from consumers refinancing existing mortgages decreased

26



---



##### 



slightly from 73% to 72%. We do not currently anticipate that the favorable
impact from historical low interest rate levels will continue to drive
significant revenue growth. Accordingly, we continue to evaluate and undertake
initiatives to increase our revenue in other ways, such as those discussed in
the paragraphs above. Further, in prior periods when substantial
volume increases were not caused by declining interest rates and refinance mortgage
revenue represented a lower proportion of the overall mortgage revenue, we
experienced increases in our mortgage transmit rates and multiple transmits of
qualification forms, as well as a shift to more home equity loan
demand. We expect there will be a similar result when interest rates
begin to increase again.

In part, the overall increase in mortgage revenue reflects a number of
initiatives, including expanding the capacity of our lender network, training
Lenders in best practices and providing automation tools. As a result, we have
seen continual increases in our average closing rate for mortgages. For the
three months ended March 31, 2002 the average closing rate was 7.2% as compared
to 6.6% in the same period of 2001, for the three months ended June 30, 2002
the average closing rate was 7.9% as compared to 5.7% in the same period of
2001 and for the three months ended September 30, 2002 the average closing rate
was 9.5% as compared to 6.5% in the same period of 2001.

Additionally, due to the typical lag between the transmission of a
qualification form and the closing of a mortgage loan, the higher level of
multiple transmission volume that we had experienced in the first and second
quarters of 2002 (844,000 transmits) as compared to the first and second
quarter of 2001 (612,000 transmits) also contributed to the $8.3 million
increase in revenue from closed mortgage loan transactions. Accordingly, if
our close rates remain at or above current levels we anticipate that the higher
multiple transmission volume shown in the table above for the 2002 period
compared to 2001 will result in higher closed mortgage loan revenue in the
quarter ending December 31, 2002 compared to the same period of 2001.

Approximately $0.6 million of this increase is related to fees that we earn
from lending transactions involving arrangements with third-party membership
programs, such as Delta Skymiles, USAirways Dividend Miles, Continental Airline
One Pass Miles, Northwest Airlines World Perks and Costco Wholesale, which
allow us to provide lending services to their members.

We transmit the qualification form completed by the third-party member, to
certain selected Lenders and earn closed loan fees for our services from the
Lender for each loan that closes.

We also attribute a small portion of the increase in closed transactions to a
new program implemented in 2002 that has identified closed mortgage
transactions that were not reported to us through our normal reporting process.
These transactions accounted for approximately 2% of our mortgage closed
transactions in the nine months ended September 30, 2002 and $0.5 million of
the increase in mortgage revenue over the nine-month period ended September 30,
2001. We expect the impact of this program on our closed transactions to
decrease as we perform the matching process over a shorter time period going
forward and as a result of improved Lender processes.

Multiple transmissions of mortgage qualification forms increased by
approximately 668,000 in the nine months ended September 30, 2002 from the nine
months ended September 30, 2001 and resulted in an increase in revenue of $5.3
million. As the table above demonstrates, on average, we were able to transmit
each discrete mortgage qualification form approximately 2.8 times in the nine
month period ended September 30, 2002 compared to approximately 2.3 times in
the same period of 2001. We believe that the increase in our multiple
transmissions and transmit rate reflects the expanding capacity of our Lender
network and the effect of some of our initiatives to increase the number of
offers a consumer receives.

Additionally, our November 2001 pricing change for closed mortgage transactions
from a flat fee of $400 to a tiered fee structure, ranging from $300 to $750,
had the effect of raising our average revenue per closing and contributed $2.9
million to the increase in mortgage revenue for the nine months ended September
30, 2002. In November 2001 we also increased our standard transmit fee from
$8.00 per transmit to $9.00 per transmit. This price increase contributed
$0.9 million of mortgage revenue.

Home Equity Revenue

Home Equity revenue increased approximately $9.5 million, or 77%, to $21.8
million in the nine months ended September 30, 2002 from $12.3 million in the
same period of 2001.

As can be seen in the table above, the number of closed home equity
transactions increased by 51% to approximately 56,000 closed transactions in
the nine months ended September 30, 2002 from approximately 37,000 closed
transactions in the same period of 2001. This increase of 19,000 closed
transactions contributed $4.5 million to the increase in home equity revenue.
We believe most of this increase can be attributed to higher consumer demand
for home equity loans, the success of our product-focused marketing campaigns,
as well as higher transmit rates reflecting increased Lender capacity. An
additional small portion of this increase is attributed to a new program
implemented in 2002 that has identified closed home equity transactions that
were not reported to us through our normal reporting process. These
transactions accounted for

27



---



##### 



approximately 2% of our closed home equity
transactions in the nine months ended September 30, 2002 and $0.2 million of
the increase in home equity revenue over the same period in 2001.

Multiple transmission volume of home equity qualification forms increased by
approximately 56%, or by approximately 258,000 transmissions, in 2002 compared
to 2001, and resulted in an increase of home equity revenue of $2.0 million.
While the average rate at which we were able to transmit each discrete home
equity qualification form decreased slightly from 3.1 times in the nine months
of 2001 to 3 times in the first nine months of 2002, we had an increase of 61%
in the number of discrete home equity transmissions. We attribute this
increase in discrete transmissions, in part, to our 2002 advertisements
focusing on and targeting our home equity product. We also have seen an
increase in consumer demand for home equity loans, as the key interest rates
underlying these types of loans have remained relatively low.

Additionally, our November 2001 closed-loan fee pricing change for home equity
transactions increased our standard fee from $250 to $275 and resulted in a
$2.1 million increase in home equity revenue this period. In November 2001 we
also increased our standard transmit fee from $8.00 per transmit to $9.00 per
transmit. This price increase contributed an additional $0.7 million of home
equity revenue.

Auto, Personal and Credit Card Revenue

Auto, Personal and Credit Card products accounted for approximately $5.6
million, or 8% of our Lending Exchange revenue, in the nine months ended
September 30, 2002 and approximately $5.7 million, or 15%, in the nine months
ended
September 30, 2001. This was a decrease of approximately $0.1 million from
period to period. This decrease can be attributed to approximately $1.5
million lower revenue generated from our credit card product reflecting a
higher reluctance by credit card providers to accept sub-prime qualification
forms from higher risk customers since the fourth quarter of 2001. This has
caused some of our credit card providers to either tighten their filters,
reducing the volume of transmissions they receive from us, or leave our
Exchange altogether.

Substantially offsetting this decrease in revenue was an increase in our auto
revenue of approximately $1.4 million with over 100% more closed auto loan
transactions in the nine months ended September 30, 2002 as compared to the
same period in 2001. This increase is due to increased volume generated
through new and expanded business relationships with online portals and better
lender coverage.

All Other Lending Exchange Revenue

All other Lending Exchange revenue, as shown in the table above, increased by
approximately $1.4 million to $2.0 million in the nine months ended September
30, 2002 compared to $0.6 million in the same period of 2001. The increase can
be attributed to new arrangements with other online businesses that offer
various complementary products to our customers through their websites. Also,
due to the overall increase in volume of consumers on our website, we also have
more people using these services.

Cost of Revenue and Gross Margin

For the nine months ended September 30, 2002 the gross margin for the Lending
Exchange segment was $59.3 million, or 89.4% of Lending Exchange revenue. This
is a $29.1 million improvement from the same period in 2001, in which we had a
gross margin of $30.2 million, or 81.6% of Lending Exchange revenue. We
attribute this increase in gross margin primarily to the scalability of our
Lending Exchange business model. As our multiple transmit rates and closing
volume increase, our costs do not necessarily increase in proportion.
Additionally, as we add Lenders to our Exchange we increase our capacity to
provide the growing number of consumers using our services the ability to find
and close loans. As a result, when more loans close through our Lending
Exchange, and our revenue increases, it has a positive impact on our gross
margin and gross margin percentage because many of our costs are fixed or
controllable. The November 2001 changes in pricing for our transmit fees and
closed-loan fees, as discussed above, also favorably impacted our gross margin
this period.

Lending Exchange costs of revenue increased by $0.2 million, or 3%, to $7.0
million in the nine months ended September 30, 2002 from $6.8 million in the
nine months ended September 30, 2001. During this same period, our Lending
Exchange revenue grew approximately 79%.

The increase in cost of revenue primarily reflects a $1.0 million increase in
our employment expenses (employees and independent contractors) related to
increases in our customer care department to help better manage and direct our
consumer call and e-mail volume. We have also recently begun to promote and
expand our telephone channel for consumers who may not have access to the
Internet or who may not want to use the Internet to fill out a loan request.
This has resulted in an increase in our overall call volume as well. We also
incurred approximately $0.2 million of fees related to the program discussed
above to identify closed loans that were not reported to us through the normal
reporting process.

28



---



##### 



Partially offsetting the above increases in expense was a reduction in
promotional payments and gift certificates to consumers who closed a loan
through our exchange. From time to time we adjust the incentives offered to
consumers based on evaluations of the responsiveness of consumers to such
incentives. Our spending on consumer incentives and promotions decreased by
approximately $1.0 million to $1.2 million in the nine months ended September
30, 2002 compared to $2.2 million in the same period of 2001.

Realty Services Segment Results

Revenue

We earn Realty Services revenue from real estate brokers participating in our
network that pay us a fee when consumers requests that we transmit to them
result in a purchase or sale of a home.

Realty Services revenue more than doubled to $6.9 million in the nine months
ended September 30, 2002 from $3.4 million in the same period of 2001. This
$3.5 million increase is due to a higher number of closed transactions in the
quarter. The number of closed transactions for this segment increased 82% to
approximately 3,100 in the nine months ended September 30, 2002 from 1,700 in
the same period of 2001. This was primarily a function of a 15% increase in
Realty Services transmission volume and an improvement in the close
rate. We
have grown this business by increasing the number of real estate professionals
participating in our exchange, coupled with expanding our training and
best-practices programs. Additionally, we have increased our marketing efforts
to improve consumer awareness of the benefits of closing a transaction through
our services. Further, throughout 2002, we have entered into arrangements with
several new affinity groups or membership programs to provide their members
with benefits for using our services. We are able to market our services
directly to the members in these groups and provide them with benefits that are
affiliated with their membership such as airline miles, store gift certificates
or other incentives.

Cost of Revenue and Gross Margin

Realty Services gross margin and gross margin percentage improved in the nine
months ended September 30, 2002 from the same period of 2001. Gross margins
were $3.0 million, or 43.1% of Realty Services revenue, and $0.9 million, or
26.8% of Realty Services revenue, in the nine months ended September 30, 2002
and 2001, respectively. We have decreased the incentive amounts offered to
Realty Services consumers in 2002 and several incentive offers are a fixed
dollar amount. Accordingly, we anticipate that costs associated with our
Realty Services segment will continue to decrease as a percentage of revenue in
the future.

Realty Services cost of revenue increased approximately $1.4 million, or 56.9%,
from the nine months ended September 30, 2001 compared to the same period in
2002. This increase is primarily due to an increase in the number of closed
Realty Services transactions that resulted in a higher number of incentives and
promotional payments made directly to consumers for using our services.

Lend-X Technology Segment Results

Revenue

We license and host our Lend-X technology platform for use by other businesses.
This enables these businesses to create their own customized co-branded or
private-labeled lending exchanges. Through these relationships, we can earn
Lend-X technology revenue from technology fees related to customizing,
licensing and hosting the third party exchange.

Lend-X technology revenue totaled $3.5 million, or 5% of our total revenue, for
the nine months ended September 30, 2002 compared to $4.9 million, or 11% of
total revenue for the same period of 2001. Additionally, we have shifted the
primary strategy for Lend-X to support the growth of our Exchange and
have provided approximately $0.2 million in sales allowances to
certain customers.
Accordingly, our focus for Lend-X is to facilitate the delivery of consumer
demand to our Lending and Realty Services Exchanges. We achieve this through
using our technology in arrangements with other online businesses that transmit
consumers to our Exchanges.

29



---



##### 



Cost of Revenue and Gross Margin

For the nine months ended September 30, 2002, Lend-X technology gross margin
was $2.6 million, or 75.1% of Lend-X technology revenue, compared to $3.8
million, or 77.9% of Lend-X technology revenue, for the quarter ended September
30, 2001.

Costs of revenue associated with Lend-X technology are employment costs related
to customizing and/or implementing Lend-X for third parties and ongoing server
costs related to hosting Lend-X for these companies. These costs decreased
approximately $0.2 million in the nine months ended September 30, 2001 compared
to the nine months ended September 30, 2001 primarily due to less
labor-intensive consulting and implementation projects in the nine months ended
September 30, 2002.

Consolidated Operating Expenses

Product Development

Product development expense was approximately $2.4 million for the nine months
ended September 30, 2002 compared to $3.4 million for the nine months ended
September 30, 2001. Product development costs consist of expenses incurred
related to the ongoing efforts to enhance and maintain the functionality of our
exchange technology and include compensation costs, server and other hardware
costs. Compensation costs accounted for 93% of product development expense for
both the nine months ended September 30, 2002 and for the same period of 2001.

The decrease in expense is primarily due to $0.6 million more capitalized
technology department employment expenses in the nine months ended September
30, 2002 as compared to the same period in 2001. This increase in
capitalization is due to our technology department incurring more time on
development for our website and Exchange and adding increased functionality in
2002 versus system maintenance and customizing our software for customers in
2001. The overall decrease in product development expense is also due to fewer
employees in this department in 2002 as compared to 2001.

Marketing and Advertising

Marketing and advertising expenses of $36.7 million were approximately 48% of
our consolidated revenue in the nine months ended September 30, 2002 compared
to $29.4 million, or 65% of our consolidated revenue, in the nine months ended
September 30, 2001. Although we had an overall increase of $7.2 million, or
25%, in marketing and advertising expense in the nine months ending September
30, 2002 compared to 2001, we were able to increase revenue by nearly $31.4
million, or 70%, during the same period. .

We attribute the decrease in marketing and advertising as a percentage of
revenue to a number of factors:



| |  |  | An increase in consumer volume. We have seen continued improvements
in consumer awareness of LendingTree, which has resulted in a 67%
national brand awareness, up from 59% a year ago.                                                                                                                       
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Improved operating metrics. The substantial increases in revenue are
attributable to a number of factors, including improvements in our
closing rates, transmit rates and the impact of our pricing changes and
the overall low interest rate environment (as discussion above);                              
|
| |  |  | More product-focused advertising. We have adjusted our advertising
mix to grow the home equity product. Among our offerings, the home
equity product contributes the highest revenue-per-consumer and
therefore has the greatest impact on our marketing and advertising costs
as a percentage of revenue; and
|
| |  |  | New and expanded business relationships. We have also established
new and expanded business relationships with a number of online
businesses that focus on consumers that are more likely to have an
interest in one or more of our lending or realty related services.                                       

The $7.2 million increase in marketing and advertising expenses in the nine
months ended September 30, 2002 as compared to the same period in 2001 is
primarily the result of $5.1 million more in spending for media costs such as
cable television commercials, network radio and internet-based advertisements.
Additionally, we incurred $3.1 more marketing and advertising expense with
online partners and for the costs of promoting our brand and products within
various third-party membership programs. Partially offsetting these increases
was a $0.9 million decrease in direct-mail campaign spending.

Management intends to continue spending increased amounts on marketing and
advertising, using cable television and network radio in our primary
advertising mediums. We will periodically evaluate and use mediums such as
broadcast television, direct mail and e-mail campaigns as a way to generate
more consumer volume to our site in a cost-effective manner. Additionally,
from time to time we will invest in new advertising production to ensure our
brand messaging remains compelling and relevant.

Sales, General and Administrative

Sales, general and administrative expenses of $23.4 million for the nine months
ended September 30, 2002, or 31% of consolidated revenue, decreased from $25.9
million, or 57% of consolidated revenue, in the nine months ended September

30



---



##### 



30, 2001. The decline in
sales, general and administrative expenses as a percentage of revenue is
consistent with managements expectations and future outlook. Sales, general
and administrative expenses are not expected to increase in proportion to our
expected future revenue growth.

The most significant reason for this $2.5 million decrease was due to lower
overall compensation expense in the nine months ended September 30, 2002 as
compared to the same period of 2001. The following describes the components of
compensation expense that contributed to the decrease:



| |  | $2.3 million decrease in incentive compensation expense from period to
period. Throughout the nine months ended September 30, 2001, our
results significantly exceeded our bonus-plan targets and this was
reflected in the higher incentive compensation accruals for that
period. For 2001, the bonus plan did not have upper limits
established for payouts. In the quarter ended March 31, 2002, when
the Board of Directors approved 2001 bonuses, the payouts were
approximately $0.6 million below the December 31, 2001 accrued amount.
As a result, we recorded a $0.6 million credit to our operating
results in the first quarter of 2002. Further, in 2002 we have
established limits on incentive plan payouts and we have substantially
increased our financial targets that must be achieved to pay bonuses
in full. Accordingly, the incentive compensation expense accrued for
the nine months ended September 30, 2002, excluding the above credit,
was $1.7 million lower than for the same period of 2001.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | $1.4 million of non-cash compensation expense in the nine months ended
September 30, 2001 as a result of variable accounting treatment on the
underlying securities of our Chief Executive Officers promissory
note. This promissory note was amended in August 2001 resulting in
fixed accounting treatment for the underlying securities going forward
and therefore no such charge was recorded in the nine months ended
September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
| |  | Partially offsetting these cost decreases were employee salary and
benefits costs that were approximately $1.2 million more in the nine
months ended September 30, 2002 as compared to the nine months ended
September 30, 2001. These increased costs were primarily the result
of more employees at the period ending September 30, 2002 compared to
2001, reflecting the overall business growth, and increased health
insurance costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Loss on Impaired Investment

In June 2001, we determined that the value of our minority investment in
another company was impaired after its merger with a third company.
Accordingly, we wrote down the investment to its estimated fair value of $0.25
million, recording $0.35 million as a non-operating loss on impaired investment
in the nine month period ended September 30, 2001. In
December 2001, we wrote off the remaining $0.25 million investment
due to additional changes to the investment and the underlying
financial condition of that company.

Interest and Other Non-Operating Income

Interest and other non-operating income consists of interest earned on cash and
cash equivalents and restricted cash, as well as other non-operating income
including late fees and penalties. Interest and other non-operating income was
approximately $0.6 million in the nine months ended September 30, 2002 and $0.5
million in the nine months ended September 30, 2001. In the nine months ended
September 30, 2002, we earned approximately $0.2 million of income related to
penalties charged to Lenders resulting from the program to find closed-loan
transactions that were not reported through the normal reporting process.

Interest Expense, Financing and Other Charges

Interest expense, financing and other charges were approximately $0.3 million
and $0.7 million for nine months ended September 30, 2002 and 2001,
respectively. This line item consists of bank service charges, interest on
capital leases and borrowings and other expenses related to our credit
facilities. The decrease is primarily due to warrant and other charges
incurred in the quarter ended September 30, 2001 related to the termination of
a credit facility.

Dividends and Accretion of Series A Convertible Preferred Stock

The holders of our Series A Preferred Stock are entitled to receive quarterly
dividends on the Series A Preferred Stock equal to eight percent (8%) per annum
of the stated value per share payable at our option (i) in cash or (ii) by
increasing the stated value per share on the dividend payment date. The stated
value per share is the sum of the initial purchase price of $3.50
per share as cumulatively adjusted from time to time by accumulated dividends.
The stated value per share as of September 30, 2002 is approximately $3.80.

31



---



##### 



For the quarter ended March 31, 2002 we had elected to pay the quarterly
dividends by increasing the stated value per share of the Series A Preferred
Stock. As a result of these stated value dividends, for the quarter ended
March 31, 2002, we increased the carrying value of the Series A Preferred Stock
on our balance sheet by $0.6 million. We also recognized, as an increase to
our net loss attributable to common shareholders, an additional $1.4 million of
dividend charges resulting from the excess of the fair value of the common
stock that the 8% dividends on the Series A Preferred Stock will convert into
over the $3.50 conversion price that will be paid upon such conversion.

In each of the quarters ended September 30, 2002 and June 30, 2002, we elected
to pay the quarterly dividends in cash. This resulted in a $0.5 million charge
to our consolidated statements of operations in each of the three-month periods
ended September 30, 2002 and June 30, 2002. For both of these periods, as a
result of paying cash dividends and not additional stated value, we did not
incur any additional fair value dividend charges.

In the aggregate, for the nine months ended September 30, 2002, we recorded a
total of approximately $3.0 million of cash and fair value dividend charges.

During the nine months ended September 30, 2001, we had elected to pay the two
scheduled dividends by increasing the stated value per share of the Series A
Preferred Stock. The first dividend was paid on June 30, 2001 (for the period
from issuance, March 20, 2001) and the second dividend was paid on September
30, 2001. We increased the carrying value of the Series A Preferred Stock on
our balance sheet by approximately $1.0 million. We also recognized, as an
increase to our net loss attributable to common shareholders, an additional
$0.5 million of dividend charges resulting from the excess of the fair value of
the common stock that the 8% dividends on the Series A Preferred Stock will
convert into over the $3.50 conversion price that will be paid upon such
conversion. Therefore, for the nine months ended September 30, 2001, we
recorded a total of $1.5 million of cash and fair value dividend charges.

Beginning March 20, 2004, at our option, the shares of Series A Preferred Stock
will be redeemable for cash at a price per share equal to the applicable
percentage multiplied by the then current value per share. The applicable
percentage is initially 120% and declines to 105% on a quarterly basis over the
two-year period ending March 21, 2006. If we continue to pay quarterly cash
dividends, on March 20, 2004 the shares of Series A Preferred Stock will be
redeemable for cash at a price per share of $4.56 and will decline to a price
per share of $3.99 at March 21, 2006. Currently, and until redeemed, each
share of Series A Preferred Stock is convertible at the option of the holder at
any time into the number of shares of common stock as is determined by dividing
the current value per share by the conversion price of $3.50. The current value per
share is defined as the stated value per share (see above), plus cumulative
adjustments for dividends.

We are required to redeem all Series A Preferred Stock shares remaining
outstanding on March 20, 2006 at a price of 105% of the then current value per
share. Accordingly, we are accreting the value of the Series A Preferred Stock
up to the redemption value of the shares using the effective interest method.
This is increasing the carrying value of the Series A Preferred Stock and the
charge is included in the computation of net loss attributable to common
shareholders. In the nine months ended September 30, 2002 and 2001, we
recorded approximately $0.5 million and $0.4 million, respectively, of
accretion charges.

Application of Critical Accounting Policies

Significant Accounting Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and judgments that
affect the reported amounts of our assets, liabilities, revenues and expenses.
We base our estimates and judgments on historical experience and on various
other assumptions that we believe are reasonable under the circumstances. We
evaluate our estimates and refine our judgments on an ongoing basis as actual
results and experiences develop. Actual results could differ from our
estimates.

The most significant accounting estimates effect our financial position and
results of operations and financial condition in the following ways:



| |  | Under our incentive compensation plan for the 2002 calendar year,
employees can earn bonus awards based on a combination of our achievement
of certain revenue and earnings targets for the year and individual
achievement of specified personal goals. Through September 30, 2002,
based on actual results to date and forecasts through the remainder of the
year, we have estimated that we will exceed the incentive plan revenue and
earnings targets for the year. Further, based on historical trends,
management has assumed that employees will achieve 80% of their individual
performance goals. During the year, management makes monthly estimates of
the amount of an award
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

32



---



##### 



| |  | each employee has earned based on our performance
and expected achievement levels by employees relative to their pre-set
goals. These monthly estimates are accrued with a charge to operating
income for that period. The awards are typically paid to the employee
following the completion of a year when actual results are known and
individual performance against goals is evaluated. As of September 30,
2002 we had a $3.3 million accrued liability related to the expected
remaining costs of payouts for the 2002 incentive compensation plan and
had charged $3.5 million to operating income for the nine-month period
ending September 30, 2002. As an example of the impact that changes in
key variables relating to this estimate could have on our financial
results we have calculated the following:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If the companys actual results were to increase
(or decrease) 10% from the current expected revenue and
earnings levels for the year, the expected payout for the year
would increase (or decrease) by approximately $0.2 million and
our incentive compensation charged to operating income through
September 30, 2002 would have been $150,000 higher (or lower).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | If the employees actually achieve 90% (or 70%) of
their individual performance goals instead of the 80% we have
currently estimated, the expected payout for the year would
increase (or decrease) by approximately $0.2 million and our
incentive compensation charged to operating income through
September 30, 2002 would have been $173,000 higher (or lower). 



| |  | We estimate liabilities for payouts under various consumer promotional
programs. At our discretion, we may offer consumers that utilize our
exchange services certain promotional incentives to complete a
transaction. We may offer these consumers the opportunity to receive cash
payments, gift certificates, or other discounts or coupons in the event
they complete a transaction utilizing our services. Although a number of
our consumer promotional programs are determined based on actual
transactional activity in a period, there are others for which we estimate
a liability for the expected cost of the payouts based on the number of
consumers the promotions are being offered to, historical levels of
completed transactions and the rate at which consumers have historically
responded to the same or similar promotions. As of September 30, 2002 we
had $1.1 million of liabilities recorded related to expected costs of
payouts for consumer promotions and had charged $4.9 million to operating
income for the nine month period ending September 30, 2002. As an example
of the impact that changes in key variables relating to this estimate
could have on our financial results we have calculated the following:
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If the estimated rate at which consumers respond to
our promotions were to increase 10% from the estimated rates we
are using at September 30, 2002, the accrual for consumer
promotion payouts would increase less than $0.1 million,
resulting in an additional charge to cost of revenue of the
same amount.      
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Conversely, if the estimated rate at which
consumers respond to our promotions were to decrease 10% from
the estimated rates we are using at September 30, 2002, the
accrual for consumer promotion payouts would decrease less than
$0.1 million, resulting in a lower charge to cost of revenue of
the same amount.



| |  | For most of our Lend-X technology arrangements, we host our Lend-X
technology for use by third parties that pay us various fees for the right
to access and use our software. For each arrangement we estimate the term
that the customer will use our services and recognize the applicable
revenue and costs over that period if it is longer than the stated term of
the related contract. Our estimates of the expected arrangement term vary
by customer and type of service we agree to provide, but are generally
between one and three years. If the expected term of any
arrangement were to be extended beyond our current estimates, we would
defer the remaining revenue and costs of that arrangement and recognize
them over that new term.                                                                                                                                                                                                                                                                                                                                                         
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Our allowance for doubtful accounts is an estimate based on our
assessment of the collectibility of specific customer accounts, the aging
of accounts receivable and our historical trends related to uncollectible
receivables and other available evidence. When management determines that
there is substantial doubt about the collectibility of a specific customer
account, we provide a reserve for the amount that we estimate to be
uncollectible. Additionally, based on historical experience, management
estimates a reserve of 2% of the accounts receivable balance to provide
for the probable losses inherent in the accounts receivable balance. As
of September 30, 2002 our allowance for doubtful accounts was
approximately $0.3 million and for the nine months ended September 30,
2002, we had recorded bad debt expense of $0.3 million. If there were a
deterioration of our customers credit worthiness or if actual defaults
were higher than our historical experience, our allowance for doubtful
accounts could be insufficient and additional bad debt expense would be
incurred.

33



---



##### 



Liquidity and Capital Resources

As of September 30, 2002, we had approximately $13.7 million in total cash,
consisting of $4.1 million in cash and cash equivalents and $9.6 million in
restricted cash.

Restricted cash at September 30, 2002 of $9.6 million primarily includes funds
that are maintained in an escrow account. This escrow account was established
by us and our advertising agency to maintain funds set aside by us for current
and future expenditures by our advertising agency. Disbursements from the
escrow account can only be made for advertising expenditures we have approved
in advance. As of September 30, 2002, the balance in this escrow account
covers our September 2002 and some fourth quarter media expenditures. We
anticipate that advertising costs will continue to represent a significant
portion of operating expenses and that we will continue to be required to set
aside funds in order to secure favorable advertising spots at reasonable costs.

Restricted cash at September 30, 2002 also includes $1.6 million that was held
in an escrow account at our bank. The escrowed funds are pledged as security
for a letter of credit issued by our bank in August 2002. The letter of credit
expires December 31, 2003 and was issued by the bank to a bonding company that
provides surety bonds in the various states where we are licensed to do
business. The various states require surety bonds, in amounts ranging from
$5,000 to $150,000, as a part of their mortgage broker or loan originator
regulations.

During the nine months ended September 30, 2002 we generated $0.8 million of
cash from operations. We classify deposits to and uses of restricted cash as
investing activities. Including the net changes in restricted cash with cash
provided by operating activities, our cash required for the nine months ended
September 30, 2002 was $6.0 million. As of September 20, 2002, we had $13.7
million in total cash.

As described below in Part II, Item 2, in April 2002, we sold $5.9 million of
common stock in a private placement transaction. Additionally, during the nine
months ended September 30, 2002, we received $3.6 million from the exercise of
stock options.

We have the following additional sources of financing in place:



| |  |  | A revolving credit facility with GE Capital Commercial Services, Inc.
(GE) that provides a maximum availability of up to $15.0 million.
Under this arrangement, we have pledged our trade accounts receivable
and borrowings are limited to 90% of our eligible accounts receivable
and bear interest at the prime rate. As of September 30, 2002 we had
eligible receivables of approximately $7.0 million and we had no
borrowings outstanding under this facility. Our eligible receivables at
September 30, 2002 excluded approximately $9.4 million of invoices
related to September receivables that in the normal course of business
were not transmitted to and approved by GE until October 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | An equity line whereby we may, at our discretion, sell shares of our
common stock to an investor from time-to-time subject to maximum sale
limitations in any one monthly period with a term ending March 6, 2003.
If we choose to drawdown the equity line, the minimum amount of any
drawdown is $0.1 million and the maximum amount is the greater of (i)
$1.0 million or (ii) 20% of the average of the daily volume weighted
average price of our common
stock for the twenty-two (22) day trading period immediately prior to the
date we request a drawdown multiplied by the total trading volume of the
common stock for such period. Only one drawdown is allowed in each period
of 22 trading days beginning on the date of the drawdown notice. Subject
to certain adjustments, the number of shares to be issued on each
settlement date will be a number of shares equal to the sum of the
quotients (for each trading day within the settlement period) of (x)
1/22nd of the investment amount and (y) the purchase price on each trading
day within the settlement period. As of September 30, 2002 we have not
used this equity line. Further, based on our current cash position and
projected financial results, the likelihood of any use of this equity
line, in managements judgment, is remote.

We believe that the existing cash and cash equivalents, restricted cash, the
availability of the revolving credit facility noted above, as well as cash
generated from operations will be sufficient to fund our ongoing operating and
capital needs over the next year, including the payment of cash dividends to
the holders of our Series A Preferred Stock. We believe cash from operations
will be generated from revenue growth resulting from the continued growth in
the lending market, expansion of our network of Lenders and by more consumers
utilizing our Exchange. We expect to be able to drive more consumers to our
Exchange by leveraging our existing high brand awareness, attracting more
consumers through a number of new initiatives, including the expansion of our
telephone channel, utilizing our product-focused advertisements and by
developing business relationships with significant web-portals and other
financially oriented on-line businesses.

34



---



##### 



Although we have historically experienced significant revenue growth and have
generated positive net income in the third quarter of 2002, the operating
results for future periods are still subject to numerous uncertainties. There
can be no assurance that revenue growth will continue or that we will be able
to sustain profitability. Our liquidity could be significantly affected if
this does not happen.

On August 30, 2002, we terminated our revolving loan agreement with the Federal
Home Loan Mortgage Corporation. We had never borrowed money under this
revolving loan and based on our favorable operating results and improved
outlook, we determined that it was highly unlikely we would ever use the line.

Significant Customers and Concentrations

No customer accounted for greater than 10% of our accounts receivable balance
as of September 30, 2002 or 2001. Additionally, no customer accounted for more
than 10% of our Lending exchange revenue in the quarters or nine months ended
September 30, 2002 or September 30, 2001.

For the quarter ended September 30, 2002, two customers accounted for 19% and
11%, respectively, of our total Lend-X technology revenue. For the quarter
ended September 30, 2001 two customers accounted for 43% and 28%, respectively,
of our total Lend-X technology revenue.

For the nine months ended September 30, 2002, two customers accounted for 47%
and 15%, respectively, of our total Lend-X technology revenue. For the nine
months ended September 30, 2001 two customers accounted for 42% and 29% of our
total Lend-X technology revenue.

Income Taxes

LendingTree has not generated taxable income for federal or state purposes to
date and therefore has not paid any federal or state income taxes since
inception. Utilization of our net operating loss carryforwards, which begin to
expire in 2011, may be subject to certain limitations under Section 382 of the
Internal Revenue Code of 1986, as amended. We have provided a full valuation
allowance on the deferred tax asset, consisting primarily of net operating loss
carryforwards, due to the uncertainty regarding its realization.

Subsequent Event

We received and accepted the resignation of Robert
Kennedy as a director, effective November 13, 2002. There was no
disagreement between the director and the Company.

Forward-Looking Statements and Certain Risks

This quarterly report on Form 10-Q contains certain forward-looking statements
and information based on our beliefs as well as assumptions made by, and
information currently available to us. Many statements made in the 10-Q are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not
based on historical facts but are based on beliefs as well as assumptions made
by us and information currently available to us. The words expects,
anticipates, estimates, intends, believes, plans and
similar expressions are intended to identify forward-looking statements. These
statements include, among others, those relating to our belief that we will
have sufficient sources of liquidity to fund our operations through 2002; our
expectation that sales, general and administrative expenses will not increase
in proportion to our expected future revenue growth; our plans to reduce
discretionary expenditures if our revenues do not grow as anticipated or if we
have a liquidity shortfall; our expectation that the adoption of SFAS 146 will
not have a material impact on our results of operations, our financial
condition or our cash flows; our belief that our pending litigation will not
have an outcome that will have a material adverse effect on our financial
condition, cash flows or results of operations; our intention to use the
proceeds from our private placement of common stock for general corporate
purposes, including the cash payment of quarterly dividends to the holders of
our Series A Preferred Stock; our expectation that the impact of our new
program to identify loans that closed due to our transmissions that were not
reported to us in our normal reporting process will decrease in the future; our
belief that improvements in our key operating metrics and the growth in online
lending will more than offset decreases in our business caused by lower levels
of consumer refinance activity; our belief that our initiatives designed to
improve the rate at which loans close through our exchange will be effective;
our expectation that if our mortgage close rates remain at or near current
levels that the higher transmission volume in the year to date period for 2002
as compared to 2001 will result in higher closed mortgage loan revenue for the
remainder of the year and compared to the same period of 2001; our expectation
that advertising costs will continue to represent a significant portion of our
operating expenses; our intention to continue to use cable television and
network radio in our core advertising strategy; our belief that we will be able
to draw more customers to our Exchange; and our belief that the costs
associated with our Realty Services Exchange segment will continue to decrease
as a percentage of Realty Services revenues. Our actual results could differ
materially from the results discussed in any of our forward-looking statements.
We are not undertaking to publicly update or revise any forward-looking
statement if we obtain new information or upon the occurrence of future events
or otherwise.

35



---



##### 



The forward-looking statements reflect our current views with respect to future
events and are subject to a number of risks, including, among others, the
following: risks related to our financial condition; risks related to our
markets and strategy; risks related to the Internet and our technology
infrastructure; risks related to legal and regulatory uncertainty; and risks
related to our stock price and corporate control.

Risks related to our financial condition include the following: our limited
operating history makes our business and prospects difficult to evaluate; we
have a history of losses prior to the third quarter ended September 30, 2002;
the long-term viability of our business model is unproven and could fail; the
estimates and judgments we use in preparing our financial statements may be
incorrect or need adjustment; our operating results may be negatively impacted
by fluctuations in interest rates; our quarterly operating results are not an
indication of our future results; we may not be able to achieve our projected
financial and operating results, which could cause a decline in our stock
price; and certain of our assets are subject to encumbrances.

Risks related to our markets and strategy include the following: our future
success is dependent upon increased acceptance of the Internet by consumers and
lenders as a medium for lending; Lenders in our network are not precluded from
offering consumer credit products outside of our exchange; if our participating
Lenders do not provide competitive levels of service to our consumers, our
brand will be harmed and our ability to attract consumers to our website will
be limited; we may not be able to manage our expanding operations effectively;
if we are unable to maintain our brand recognition or high levels of consumer
satisfaction, consumer and lender demand for our service may decrease; to the
extent that mortgage interest rates climb or other factors beyond our control
influence consumer behavior, we may not be able to sustain the historical
trends in our growth rates; and our business could suffer if we lose the
services of Douglas R. Lebda, our Chief Executive Officer.

Risks related to the Internet and our technology infrastructure include the
following: we may experience reduced visitor traffic, reduced revenue and harm
to our reputation in the event of unexpected network interruptions caused by
system failures; breaches of our network security could subject us to increased
operating costs as well as litigation and other liabilities; and failure to
protect our intellectual property rights could impair our ability to compete
effectively.

Risk related to legal and regulatory uncertainty include the following: we may
be subject to liability or legal claims relating to information that is posted
on our website or on websites linked to our website; our failure to comply with
laws governing our service or material changes in the regulatory environment
relating to the Internet could have a material adverse effect on our business;
many states require us to obtain licenses to offer our products and we may not
be able to obtain or retain licenses in every state; some state regulations
impose filing obligations on some of our largest stockholders and customers, we
may be unable to obtain or maintain necessary licenses in these states for
reasons beyond our control, if any of these parties fail to comply with these
filing obligations; we may not be able to satisfy state or federal net worth or
bond
requirements necessary to obtain or maintain required licenses; regulation of
the Internet is unsettled, and future regulations could inhibit the growth of
the Internet, decrease the number of visitors to our website or otherwise
materially adversely affect our business; we may be limited or restricted in
the way we establish and maintain our online or offline relationships by laws
generally applicable to our business; and we may be liable for damages
resulting from infringement of third parties intellectual property rights.

Risks related to our stock price and corporate control include the following:
sales of substantial amounts of our common stock in the public market,
including shares issuable upon the conversion of shares of our Series A
Preferred Stock, could have an adverse impact on the market price of our common
stock; holders of our Series A Preferred Stock have greater rights and
preferences than our common shareholders; if our common stock price drops
significantly, we may be delisted from the NASDAQ National Market, which could
eliminate the trading market for our common stock; it may be difficult for a
third party to acquire us, which could depress our stock price; our executive
officers and directors and entities affiliated with them, whose interests may
differ from other shareholders, have the ability to exercise significant
control over us; the price of our common stock may be volatile; and agreements
with our creditors and preferred stockholders restrict our ability to pay
dividends.

36



---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk

On July 13, 2001, LendingTree and GE Capital Commercial Services, Inc. entered
into a loan and security agreement and revolving credit note. Under these
arrangements, borrowings will bear interest at the prime rate determined on the
last business day of the preceding calendar month. As of September 30, 2002
the interest rate in effect for us was 4.75% and we had no borrowings
outstanding under this facility. With assumed average borrowings outstanding
of $2.0 million over a 12-month period, a 1.0% increase in the prime rate would
result in additional interest expense of approximately $20,000 during that
period.

We currently hold no derivative instruments and do not earn foreign-sourced
income. All of our transactions occur in U.S. dollars and we do not have any
investments in foreign countries. Accordingly, changes in currency exchange
rates related to these types of transactions do not have a direct effect on our
financial position or results of operations.

We are subject to market risk due to the terms of our Series A Preferred Stock.
If we elect to pay dividends on our Series A Preferred Stock by increasing the
stated value per share, we will record an expense based on the fair value of
the underlying common stock into which the preferred shares are convertible.
For the quarter ended March 31, 2002, we recorded $1.4 million of dividend
charges related to the changes in the fair value of our common stock underlying
the Series A Preferred Stock. For the quarters ended June 30, 2002 and
September 30, 2002, we did not record these additional charges as we elected to
settle the quarterly dividend obligation in cash rather than by an increase to
the stated value. If, in the future, we were to settle the dividend
obligations by increasing the stated value of the preferred stock, and if the
market price of our common stock were to stay above $3.50, we would continue to
incur additional fair value charges. If we continue to pay cash dividends, we
would incur total dividend charges of approximately $1.8 million during the
next twelve-month period.

Item 4. Controls and Procedures

Within the 90-day period prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the
Exchange Act). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective in recording, processing, summarizing and reporting information
required to be disclosed by the Company (including consolidated subsidiaries)
in our Exchange Act filings.

There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date we carried out our evaluation.

37



---



##### 



PART II  Other Information

Item 1. Legal Proceedings

On September 10, 2001, Block Financial Corporation, or Block, filed a complaint
in the United States District Court for the Western District of Missouri [Block
Financial Corporation v. LendingTree, Inc., Case Number 01-1007-CV-W-3],
against us, alleging that our financial card (credit card) qualification form
processing system infringes its U.S. Patent No. 6,014,645 entitled, Real-Time
Financial Card Application System. The complaint seeks both monetary damages
in the form of a reasonable royalty and injunctive relief. On November 19,
2001, we filed an answer to the complaint denying infringement of the Block
patent. We also filed a counterclaim against Block seeking a declaratory
judgment of non-infringement and invalidity of the Block patent. In addition,
we have filed a request with the United States Patent Office (USPTO) seeking
a re-examination of Blocks patent in light of prior art which was not
cited in the original patent. The request was granted in August of this year
and the USPTO is currently re-examining the Block patent. We also sought and
received an Order from the federal district court where the case is pending to
stay further discovery in the proceedings until the USPTO completes its
re-examination of the Block patent. While the lawsuit is in an early stage, we
believe that we have meritorious defenses to Blocks claim and we do not
believe that this action will have a material impact on our financial
condition, cash flows or results of operations.

We are involved in other litigation from time to time that is routine in nature
and incidental to the conduct of its business. We believe that the outcome of
any such litigation would not have a material adverse effect on our financial
condition, cash flows or results of operations.

Item 2. Changes in Securities and Use of Proceeds

On April 16, 2002, we issued a total of 500,000 shares of common stock to three
institutional and accredited investors in a private placement exempt under
Section 4(2) of the Securities Act of 1933 and Rule 506 thereunder for gross
proceeds of $5.9 million. Allen & Company acted as placement agent and
received a fee of $237,600. We are using the proceeds for general corporate
purposes, including the cash payment of dividends to the holders of our Series
A Preferred Stock. We filed a registration statement covering resales of the
common stock by investors on May 31, 2002 and this registration statement was
declared effective by the Commission on June 11, 2002.

During the nine months ended September 30, 2002, we issued a total of 919,894
shares of common stock upon the conversion of shares of our Series A Preferred
Stock. Such securities were acquired in a private placement transaction under
Section 4(2) of the Securities Act of 1933. We received no cash proceeds upon
such conversions.

During the nine months ended September 30, 2002, we issued a total of 404,355
shares of common stock upon the exercise of outstanding warrants. Such
securities were acquired in a private placement transaction under Section 4(2)
of the Securities Act of 1933. We received cash proceeds totaling $45,800 upon
payment of the applicable exercise prices. We are using such proceeds for
general corporate purposes.

From time to time the Companys officers,
directors and Affiliates may enter into Company approved 10b5-1 stock
trading plans which allow them to engage in transactions of Company
stock outside of Company prescribed stock trading windows.

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

(a)  Exhibits:

|       |  |                                                                                                                                                                                  
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NUMBER |  | DESCRIPTION                                                                                                                                                                      
|       |  |                                                                                                                                                                                  
|99.1   |  | Letter terminating the revolving credit facility dated March 7, 2001 by
and between LendingTree, Inc. and the Federal Home Loan Mortgage
Corporation                             
|99.2   |  | Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K:

On August 14, 2002, we filed a report on Form 8-K to disclose the
certification of the Chief Executive Officer and the Chief Financial
Officer of LendingTree, Inc. pursuant to 10 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 covering
the Form 10-Q Quarterly Report for the period ending June 30, 2002.

On September 9, 2002, we filed a report on Form 8-K to report that we had
issued a press release revising our guidance covering our expected third
quarter 2002 results of operations.

On October 22, 2002, we filed a report on Form 8-K to report that we had
issued a press release announcing our financial results for the third
quarter 2002.

38



---



##### 



SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                        |  |                   |  |                                                                            
|----------------------- |  | ----------------- |  | ---------------------------------------------------------------------------
|                        |  | LENDINGTREE, INC.
|                        |  |                   |  |                                                                            
|Date: November 13, 2002 |  | By:               |  | /s/ Keith B. Hall                                                          
|                        |  |                   |  |                                                                            
|                        |  |                   |  | Keith B. Hall, Senior Vice President,
Chief Financial Officer and Treasurer

39



---



##### 



CERTIFICATIONS

I, Douglas R. Lebda, Chief Executive Officer, certify that



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of
LendingTree, Inc.;                                                                                                                                                                                                                                                      
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of LendingTree, Inc. as of, and for, the
periods presented in this quarterly report;                
|
| | 4. |  | LendingTree, Inc.s other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
LendingTree, Inc. and we have:                                                                                               

|   |  |                                                                                                                                                                                                                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | designed such disclosure controls and procedures to
ensure that material information related to LendingTree, Inc.,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
|   |  |                                                                                                                                                                                                                                                                                                  
|b) |  | evaluated the effectiveness of LendingTree, Inc.s
disclosure controls and procedures as of a date within 90 days
of the filing date of this quarterly report (Evaluation
Date); and                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                  
|c) |  | presented in this quarterly report our conclusions
about the effectiveness of LendingTree, Inc.s disclosure
controls and procedures as of the Evaluation Date;                                                                                                                                  



| | 5. |  | LendingTrees other certifying officers and I have disclosed,
based on our most recent evaluation, to LendingTrees auditors and
the audit committee of LendingTrees board of directors:
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |  |                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect our
ability to record, process, summarize and report financial data
and have identified for LendingTrees auditors any material
weaknesses in internal controls; and
|   |  |                                                                                                                                                                                                                                                                               
|b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
LendingTrees internal controls; and                                                                                                                           



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

|                        |  |                        
|----------------------- |  | -----------------------
|Date: November 13, 2002 |  |                        
|                        |  |                        
|                        |  | /s/ Douglas R. Lebda   
|                        |  | Douglas R. Lebda       
|                        |  | Chief Executive Officer

40



---



##### 



I, Keith B. Hall, Senior Vice President and Chief Financial Officer, certify
that



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of
LendingTree, Inc.;                                                                                                                                                                                                                                                      
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of LendingTree, Inc. as of, and for, the
periods presented in this quarterly report;                
|
| | 4. |  | LendingTree, Inc.s other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
LendingTree, Inc. and we have:                                                                                               

|   |  |                                                                                                                                                                                                                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | designed such disclosure controls and procedures to
ensure that material information related to LendingTree, Inc.,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
|   |  |                                                                                                                                                                                                                                                                                                  
|b) |  | evaluated the effectiveness of LendingTree, Inc.s
disclosure controls and procedures as of a date within 90 days
of the filing date of this quarterly report (Evaluation
Date); and                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                  
|c) |  | presented in this quarterly report our conclusions
about the effectiveness of LendingTree, Inc.s disclosure
controls and procedures as of the Evaluation Date;                                                                                                                                  



| | 5. |  | LendingTrees other certifying officers and I have disclosed,
based on our most recent evaluation, to LendingTrees auditors and
the audit committee of LendingTrees board of directors:
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) all significant deficiencies in the design or operation of
internal controls which could adversely affect our ability to
record, process, summarize and report financial data and have
identified for LendingTrees auditors any material weaknesses in
internal controls; and
|                                                                                                                                                                                                                                                                                 
|b) any fraud, whether or not material, that involves management or
other employees who have a significant role in LendingTrees
internal controls; and                                                                                                                           



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

|      |  |                   |  |                                                  
|----- |  | ----------------- |  | -------------------------------------------------
|Date: |  | November 13, 2002 |  |                                                  
|      |  |                   |  |                                                  
|      |  |                   |  | /s/ Keith B. Hall                                
|      |  |                   |  | Keith B. Hall                                    
|      |  |                   |  | Senior Vice President and Chief Financial Officer

41